On 1 September 2017 the Supreme Court annulled the result of the presidential election held on 8 August and a new vote will occur within 60 days. Incumbent President Uhuru Kenyatta’s victory over Raila Odinga was contested by the opposition and the Court indicated that the electoral commission had failed to conduct the polls in line with the constitution. There will be an elevated protest risk in the coming weeks. However, violence is unlikely to reach levels seen in 2007. In addition, there will be political uncertainty and government decision-making will be affected in the intervening period.
On 11 August 2017, incumbent Kenyatta was officially declared the winner of Kenya’s presidential election, with 54.2% of the national vote. His Jubilee coalition also secured an increased majority in parliament. Opposition candidate Raila Odinga of the National Super Alliance (NASA) rejected the results, alleging irregularities in the transmission of electronic votes, and announced on 16 August 2017 that he would launch a legal appeal.
In the immediate aftermath of election results being announced, opposition supporters protested in a number of neighbourhoods in Nairobi, including Dandora, Kibera and Mathare north. Participants established road-blocks with burning tyres. Riot police with tear gas, water cannons and live rounds were stationed in these areas, and resultant clashes between the security forces and protestors saw at least 24 people killed. However, violence did not reach levels seen in 2007, when approximately 1,200 people were killed in post-election ethnic violence.
The decision by the Supreme Court to annul the result of the presidential election is unprecedented and, as such, it is likely that government decision-making will be impacted over the 60 day period in which a new vote is due to occur. The opposition has indicated a lack of confidence in the election commission and, as well as political uncertainty; on-going election-related violence is likely. Protests by Kenyatta supporters are likely and particular flashpoints for violence over the coming weeks include the western counties of Kisumu, Migori, Siaya and Homabay and parts of Nairobi. There will be elevated death and injury risks for individuals in the vicinity of such incidents, whilst collateral property damage is also likely.
NASA could motivate up to 50,000 people in protests close to the Supreme Court and Nairobi’s business district.
Over the next 60 days it is likely that there will be a limited clear-out of the electoral commission in order to ensure a fair election, despite Mr Kenyatta supporting the continuation of the commission in its current form. Kenya’s fiscal position has weakened in the last 12 months, as the government increased public spending to curry favour ahead of the election. A significant portion of spending targeted major infrastructure projects, such as the Mombasa-Nairobi standard gauge railway, which will be long-term growth generators. However, there has also been a notable uptick in recurrent expenditure, with public sector wages rising 17.4% y-o-y in June 2017. As a result, the fiscal deficit was 9.6% in the period July 2016-June 2017, up from 5.7% in 2013.
Current spending levels will become increasingly unsustainable regardless of who resumes the role as President. Financing the deficit through borrowing is likely to become more costly, as yields on dollar-denominated debt in frontier markets look set to rise in H2 2017. Given that public debt has already risen to 60% of GDP in May 2017, from 40.1% in 2015, the government will be pushed towards fiscal discipline. This is likely to come in the form of reduced recurrent expenditures. Without action on government spending, sovereign credit risks will rise in the coming years and investor appetite for Kenyan infrastructure projects will wane.
Any escalation in social unrest and violence over the coming weeks will harm investor sentiment and business confidence. If Kenyatta secures the presidency he will continue to promote investment into Kenyan infrastructure and the country’s integration into regional logistics networks. Major projects include the USD 13 billion development of a standard gauge railway, a USD 214 million expansion of the Port of Mombasa, the construction of a new port at Lamu and upgrades to the country’s power supply system. As a result, annual average construction sector growth is forecasted at 8.9% between 2017 and 2019.
However, regulatory inconsistencies when issuing permits for projects on areas designated as community land can lead to contract revisions and project delays. Whilst control over land transactions is being shifted to the Ministry of Lands, the National Lands Commission (NLC) retains constitutional authority. The government is increasingly bypassing the NLC when planning major infrastructure projects. These inconsistencies elevate the risk that land deeds will be altered or cancelled. In January 2017, the High Court ruled that 3 million land title deeds issued since 2013 were not valid, as they had not been overseen by the NLC. All deeds must be registered properly by January 2018, or be declared void.
In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Colombia, India and Paraguay, all of which have been the subject of recent enquiries from JLT's client base.
The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.
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