Index trend
Previous Quarterly Editions
Expropriation risk: 55 55 54 54 ► Political violence risk:51 51 51 51 ►Terrorism risk:62 70 70 70 ►Exchange transfer and trade sanction risk: 64 63 63 63 ►Sovereign default risk:74 74 74 74 ►
Overall Risk Temperature: 65 (Medium high) TREND ►
Special topic: Relationship with the 'global rules-based order'
Kenya has a complicated relationship with the global rules-based order. President William Ruto went to great lengths to stress his commitment to maintaining healthy relations with Western governments and institutions since he declared his intention to run for the presidency in 2019.
Since winning power, Ruto has continued in this vein. He has committed to democratic governance and global norms and institutions. His response to the country’s growing debt crisis is one example of this. Despite pressure from Kenyan citizens and opposition led by his rival, Raila Odinga, Ruto has consistently maintained that his government will do whatever is necessary to meet its debt obligations. Kenyan leaders have tended to feel closer to the U.K. and the U.S. and to employ British and U.S. growth models rather than the African socialism that was popular in much of Eastern Africa following independence.
However, Ruto’s support for the liberal international order is not deep or principled. He could alter his position if domestic conditions change. This concern is rooted in events around the 2007 general elections when Ruto and Uhuru Kenyatta were implicated in a damaging cycle of post-election violence that led to over 1,000 deaths and over 600,000 people being displaced. When Ruto and Kenyatta were indicted by the International Criminal Court (ICC) on charges of crimes against humanity, the two leaders formed a political pact to protect themselves from prosecution. They attacked the legitimacy of the ICC and encouraged other African countries to withdraw from the court. Then, ahead of the 2013 general elections, Kenyatta and Ruto’s Jubilee Alliance explicitly attacked governments that were seen to be supporting their prosecution, accusing them of infringing on Kenyan sovereignty.
Ruto has not used such highly charged rhetoric since becoming president, but that may be because the international community recognized that his election victory was legitimate. What he has raised publicly is his frustration with certain aspects of the global economic and political system, arguing that Africa has tended to be marginalized in forums such as the United Nations, World Bank, International Monetary Fund (IMF) and the World Trade Organization. In doing so, he has joined forces with other African leaders, such as President Nana Akufo Addo of Ghana and Hakainde Hichilema of Zambia, to call for a change to the way that multilateral political and economic institutions operate. These leaders recently co-authored an op-ed for the Economist that argues that the current global finance system needs to be overhauled to build a fairer model and provide African states with cheaper credit. Although other African leaders have been highly critical of global capitalism and have explicitly challenged the position of Western governments on issues such as reparations and the conflicts in Ukraine and Gaza, Ruto has been less outspoken on these issues. His emphasis has been more on the need for greater African unity and coordination to secure greater traction in international arenas than on their faults or injustices. Ruto, Hichilema and Akufo Addo have announced, for example, that the inaugural African Economic Summit will be held in Nairobi in 2025.
Ruto’s statements on this issue thus far suggest that his efforts aim to reform these bodies rather than undermine or overthrow them. This could change if Ruto comes to believe that being aligned with Western powers is no longer in his interest. It could happen, for example, if he adopts increasingly repressive strategies to retain power in the face of rising public discontent, and the international community criticizes him. If this comes to pass — and especially if Ruto does not receive Western support in his attempts to manage the country’s debt burden — he may be tempted to revert to the strategy of boosting his support base by attacking Western powers and seeking stronger ties with countries such as China and Russia.
TREND ►
The IMF expects Kenya to grow at 5% in 2024, down from an estimated 5.1% in 2023. One reason for this is that foreign direct investment continues to be a struggle. In part, this is due to concerns about political instability if the rapprochement between Ruto and long-time opposition leader Raila Odinga is not sustained. Another reason is growing investor concerns about the capacity of the government to manage its debt commitments. This is despite considerable interest in green energy, telecommunications, agriculture, oil and gas. Although the central bank recently announced that it expects foreign direct investment to increase between 2023 and 2024, it continues to represent between 0.3% and 0.4% of GDP, significantly down from the 3.1% recorded in 2010.
As he did after the 2017 general elections, Odinga used street protests to force the government into negotiations on issues of concern to the opposition, including measures that would strengthen Odinga’s own position. This time, the pressure led to Ruto agreeing to form the National Dialogue Committee (NADCO), which recently published its report. The text includes measures designed to pacify the opposition, including the creation of a new position of “leader of the opposition” (presumptively for Odinga), an audit of the 2022 elections, and the restructuring of the Independent Electoral and Boundaries Commission (IEBC). Ruto has also supported Odinga’s ambition to become the chairperson of the African Union. As a result, political violence has significantly declined, and relations between the two leaders are cordial. There are barriers to the effective implementation of the NADCO report. There are disagreements on how this should be done both between and within the main political parties. The Supreme Court could also strike down some of the changes, especially those that relate to the constitution. If this were to happen, a further round of destabilizing protests is more likely than not.
Terrorism attacks committed by the Islamist extremist Al-Shabaab group have continued but have been largely restricted to Garissa, Mandera and Lamu counties. A successful attack on the capital, Nairobi, is a significant risk. The insecurity around the Kenya/Somali border dents trade and the government’s ability to ever deliver on major infrastructural programs planned for the region, such as the Lamu Port-South Sudan-Ethiopia-Transport Corridor and the port at Lamu.
The central bank has continued to increase interest rates in a bid to restrain inflation, which has started to decline. The official inflation rate fell from 6.85% in January to 6.31% in February, the lowest figure for a year. Despite this, the interest rate was increased from 12.5% to 13% in February 2024, in a largely unexpected move. This represented the third increase since the new central bank governor was appointed in June 2023 and took rates to a 12-year high.
A new Eurobond issue worth $1.5 billion helped to calm growing concerns that Kenya would default when a Eurobond worth $2 billion matures in June; however, the debt situation remains perilous. The debt now stands at $76.6 billion, up from $63.2 billion in 2022, and debt service payments now account for almost 60% of revenues, meaning that the government lacks resources to provide basic public services. One of the main problems that Ruto faces in reducing the debt burden is that a number of the new taxes and fees he introduced to increase government revenues have been highly unpopular with citizens and struck down by the courts.
