Kenya’s presidential election was held on August 8th, with incumbent Uhuru Kenyatta collecting 54% of the vote and his challenger Raila Odinga securing just under 45% of the vote.
Then, on September 1, something remarkable happened. The Supreme Court of Kenya nullified the election result, citing “irregularities and illegalities” and demanded that a new election take place within sixty days. This ruling was the first ever of its kind in Africa and demonstrated the power of the judiciary branch of government in a country often seen as being on the vanguard of democracy’s march on the Continent. Many supporters of both candidates admired the courage of the high court justices for delivering this ruling.
The current political tension in Kenya offers up plenty of material for both optimistic and pessimistic investors. Optimists say that this stunning turn of events shows great progress for the country in that the judiciary is demonstrably acting in the name of Kenyan law, not the ruling party. Pessimists say the nullified election result will not be resolved in the follow-on election and that the new poll will only worsen frictions between the two main parties while renewing the potential for violence.
We at Africa Capital Group LLC see both positives and potential negatives for Kenya. The near-term uncertainty will almost certainly act as a drag on the economy until a winner is determined and accepted. Many businesses were in “wait-and-see” mode leading up to the August poll, and now many will continue to suspend investment decisions for the time being. Political turmoil is usually not good for equities and currencies in the short run, but we are nevertheless heartened to see the Supreme Court put itself above politics.
In the immediate aftermath of the Supreme Court’s ruling, markets retreated. Equities, as measured by the Kenya NSE 20 Index, sold off somewhat and are now hovering about 5% below the highs reached in August. (They are still up over 20% so far in 2017, however.) The Kenyan shilling also weakened a bit versus the U.S. dollar right after the ruling. Since then, however, the shilling has gained all that ground back and now trades at its highest levels of the summer.
We have a number of investments in Kenya across the banking, insurance and telecommunications industries and will be watching closely to see how things unfold. Broadly speaking, we are bullish on Kenya and see many years of strong growth ahead if the country can pull together to overcome its political differences. The country has a lot going for it, including a young and relatively well-educated population, an independent press and a vibrant market economy. We are hopeful that the new poll, now scheduled for October 17th, is conducted in a manner deemed fair to all.
Disclosure: Africa Capital Group LLC holds shares of KCB Group, I&M Holdings, Jubilee Holdings, Safaricom, KenolKobil, and Kenya Re as part of its Africa strategy.
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