Previous Quarterly Editions
Expropriation Risk: 52 52 52 53 ► Political Violence Risk: 51 51 51 51 ► Terrorism Risk: 60 60 62 64 ▲ Exchange Transfer and Trade Sanction Risk: 55 55 55 55 ► Sovereign Default Risk: 66 66 66 66 ►
TREND ▼
Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Kenya still thinks of itself as a developing country and is reluctant to make sacrifices designed to protect the environment if these moves will also harm economic growth. There is no net-zero target when it comes to emissions and no fixed or absolute target. However, Kenyans are aware of the impact of climate change on their country, which is increasingly suffering droughts. The government submitted an updated Nationally Determined Contribution in December 2020 of 32% emissions reduction compared to business-as-usual levels by 2030 (the previous target was 30% reduction). Moreover, while previous targets were wholly dependent on external support and financing, the government has undertaken to fund meeting part of this target domestically.
In other areas less challenging for economic activity, Kenya has actually played a leading role. For example, it was one of the first countries in the world to ban plastic bags in 2017. This ban has been sustained, and the government claims 80% of the population no longer use plastic carrier bags. Unlike similar measures in other areas, the plastic bag ban has been enforced, with 18 people found guilty of producing or using plastic bags fined USD300 and sentenced to eight months in jail.
One reason these measures have been taken is that Kenya has a significant history of green movements, most notably the Green Belt Movement led by the late Nobel Prize winner, Wangarĩ Maathai. One of the main aims of the Movement was to plant trees and to conserve the environment, which in some cases meant opposing land-grabbing by political elites. However, since Maathai’s death in 2011, the profile of such causes has waned, and none of the main political parties features a strong environmental message.
Climate issues do affect politics in a number of direct ways, most notably through the impact of climate change. Kenya has suffered a recent spate of droughts and it’s currently estimated 2.8 million citizens are food insecure and will need assistance this year. This is partly due to the failure of rainy seasons, thereby denting agricultural performance. Drought has various implications beyond food shortages, most notably increasing competition for land and water, therefore acting as a driver for conflict between rival communities in affected areas.
This is a significant concern in an election year when local tensions and national-level political cleavages interact and there is a serious broader conflict with the potential to drive political instability. Looking ahead, one of the greatest challenges Kenya will face is how to manage the population movement, both from rural to urban areas and from negatively affected rural areas to positively affected ones. This is something the government has yet to develop an effective plan for.
TREND ►
Kenya suffered a decrease in foreign direct investment from USD1.3 billion to USD398 million, a 14-year low. This is expected to have rebounded in 2021 to somewhere around USD700 million, although this would still be significantly down on recent highs. Optimism about growth in 2021-22 is driven by information and computing technology investments and the expansion of Liquid, the largest independent data centre and cloud provider, in Kenya. The COVID-19 pandemic has also inspired the expansion of food delivery companies. Kenya continues to be one of the most effective African states at attracting start-ups and investments in new technologies.
Corruption remains a serious concern, with scandals usually increasing around election time as rival leaders seek to use their access to the state to build up an election ‘war chest’. The issue of corruption is likely to stay in the headlines due to President Uhuru Kenyatta’s frequent attacks on the judiciary for allegedly failing to assist in the fight on graft, blaming judges for the absence of high-profile convictions.
The prospects for political violence have increased as the election campaign ahead of the presidential vote and general elections in August 2022 becomes increasingly close and personal. On the one hand, the ‘government’ candidate Raila Odinga, who has Kenyatta’s support, is slowly closing the poll lead currently enjoyed by Deputy President William Ruto. On the other hand, Kenyatta’s decision publicly to describe his deputy as a corrupt liar has significantly increased the political temperature and suggests a confrontational and aggressive campaign is on the way.
The risk of political violence is exacerbated by the negative impact of COVID-19, and in particular the impact of low tourism levels on employment in the economically significant hospitality sector. The rising cost of living, due to rising food and fuel prices related to both drought in the Horn of Africa and The Russia and Ukraine crisis, will reinforce popular frustration. This could lead to growing support for Ruto and his more ‘anti-system’ message. Although government interventions to ease electricity and fuel prices saw inflation fall to 5.1% in February from 5.4% in January, food inflation (8.7%) and fuel inflation (6.5%) remained significant.
TREND ▲
Greater restrictions on travel appear to have made it more difficult for terrorist groups to operate, and there have been no high-level terrorist attacks in recent months. However, in August, the US government issued a new travel advisory, warning its citizens of both surging COVID-19 cases and the threat of terrorist attacks around the Kenya-Somalia border area.
Since then, a series of attacks that led to around seven deaths and a number of arson attempts in early January have led the government to declare a dusk-to-dawn curfew in Lamu, on the border with Somalia. These incidents are particularly significant because they reflect domestic tensions over control of land, resources, and political
power as much as they do the efforts of the al-Shabaab terrorist network based in Somalia.
There is also concern among security experts that al-Shabaab activity, which is generally believed to have fallen during the pandemic, is likely to increase as travel restrictions ease.
Interest rates have remained at 7%. The government has demonstrated a serious desire to keep inflation within its target range and has a political incentive to do so in an election year. However, the government is likely to struggle to meet this aim given external trends beyond its control, such as drought in the region and the Ukraine-Russia crisis, both of which will push up food and fuel prices further.
One of the main aims of the USD2.34 billion International Monetary Fund package is to enable the Kenyan government to bring its debt burden under greater control. However, the debt-to-gross domestic product ratio is expected to continue to grow. According to the Central Bank of Kenya, the ratio increased from 62% in 2019 to 69% in 2021.
Moreover, there is a serious possibility political instability around the general elections could lead to lower levels of investment and economic growth, further increasing the country’s debt burden. Already, parliamentarians are pushing to raise the country’s debt ceiling, hoping to change the law to increase the state borrowing limit to USD115.04 billion from USD79.64 billion, to fund a rising budget deficit. Should this pass, it is highly likely Kenya will enter debt distress.
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