Uncertainty over repeat election outcome worsens Kenya’s economic prospects

Economic activities have slackened despite the resilience of Kenyans. Photo by XN Iraki.

The Kenyan economy usually experiences a downturn just before the polls, but recovers quickly.

The downturn was notably minimal after the 2013 polls. This time, however, it seems we are making up for this minimal downturn before the repeat presidential election on Thursday.

The economic consequences of the annulment of the August 8 presidential vote are now being fully felt after the legal and political consequences that manifested immediately.  

Going by the current state of affairs on both the political and economic fronts, the intervening days have seemed like an eternity.

Whoever said Kenyans are a peculiar lot should have been recognised on Mashujaa Day.     

In April, the World Bank noted that Kenya’s GDP growth was projected to decelerate to 5.5 per cent, a 0.5 percentage reduction from the 2016 forecast.

Last year, the higher rate was supported by a stable macroeconomic environment, low oil prices, earlier favourable harvest, rebound in tourism, strong remittance inflows and an ambitious public investment drive. At the time, the long shadow of a repeat election that now looms over the economy did not exist.  

In only 60 days, the effects of heightened political temperatures have touched every facet of the economy. It has always been argued that Kenya’s economy is very resilient. But even that resilience has limits. Have you noted the number of people calling you to borrow money? In restaurants, there are more waiters than customers.

Have you also noted there is less human traffic on the streets? Has it occurred to you there is intensified preaching and sharing of sermons on WhatsApp groups while President Uhuru Kenyatta has called for a national prayer day? 

The slowdown started long before the August 8 polls, but the uncertainty over a repeat presidential vote has made it worse. There are other reasons. One, the Kenyan economy is more formalised than textbooks tell us. The 85 per cent of Kenyans in the informal sector, non-salaried workers, shows some elements of formality.

Formal economies react to political or economic cycles faster than informal economies.

Formality means that key economic players share information faster and act on it. This is why in developed countries, terms like recession and economic boom are more common than in developing countries like Kenya. Among the information shared is on expectations.

Better ICT infrastructure enhances information sharing. Have you also noted that we share bad news more than good news? Check your last WhatsApp or Facebook forward. This has implications on our economic behaviour.

Good news often makes us invest or consume more, leading to faster economic growth. Bad news has the exact opposite effect. How? You may ask. It is due to the simple fact that we are more generous to family and friends just before the end of the month when we anticipate money; we often “spend” what is not in our pockets when happy.

BUSINESS COMMUNITY

Two, the economic slowdown can be blamed on the political impasse. If the average Kenyan expects the political impasse to extend, which seems to be the prevalent feeling among a large segment of the masses, they postpone making major decisions on investment and consumption, which has economic implications.  

Reduced consumption and investment mean less demand for goods and services. This by extension means job losses. The political utterances by political leaders make a solution appear remote, driving Kenyans into further postponement of investment and consumption decisions.

A postponed decision affects everyone in the economy. If you put off taking up a mortgage or building your dream house, the bank and construction workers, as well as other players in the construction value chain, will feel the negative effect of this decision. Many Kenyans live hand to mouth and any interruption in the economic cycle is felt immediately. No wonder 60 days seem such a long time.

Three, observers opine that our economy has become one of the pawns in the political chess game. Why else has the “business community” emerged? There are veiled threats of boycotting some products. In the past, the economy was viewed as collateral damage. Now, it is at the core of the damage. 

Philosophers have consistently reminded us that speculation is a legitimate source of knowledge.

A downturn in the economy or better a recession will make many voters angry. They could start questioning why they are suffering if UhuRuto did so well.  Remember, economic growth and development were their political fulcrum. If the average citizen does not feel that growth, anger sets in.   

This is why demonstrations have been quickly blamed for the slowdown, though we must also be sincere that drought prepared the ground for economic downturn. Add the fact that most Kenyans, about 85 per cent, are in non-salaried jobs and live from hand to mouth. As such, any disruptions in the economy are easily felt. Otherwise, what happens to a mjengo person if there are no houses being constructed? What of waiters?

We can’t discount the fact that the opposite could happen if voters were angry with the opponent. The law of recency dictates that we remember more recent events than past ones. It is easier to convince Kenyans that the economy is suffering because of demos instead of drought.

The argument over the downturn in the economy goes farther, with some arguing that if we all suffered, we would learn to respect each other and take nothing for granted. Some even argue this is what is needed for the country to have a new start.

They argue that most youngsters know economic suffering from social media, not going hungry. The romantic view of economic downturn presumes that we never suffered enough economically under the Kanu regime.

Making the economy a pawn in the country’s political chess game has consequences beyond a change in voting patterns. Economic players could over-react. Among them are foreign investors who have invested their money in brick and mortar like factories and hotels. Portfolio investors can easily exit despite losses. We risk making economic suffering “normal”, denying a vast majority of citizens better standards of living. Do not forget that foreign investors and sophisticated investors have options, not the hoi polloi.

That toxic post you send to your “enemies” is reflected in higher food prices, joblessness and angry citizens. Remember the affluent have surplus to smoothen consumption or investment when economic fortunes change. The rest of us live from hand to mouth.

The political impasse is a form of entertainment for the elite, but real suffering for the hoi polloi who incidentally look unto the elite to solve their problems. One could argue that the poor have always been pawns in the political chess game. This has now been extended to their livelihoods.