Previous Quarterly Editions
Expropriation Risk: 51 51 52 52 ► Political Violence Risk: 51 51 51 51 ► Terrorism Risk: 63 60 60 62 ▲ Exchange Transfer and Trade Sanction Risk: 45 55 55 55 ► Sovereign Default Risk: 66 66 66 66 ►
TREND ►
In August, the Court of Appeal ruled 6-1 that the constitutional reforms proposed as part of the government’s Building Bridges Initiative (BBI) were unconstitutional and unlawful. This ruling upheld a prior judgement of the High Court that because the process had been initiated by the president it could not be said to represent a “popular initiative” and therefore had not followed the constitutional protocol for constitutional amendments.
The collapse of the BBI process is an embarrassing defeat for President Uhuru Kenyatta and his former rival turned ally Raila Odinga. Kenyatta and Odinga had hoped to introduce the BBI proposals ahead of the 2022 general elections, creating more senior political positions (such as new posts of prime minister and deputy prime minister) with which to accommodate their sprawling coalition. It is now impossible for the proposed reforms to be introduced ahead of the elections. This will compound the growing public perception that President Kenyatta’s government has largely wasted its time in office, failing to deliver on either economic growth or national infrastructure.
A further challenge for Odinga and Kenyatta is to finalise the electoral alliance that many believe will see Odinga again run for election -- this time at the age of 77. Following the ‘handshake’ between Kenyatta and Odinga that ended their bitter feud (the deal’s precise contents are unknown publicly), it appeared that a broad alliance constructed around Odinga, bringing together some of the influential and wealthy leaders around Kenyatta and the most prominent figures from the opposition National Super Alliance (NASA), would form an unbeatable “grand coalition”. However, a number of NASA leaders seem to have turned their backs on Odinga, instead forming a new grouping called the One Kenya Alliance with Gideon Moi, son of former President Daniel arap Moi.
If both of these groups run candidates, they are likely to divide the vote in a number of areas, increasing the electoral prospects of Deputy President William Ruto. Although Ruto has been increasingly marginalised within government following Odinga and Kenyatta’s rapprochement, he is thought to be one of the most effective strategists in Kenyan politics and has the advantage of being the only prominent leader so far explicitly and clearly to be running for the presidency.
Ruto’s growing popularity is also rooted in a powerful narrative that depicts himself as a self-made man who is fighting for the country’s ‘hustlers’ against a wealthy set of individuals that did not earn their positions but inherited them as part of a lazy and complacent set of ‘dynasties’. This claim is particularly significant because it explicitly attacks not only figures such as Kenyatta, Odinga and Moi -- whose fathers were national leaders -- but also because it represents one of the most comprehensive critiques of the country’s highly unequal and often exploitative political system since independence. As a result, the coming general election is likely to feature class tensions as well as ethnic ones, increasing the prospects for unrest.
One reason that Ruto’s ‘hustler’ narrative has proved to be so effective is that the government has failed to deliver on the key promises it ran on in 2017. Amid the political infighting, there has been little focus on using the funds borrowed since 2013 for their intended purpose, namely strengthening national infrastructure to increase productivity and so make the country’s debt burden sustainable. Combined with the impact of COVID-19 and the closure of much of the lucrative tourist trade, this helps to explain why the unemployment rate doubled in 2020 and has remained high since. According to the World Bank’s Kenya Economic Update, 2 million Kenyans have been pushed into poverty during the pandemic, increasing popular anger at the large gap in income and wealth between the rich and the poor.
Kenya suffered a decrease in foreign direct investment (FDI) in 2019 and 2020. According to the World Investment Report 2021 published by the United Nations Conference on Trade and Development, total FDI fell to USD717mn in 2020, down from USD1.3bn a year before. In addition to concerns about travel and health restrictions, falling FDI was driven by new local participation requirements in a number of industries, including insurance, telecommunication and ICT services.
Corruption also remains a serious concern. Corruption scandals usually increase around election time as rival leaders seek to use their access to the state to build up an election "war chest". Corruption is likely to stay in the headlines due to 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 will increase in the run up to general elections scheduled for August 2022. The formal start of the campaign period is likely to see President Kenyatta and Deputy President Ruto move into formal opposition to one another. In turn, this will exacerbate the threat of violence between Ruto’s Kalenjin community and Kenyatta’s Kikuyu community -- two groups that were involved in some of the worst of the post-election violence in 2007-08.
This is particularly significant in the context of COVID-19, when deteriorating economic conditions have increased the prospects for public unrest. A survey by the Kenya National Commission on Human Rights on the impact of the pandemic on vulnerable members of society found that 46% had lost a job due to economic disruption while 36% of respondents had been evicted from their residence since March 2020. Falling trust between Kenyans, international institutions and the political class was highlighted in early April when 160,000 citizens signed a petition urging the International Monetary Fund (IMF) not to agree a new loan deal.
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.
Eleven days later police in Mombasa announced that they had intercepted and arrested two terrorism suspects, recovering two AK-47 rifles as well as machetes and ammunition. The details of the planned attack -- which is said to have been a security installation, possibly a police station -- were apparently revealed after the police had previously apprehended a third terrorist suspect. This spate of arrests, and the suggestion of a planned attack on a concrete target, is an important reminder that the threat from terrorist activity remains high.
In response to COVID-19, the central bank cut its benchmark interest rate down to 7% by the end of April 2020, and it has remained at this level since. Inflation remained contained at 5.52% in July, although year-on-year inflation has been creeping up, from 4.67% in February to 6.44% in July, according to the Kenyan central bank. However, inflation is expected to remain under control due to muted demand pressures.
One of the main aims of the USD2.34bn IMF package is to enable the Kenyan government to bring its debt burden under greater control. However, the debt-to-GDP (gross domestic product) ratio is expected to exceed 72% in 2021. The IMF’s growth projection of 7.6% proved to be overly optimistic, but the World Bank’s updated forecast of 4.5% growth in 2021 and 4.7% growth in 2022 suggests that the overall impact of the coronavirus pandemic will be milder than was initially feared. There remains a significant risk, however, that political instability around the 2022 general elections could lead to lower levels of investment and economic growth, further increasing the country’s debt burden.
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