Economic impact of tear gas Monday unfolding

CORD and Jubilee are the two biggest political parties in Kenya. But instead of cooperating with each other, they have been carrying out a feud. We, the 'governed,' suffer as a result of their duel. Yet, they say they do it to serve us better and for our betterment.

Surprisingly, they do not suffer much. Rather, the economic life of common “mwananchi” suffers the most. It suffered heavily in the 2007/08, and now it has been suffering heavily again since the beginning of 2016, with no foreseeable sign of ending. Given that the service sector accounts for the lion's share of Kenya’s economy, conflicting politics significantly affect the economy as this sector is more prone to blockades and strikes. In plain words, the severity of the economic sufferings from strikes and blockades has increased more than ever before. 

The economic impact of any kind of political or non-political incident can be traced with the help of the lead and lagged economic variables. Lead variables are those that forecast the likely impacts whereas the lagged variables reveal the impacts only after they have been felt.

One of the most renowned lead economic variables across the globe is the stock price index. It is assumed that the buyers and sellers participating in the stock markets are forward looking and use all information available to them at a given time to make a decision about buying and selling of stocks.

Therefore, any event that can potentially affect the business and economy in future will affect the price of the stock today and vice versa. When all available information is exhaustively used in decision making, the outcome is said to be an 'efficient' one. The stock market is assumed to be one of the efficient markets where the participants (buyers and sellers) leave no information unutilized in making their economic decision.

This efficient market hypothesis explains, for example, why USA elections affect stock prices all over the world. In this era of globalization, where most countries are interrelated through trade and capital flow, any downturn in USA economy is likely to negatively affect the economies of other countries. This possibility, when taken into account by the stock market participants all over the world, immediately slashes the price of stocks.

Inflation is one of the most renowned macroeconomic variables, which captures the economic impacts of past events. Inflation will be high in the first half of the next fiscal year, with experienced political vandalism and serious disruption in the supply chain. Since agricultural products flow from rural to urban, the difference between urban and rural food inflation to some extent reflects the effects of disruption in supply chain. The observed dynamics of overall as well as different components of inflation imply that the ongoing “Tear Gas Monday” unrest is taking a toll on the economy.

No matter who says what, both lead and lagged economic variables are showing deep scars in the economy created by the ongoing unrest. If this situation continues, these scars will become unmanageable. Kenya is nicely poised to become a middle income country. Over the last decades, the country made recommendable developments and was termed as a 'development surprise' by many economists and economic commentators at home and abroad. But if the current conflicting politics continues, soon the country will be identified as a land of lost potentials. 

To avoid this happening, the political parties should come into an agreement and the constitution of the country to be followed. As a country we would be losing. For example when the Ugandan government preferred to use the Tanga pipeline route.

Ndirangu Ngunjiri

Managing Partner

Watermark Consultants.

ndi@nditronics.com