Today marks one year since President Uhuru Kenyatta and his fierce rival during 2017 presidential elections Raila Odinga shook hands at the steps of Harambee House.
The political truce shone a light to the country’s economy that was fast crumbling following the protracted election cycle that triggered investor flight and general slowness in the economy.
On Thursday, the shilling jumped to its strongest level against the dollar in more than three-and-a-half years to trade at Sh99.75.
At the time, the two leaders were signing the deal, the shilling was standing at 101.05 to the dollar.
Political heat on economy
Political temperatures in Kenya started to rise almost two years to the August 8, 2017, general election when Raila’s ODM started calling for electoral reforms insisting that the be IEBC disbanded.
In January 2017, three major opposition parties ODM, Kalonzo Musyoka’s Wiper Democratic Movement, Musalia’s Amani National Congress (ANC) and Moses Wetangula’s Ford Kenya announced an alliance, calling on their supporters to streets until some election reforms are implemented.
This led to a weekly disruption of business activities especially in the country’s city, Nairobi until the then IEBC chairman Issack Hassan and his commissioners left office.
Read: Raila-Uhuru handshake assured wary investors – Malaysian envoy
However, the real effect of the election fever to the economy started to manifest in May 2017 when Purchasing Managers’ Index (PMI), a measure of private sector performance started to deteriorate, performing below 50 per cent.
Stanbic Bank Kenya described the low PMI witnessed in seven months starting may as the longest period of decline observed in the survey’s history.
The seasonally adjusted PMI for May 2017 was 49.9, dropped to 47.3 in June before regaining to 48.1 in July.
It, however, recorded a steep drop the following month to 42 points on the election month and 40.2 in September, one of the lowest.
The private sector is considered to be performing better when PMI is above 50 points. Kenya’s highest PMI of all times stands at 57.
According to the regional economist for global markets at Stanbic Bank, Jibran Qureishi, the overall decline of the private sector was driven by sharp contractions in output and new orders as investors adopted a ‘wait and see’ as political showdown unfolded.
Supreme Court ruling
Although both the shilling and NSE showed maintained stable performance on August 8, 2017, Election Day and preceding days, hell broke loose on September 1 when the Nairobi Securities Exchange shed Sh92 billion in market capitalization on the day after Supreme Court nullified the presidential election.
In November, the government was forced to revise the 2017 Economic Outlook forecast to 5.1 per cent from 5.9 per cent attributed to drought and the political uncertainty.
“Revenue performance lagged behind and with investors adopting a wait-and-see attitude, so overall we are revising our growth to about five per cent,” Treasury CS Henry Rotich said.
While taking oath office on November 28, 2017, after the October 26 repeat presidential election that was boycotted by the opposition, President Uhuru Kenyatta described the election period as most difficult.
“Our democracy has been tested to the limits and things have occurred in Kenya that has never occurred anywhere else on this continent,’’ Uhuru said.
Treasury said that Kenya had lost at least 130 billion from the prolonged electioneering period estimated at one per cent of GDP.
For the first time since 2007, the percentage of non-performing loans (NPLS) hit double digits.
Data from Central Bank of Kenya put unpaid loans as a percentage of gross loans given to customers at 10.7 per cent from 9.9 per cent in the previous month.
Even after Uhuru taking charge of his second term, the opposition continued to rock the administration, threatening to form an alternative government.
February was the worst month at the bourse, with foreign investors selling shares worth Sh5 billion as they exited the market in politically charged environment moment after Kenya’s opposition chief Raila Odinga swore himself as ‘the peoples’ president.
Fruits of the handshake
The now famous ‘handshake’ conceived in March last year by the two leaders did not take long to inspire market confidence.
The composite Purchasing Managers’ Index (PMI), produced by IHS Markit and Stanbic Bank, climbed up to a 26-month high of 55.7 in March from 54.7 in February. It has since maintained the above 50 point threshold.
Kenya’s economy expanded faster in the third quarter of this year than in the same period last year due to strong performance in agriculture and relative peace.
The Kenya National Bureau of Statistics said the economy grew 6 per cent in the third quarter of 2018, compared with 4.7 per cent in the same period in 2017.
Various economists and the international community has attributed the relative growth in the economy to political truce brought about by the handshake.
The National Treasury predicts Kenya to have a 6.1 per cent growth rate in 2019.
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