Whilst the risk of political violence in Kenya is heightened in the lead up to the August 2017 general election, disorder is not likely to reach the levels seen in 2007. Robust growth and access to concessional funding will mitigate country economic risks in the medium term. An improved public-private partnership (PPP) model offers opportunities for international investors in transport infrastructure.
The risk of strikes, riots and civil commotion is elevated in the lead up to the general election on 8 August 2017. Previous elections have witnessed political violence. After the 2007 general election, clashes over the disputed result descended into inter-ethnic violence largely between the Kalenjin and Luo tribes and the Kikuyu community. Almost 1,200 people were killed over a 2 month period. It is unlikely that violence will escalate to this level in 2017.
The opposition Coalition for Reforms and Democracy (CORD) is fragmented and support for President Uhuru Kenyatta remains robust, with approval ratings of 75% in December 2016. However, protests by CORD supporters are likely in response to electoral reforms introduced by Kenyatta in January 2017.
These reforms allow for a manual voting system to be used in the event that the electronic system fails, which the opposition claim will facilitate vote rigging during the election. Although foreign companies are not likely to be specifically targeted during disorder, road blockages raise the risk of business interruption for companies in a number of sectors, including agri business and construction.
Strong economic growth will help Kenya manage its debt burden in the medium term. Real GDP growth is forecasted to hit 6.1% in 2017, rising to 6.5% in 2018, driven by high levels of investment in infrastructure. Although debt is expected to rise to 56.5% of GDP in 2017 from 55.1% of GDP in 2016, it will remain at manageable levels.
In addition, access to a Stand-By Credit Facility of up to USD 1.5 billion from the International Monetary Fund (IMF) further mitigates sovereign credit risks. Uncertainty over potential violence in the run up to the presidential election in August will heighten the risk of currency depreciation. The Kenyan shilling hit its lowest level against the US dollar for 15 months in January 2017. This trend is likely to persist ahead of the election as investors become wary of political violence, and demand for US dollars increases.
In the medium term the outlook is more stable. Foreign reserves remain robust at USD 6.97 billion at the start of 2017, covering over 4.5 months of imports, and are supported by the availability of IMF funds. If necessary, this will allow the government to intervene to prevent a significant slide in the value of the shilling, mitigating currency inconvertibility risks in 2017.
A strong pipeline of transport and power infrastructure projects will provide opportunities to foreign investors, with the construction sector forecasted to grow by 8.5% in 2017. The government has sought private investment in the road network, with plans to develop 672.8 km of new and improved roads each year from 2017.
In November 2016 the government announced five key projects to be undertaken through the PPP model, including the 180 km Nairobi-Kibwezi road. In 2016 improvements to the country’s PPP model were conducted in consultation with international firms including the UK’s PricewaterhouseCoopers. As a result future PPP projects will benefit from clear structure and inbuilt revenue generation plans, increasing their attractiveness to foreign investors. There remain legal and regulatory risks to private companies investing in infrastructure projects.
Project timelines often drag, with delays to land acquisition particularly affecting construction. The Lamu Port project was held up for two years due to disputes over the compensation of landowners, with the first phase now expected to be completed by 2019. The risk of contractual agreement repudiation is higher for majority government-backed projects than those that are internationally-financed.
In this month’s Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for South Africa, South Korea, Brazil and the Democratic Republic of Congo, all of which have been the subject of recent enquiries from JLT’s client base.
Download February Risk Outlook
For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email email@example.com