Previous Quarterly Editions
Expropriation Risk: 40 40 38 40 Political Violence Risk: 54 53 54 55 Terrorism Risk: 64 62 65 66 Exchange Transfer and Trade Sanction Risk: 44 44 44 44 Sovereign Default Risk: 55 57 56 58
TREND ▲ OUTLOOK ▲
Kenya has experienced a period of relative stability during the first months of 2019, with few major developments on either the political or economic front. The ruling party continues to be driven by factionalism and constant rumours regarding the specific alliances that will contest the elections scheduled for 2022. Widespread speculation suggests that President Uhuru Kenyatta, who must step down due to term limits, is unlikely to provide his full support for the presidential ambitions of Deputy President William Ruto. Since the chairman of the ruling Jubilee Party, David Murathe, resigned at the start of the year in order to launch a campaign against Ruto’s candidacy little else has happened as other members of the political elite assess the situation. But the intense pressure on Ruto, who has been accused of complicity in a number of instances of corruption, is beginning to show. In April, he caused an outcry on social media by making critical comments about Luo leaders such as Raila Odinga. The comments were widely condemned for targeting a specific ethnic group and appear to have been motivated by his frustration at the “handshake” agreement between Odinga and Kenyatta last year that brought the long-term opposition leader and probable presidential rival in 2022 back into government. Although Ruto’s supporters argue that his comments were taken out of context, they were widely presented in the media as representing a threat to national peace and stability. This is likely to further increase the tension between rival leaders and ethnic communities in the build-up to the next election. The Kenyan economy was buoyed by the news that Wrigley is investing 70 million dollars in a new plant on the outskirts of Nairobi, with the explicit aim of employing over 1,000 young people. However, failed rains have brought fears of food shortages and lower than expected economic growth. According to the latest figures from the central bank, the dry weather will slow growth to 5.3% from the previously expected 6.3%.
TREND ▲ OUTLOOK ►
The government sees the Wrigley investment as proof that its efforts to attract greater investment are paying off, especially after the al-Shabaab suicide bombing and gun attack on a Nairobi hotel complex in January. Following the agreement last year of a five-year deal with the European Union for loans and grants worth 4.5 billion euros to support spending on housing, healthcare and food security, the government had hoped to sign another major loan deal with China’s Exim Bank to finance the Naivasha to Kisumu leg of the Standard Gauge Railway that is meant to continue through to Kampala. However, the fact that the project is one of the most expensive in the world has led to renewed disquiet over the extent of corruption and Beijing appears reluctant to commit. At the same time, investors are wary about the extent to which the 2022 election is already casting a shadow over the political landscape, and particularly the way in which it threatens to impact policy-making more than three years before polling day.
William Ruto’s controversial comments will exacerbate tensions between the Kalenjin and Luo communities. The continued factionalism within the Jubilee Party between its Kikuyu and Kalenjin cliques, already heating up again as the 2022 election dominates political calculations, has the potential to trigger instability in the volatile Rift Valley area. It is unlikely that significant ethnic or political violence will occur so long as Ruto remains in the ruling party as deputy president, but his position will come under increasing strain the longer that the party’s choice to succeed Kenyatta is delayed. Many Kenyans from minority communities have been raising concerns over the government’s introduction of a new National Integrated Identification Management System (NIIMS) system, popularly known as Huduma Mamba. Most Kenyans already have ID cards, so the lack of information regarding the purpose of collecting a new set of personal information has led to accusations that the data will not be kept safely, and that the whole enterprise is designed to provide the ruling party with an advantage as it prepares for the next election.
TREND ▲ OUTLOOK ▼
The January attack by al-Shabaab gunmen on the Dusit D2 hotel and office complex, in which more than 20 people died, was the first major terrorist incident in Nairobi since 2013. Initially, the effective response of the security forces to the incident went some way to improving the reputation of the Kenyan state, which had suffered after the 2013 attack on the Westgate shopping centre. However, Western officials have since said that reports of a clear and present threat were passed to Nairobi but the Kenyan government did not act on them. This is a source of concern both inside and outside Kenya given the likelihood of future al-Shabaab attacks over the coming years.
TREND ► OUTLOOK ▲
As expected, the central bank left its benchmark interest rate unchanged at 9% in May, having cut it from 9.5% in July 2018. In March, a court ruled that the controversial law that caps commercial interest rates at 4% above the central bank’s benchmark rate was unconstitutional. However, the judge suspended implementation for a year to allow parliament time to revisit legislation that was failing to produce greater lending to small and medium-sized businesses as intended. Poor rains are expected to increase the price of food, pushing up inflation beyond the projected 5.5%. However, it should stay below the bank’s target ceiling of 7.5% as government subsidies and waivers for import duties on basic food items including maize, milk powder and sugar keep prices in check.
Rising debt remains a serious concern. Government figures released in March show that the cost of debt payments to China, India and South Korea increased significantly in the latter part of 2018. Payments to China between July and December represented almost a quarter of the total spent on debt servicing. It looks now possible that total debt could reach 60 billion dollars as soon as the end of 2020, especially if government expenditure increases ahead of the next elections.
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