Kenya: What IEBC violence means for investors

Kenya: What IEBC violence means for investors

The violence accompanying opposition-led protests against Kenya’s electoral commission may undermine the country’s economic prospects and damage its already-shaky business environment.

Violence has swept though Kenya for the fourth Monday in a row, with incidents recorded in Nairobi, Mombasa, Nakuru, Meru, Kisii, Kakamega, Migori, Siaya, Machakos and Kisumu. The May 16th protests drew international international media attention due to shocking police brutality and the seemingly chaotic looting that accompanied. More recenty, protests on May 23rd resulted in three deaths, 19 arrests and the injury of many.

The centre of contention is the alleged lack of independence of the Independent Electoral and Boundaries Commission, or IEBC, which the opposition leader, Riala Odinga of CORD, says has to be reformed ahead of the elections. Although, having hand-picked half of the IEBC commissioners himself when he was Prime Minister, he asserts that they have a pact with ruling party, JAP, to rig the forthcoming August 2017 elections.

In reply, the government claims that the IEBC would have to be reformed through the legal means and not overthrown, but Odinga seems to have other plans.

CORD leaders plan to continue to demonstrate every Monday, barring 30 May, until the IEBC is reformed or dialogue can begin – something that is unlikely to occur prior to the elections. JAP officials have reiterated that such actions need to be undertaken through legal means. These tensions are have raised concerns ahead of 2017 elections, with observers fearful that violence between CORD and JAP supporters – particularly in commercial centres – will inevitably be accompanied by a heavy-handed government security response.

Implications for investors

The recent developments should generate a healthy level of concern amongst businesses and investors across sectors. The high-levels of opposition warrant increased uncertainty as to the possibility, nature, extent and geography of violence ahead of the elections.

Businesses operating in Nairobi, or other commercial centres across the country, risk being caught in the cross-fire of heightened political tensions. Dependent on a variety of factors, violence could lead to loses for businesses in the form of asset attacks, theft, injury and even death of personnel. The recent IEBC violence has caused losses in the retail sector through looting, which has coincided with unrest.

In the 2017 elections, political and ethnic divisions may shape the nature and scope of risks to businesses.

In 2007-2008, hundreds of businesses across Kenya were attacked and looted by angry crowds  who claimed that the election had been rigged in favour of President Mwai Kibaki instead of Raila Odinga. Given the controversy already surrounding the IEBC, a similar dynamic may also emerge this time around. Ethnic groups comprising the then opposition (namely Luo and Kalenjins), targeted the homes and businesses of other groups such as Kikuyus.

Future economic uncertainty

Furthermore, in the event of violence, Kenya’s economy could face significant problems. The main sectors, namely tourism, agriculture, manufacturing, transport, retail and finance, all risk being undermined. Following the late-2007 violence annual GDP growth, which had stood at 7.1%, dropped to 1.7% in 2008. Kenya’s high level of reliance on foreign investment gave rise to this vulnerability; FDI in 2007, which stood at USD 729 million, fell by 75% to USD 183 million in 2008 largely owing to the violence.

Kenya’s main exports risk being undercut by potential instability. These exports (tea, coffee, meat, and cereal) are dependent upon intensive labour and transport infrastructure, both of which are particularly exposed to the impacts of violence. In 2007, the instability contributed to a disruption in labour supply and undermined transport roots as road blocks were set up, commercial and private vehicles were targeted and key railway lines were damaged.

Already the prospect of violence in 2017 is undermining Kenya’s economic aspirations. Uganda recently confirmed that it would invest in an oil-pipeline through Tanzania rather than Kenya, as had been planned initially. The decision was in-part influenced by potential election violence as risk averse investors, namely oil company Total S.A., wanted to avoid exposure the reputational and security risks associated with Kenyan elections.

Businesses that are operational in Kenya should monitor the emerging security and political situation, as well as develop business continuity plans to manage associated risks. For prospective investors seeking to enter the market, it may be wise to wait until after the 2017 elections so as to avoid unnecessary exposure to potentially complex instability which could warp the business environment and economy

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.