Kenyatta tackles corruption in Kenya

Kenyatta tackles corruption in Kenya
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President Uhuru Kenyatta recently reshuffled his cabinet in an effort to root out corruption in Kenya. Nonetheless, corruption risks will remain a problem for investors while political and economic fortunes are uncertain.

On 24 November 2015, Uhuru Kenyatta reshuffled his cabinet, replacing five ministers facing investigations into corrupt practice. The previous weekend, one minister also resigned ahead of the purge. Ministers for Transport and Infrastructure, Mining, Agriculture, Energy and Petroleum, Lands and Labour, and Devolution and Planning have been replaced and others reshuffled.

This comes following a host of corrupt events and mounting international pressure. The UK, US and nine other countries issued a statement in November that the country was facing a “corruption crisis”. Simultaneously, investors and businesses cite corruption as one of the most significant challenges in doing business.

Indeed, a host of corruption issues have hit the headlines. To highlight a few: in July, a report issued by the auditor general outlined that just 1% of the government’s budget could be properly accounted for. On November 11th, it was reported that Al-Shabaab and Kenya’s military (KDF in Somalia) were allegedly collaborating in an illegal sugar trade, while earlier in November, it was also revealed that the devolution ministry lost close to $107 million in inflated costs of government purchases. Finally, the allocation of funds from Kenya’s $2.75 billion Eurobond, cannot be explained.

Corruption Crackdown

In the midst of these events, pressure has mounted on Kenyatta. On November 13th, the President declared his intention to tackle corruption by drawing up an anti-corruption strategy. Since then, aside from a cabinet reshuffle, the Ethics and Anti-Corruption Commission has arrested 20 people, Kenyatta has moved to black list corrupt officials, strip licences from money-laundering banks and bring in anti-corruption legislation.

Prospects for Change

These measures are undoubtedly encouraging steps in rooting out Kenya’s pervasive corruption problem. However, the extent to which this represents a real change in direction is disputed. One activist, John Githongo, is profoundly sceptical of progress. He expects that nothing has changed and corruption may even get worse.

Whilst it is true that corruption is the fault of individual malpractice, the scope for its presence and the environment to facilitate its allure has yet to be properly reformed. Recent actions by Kenyatta do act as a hindrance and check impunity but might also be a strategic political move ahead of the forthcoming elections in 2017.

2017 Speculations

The Jubilee coalition’s prospects of regaining office are becoming increasingly damaged by a variety of factors. Kenya’s economic troubles, highlighted by their recent credit rating drop from “stable” to “negative”, and a variety of social pressures, at present amount to a decline in political fortunes.

Kenyatta’s recent moves against corruption might be a genuine response, but they are also an effort to regain public popularity and exert his executive power internally by disempowering officials who might otherwise gain too much political influence.

Whether or not Kenyatta can maintain internal party cohesion and popular support, will be determinant in electoral fortunes. If political divisions emerge out of perceived underperformance then risk of losing power or electoral violence in 2017 is heightened. Elections in 2013 featured a relative lack of violence, in contrast to 2007’s elections where over 1000 people lost their lives during the election process.

However, 2013’s lack of violence was largely underpinned by a Kikuyu-Kalenjin alliance. If this present alliance falls apart in the run up to 2017’s elections, combined with the obstacles that Kenyatta faces, then prospects for unrest are real. While at present this looks unlikely, significant changes can occur in short spaces of time, particularly during periods of political volatility.

Investors

It is certainly far too early to predict electoral dynamics, yet current political dynamics will need to be monitored and projections made accordingly to allow investors to plan how they should navigate the associated risks with social and political tensions built on the back of economic problems.

At present, despite Kenyatta’s cabinet reshuffle and other efforts to tackle corruption, corruption will continue to remain a problem. Bureaucratic inefficiency in the government will remain a challenge, and as a result, the conditions for facilitation payments and bribery for businesses will continue to be an issue.

Oil

Nonetheless, in the petroleum sector exciting developments are occurring. Maersk Oil are acquiring shares from Africa Oil Corporation, in blocks in northern Kenya. This comes despite macroeconomic issues, national level corruption allegations and the pipeline route from Uganda to Kenya looking increasingly unlikely, given Tanzania’s peaceful elections and Kenya’s continued security problems.

Although the sector faces corruption risks, these are at present reduced in light of what appears to be a positive direction against corruption in Kenya. Notably, the Minister of Energy and Petroleum, implicated in large scale corruption allegations, has been replaced.

New ministers overlooking the petroleum and various sectors will be under close scrutiny by civil society and investors alike. It remains to be seen whether the reshuffle will bring with it any substantial changes in corruption levels.

The Pope’s Diagnosis

On 27th November, in a visit to Kenya, the Pope said “corrupt people don’t live in peace”. He likened corruption in Kenya to “sugar”, warning that the country would become “diabetic” if the problem was not properly dealt with. He also blamed some issues on “new forms of colonialism”, referring to multinational companies.

His statements provide an apt diagnosis of issues in Kenya. If corruption is not properly dealt with, political unrest in elections is possible and the country’s economy will continue on a downward spiral. Multinationals will need to monitor political dynamics, side-step corruption and ensure that their conduct is characterised by benefiting local Kenyans in order to mitigate possible reputational risks associated with their perceived commercial interests.

About Author

Elliot Kratt

Elliot is a Freelance Analyst with The Economist Intelligence Unit. Prior to this, he held positions in a number of risk consultancies and has worked in East and West Africa. He has been quoted by journalists with the Financial Times and Wall Street Journal. Elliot holds a first class BA (Hons) in International Relations from the University of Leeds. All views expressed are his own.