12 September 2017

Kenya Growth Outlook Falls Below 5% on Poll Uncertainty

Prolonged politicking associated with an inconclusive Kenya's presidential election is expected to slow down economic growth to below five per cent this year, making it the lowest rate of expansion since 2012, economists said.

The outlook is hinged on the expected slowdown in public investment that has been a key driver of growth in recent years, in the wake of a slump in private sector activity that began three years ago.

Economists at Stanbic Bank have become the latest to downgrade Kenya's growth projection to 4.8 per cent from 5.2 per cent previously, citing a slowdown in public investment in infrastructure development and a drop in private sector activity for the fourth straight month in August.

Citi Research Economics has also cited prolonged political uncertainty as reason for their decision to slash its growth forecast to below five per cent from 5.2 per cent in the run up to the August 8 polls and 5.8 per cent earlier in the year.

The new outlook is also largely based on the slowdown in agriculture, construction and tourism sectors, and a decline in private sector credit growth to 2.1 per cent in May from over 17 per cent in December 2017.

The increase in inflationary pressure that came with persistent drought between May and August has also slowed down growth, the Citi report says.

"Having highlighted these concerns, it is still worth stressing that we think the overall economic slowdown has remained moderate to date. We would now not be surprised if growth fell below five per cent for the year, which would be the lowest level since 2012 when it was only 4.6 per cent," Citi says in Africa Economics & Strategy Weekly report.

Many economists see the Supreme Court decision to annul the August 8 presidential poll in which President Uhuru Kenyatta had been declared winner, as having put the country into uncharted territory that has paralysed public policy and stalled public investment.

This is because the president is currently a ceremonial office holder with temporary powers until the fresh election planned for October 17 is held and a winner announced.

Opposition National Super Alliance has, however, insisted that "it will not" participate in the polls unless IEBC installs a new team to oversee the exercise.

The ruling Jubilee Party has, however, opposed the project team that IEBC chairman Wafula Chebukati appointed to midwife the repeat poll - further deepening the prospect of electoral turmoil on the economy.

"We have already downgraded our estimate to 4.8 per cent from 5.2 per cent because of two more months of uncertainty and obviously in the first half of the year we had the impact of drought," Stanbic Bank regional economist Jibran Qureishi said in an interview.

"Under the constitution, ....(we have) a temporary incumbent and in this scenario he is unlikely to sign bills into laws. You could potentially expect a lot of public investment into infrastructure that was supporting growth to have been pushed forward to early or first half of 2018," he said.

The IEBC has this week retreated to the resort town of Naivashato iron out sharp divisions among the commissioners, which played out in public through leaked internal memos and counter-memos dismissing the same.

Rating firm Moody's, which last week downgraded Kenya's B1 rating to negative after the Supreme Court decision, also joined the fray saying room for further public infrastructure spending is now limited as a result of temporary incumbency.

"Kenya's constitution allows for a rerun election outcome to be challenged again, but such a scenario would be highly unusual," Moody's said in its weekly credit outlook report.

"A clear and uncontested outcome would positively influence the authority of Kenya's political and policymaking institutions and the credibility of policy, provide a strong mandate for the future president, and reduce the risk of post-election violence."


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