Kenya’s consistently strong growth performance puts it squarely among top-priority markets on MNC executives’ SSA agendas. At a roundtable event we hosted in Johannesburg earlier this year, the majority of executives we polled thought Kenya offered the largest growth opportunity for their SSA businesses in 2017, and would receive their largest new investment in the region this year. Such high expectations increase the significance to MNCs of the country’s general election on August 8 – in which the presidency, legislative seats, and county governorships will be contested, thus setting the scene for the next five years.
Risk of violence
Dominating discussions over the elections are worries that violence akin to the unrest that accompanied the 2007 vote could reoccur, threatening investment and creating widespread business disruptions. Then, around 1,200 people were killed and 500,000 displaced in clashes – largely between members of different ethnic groups – after results from the presidential contest between then-President Mwai Kibaki (who ultimately won) and opposition candidate Raila Odinga (who will be standing for a third time on August 8) were disputed amid allegations of vote rigging.
This time round, some unrest is inevitable given opposition concerns about the electoral commission’s new tallying system, which it says allows for abuse. However, most disputes will be highly localized, with unrest concentrated in Odinga’s home region of Nyanza – where people have the least trust in the system, believing it to be biased against their preferred candidate. Despite this, we believe the risk of nationwide instability to be low*.
There are two main reasons for this. First, the formation of the Jubilee Party in 2013 – the current ruling party – brought together two major ethnic groups (the Kikuyu and Kalenjin, who were on opposing sides during the 2007 violence) into a new alliance, allowing them to coexist relatively harmoniously. Second, a process of political devolution (begun in 2010) is giving more political power and financial resources to new local county authorities. These are headed by powerful governors, which reduces the zero-sum nature of the national-level election as the only path to power and influence. This is because devolution allows most ethnic groups to play a role in the political system by creating opportunities for their leaders to hold office in “their” home region, reducing the risk that some groups feel disadvantaged by losing the national vote, a key driver of violence in 2007.
Nevertheless, MNCs should take due cautions, revisiting security protocols for local teams where appropriate leading up to and immediately after the elections.
Likely election outcome
Pre-election polls indicate the presidential contest between incumbent Uhuru Kenyatta and Odinga will be closely fought, with a narrow win by Kenyatta the most likely result. This means MNCs should expect continuation of the current administration’s policy agenda, which stresses pro-business reforms and high levels of public investment.
However, there is a chance that Kenyatta might fail to achieve the result needed (over 50%) to avoid a second-round of voting. While his administration can point to a track record of achievements (concerning, for example, infrastructure development and improved public health metrics), continued endemic corruption and a sharp rise in living costs are causing disgruntlement. This could dent his support, reducing it below the 50.5% he achieved in the 2013 election. Even then, a second-round vote is likely to go in his favor.
Helping Kenyatta’s (and running-mate Deputy President William Ruto’s) cause is the opposition National Super Alliance’s (NASA) poor internal coordination and lack of a coherent election strategy. Only six months old, NASA is not an integrated party organization, but rather a loose coalition of opposition parties, each dominated by the interests of their individual leaders, who are pursuing their own objectives, making it difficult to drive a single message or mobilize adequately large blocks of voters.
Critically, it cannot point to a track record of achievements in government, reducing the likelihood that swing voters will trust it to deliver results in office.
Business conditions post-election
While Kenyatta is likely to return for a second and final term in office, there will likely be turnover in several key governorships. These officials and their teams are influential players when it comes to B2G business – for example, affecting procurement of certain agricultural inputs and products – making it critical that MNCs and their local partners are poised to re-stablish relationships with the new key decision-makers.
The national administration, meanwhile, will likely build on and extend reforms already underway – for example, cracking down on retailers that pay suppliers late, which will benefit MNCs’ local partners. A notable exception may be the government’s cap on bank lending rates, which has caused severe stress on the banking sector and resulted in private sector credit drying up. The government views the policy as too sensitive to remove before the election, but given its adverse economic consequences, it may do so once back in office. This would likely result in an uptick in B2B demand, as improved credit conditions combined with a rising in post-election business confidence would accelerate investment.
Regarding spending priorities, Kenyatta has committed to continuing the government’s investment-led development plan, with road, rail, housing, and electrification projects expected proceed in 2018, sustaining already buoyant B2G demand in these areas. His manifesto also details expanded healthcare spending, opening further opportunities to capitalize on procurement spending.
As the elections approach, multinationals need to ensure they are aligned with their local partners and key customers on both the risks and opportunities that may arise as a result of them and ensure they are ready to respond no matter the outcome.
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