Kenya – Implications of fresh elections

On Monday, September 4, the Independent Electoral and Boundaries Commission (IEBC) announced that the country will head back to the polls on October 17. However, National Super Alliance (Nasa) presidential candidate Raila Odinga has rejected the proposed date citing a lack of consultation.

Mr Odinga is reported as saying that the opposition wants its issues regarding the IEBC (the firing of its top six officials and an audit of the technology used in the election) to be addressed before a date is set.

Mr Odinga is quoted by Reuters as saying that he wants elections held on either October 24 or 31.

In addition, Nasa states that it plans to lodge 62 court cases contesting the results of governorship, legislative and member of county assembly (MCA) elections.

Thus, while we know that fresh elections must by law be held within 60 days of the historic September 1 Supreme Court ruling annulling the August election results, it remains unclear whether they will be on the date specified by the IEBC and who will organise and oversee them.

IEBC Chairman Wafula Chebukati on Tuesday, September 5, dismissed reports that the commission’s CEO, Ezra Chiloba, and other senior staff have been put on compulsory leave, but said that changes to the secretariat would be made before the election.

Furthermore, Mr Chebukati said that “the commission is revising the operational and procedural requirements for the conduct of the fresh elections,” adding that those changes will be expedited once the commission gets the full judgment of the Supreme Court.

That, however, may only be towards the end of September (the court must make its full judgement available by September 21), which would leave the commission with little time to institute the necessary changes.

Mr Chebukati himself has refused to step down which will not help improve the credibility of the commission.

Assuming the elections go ahead in October as planned, what are the possible political and economic implications we can expect?

The next two months are going to be turbulent as both parties kick campaigning into high gear once again.

The run up to the August election was for the most part more peaceful than the 2013 poll (the gruesome murder of IEBC employee Chris Msando notwithstanding). Protests and riots in the six months prior to the election averaged 20 per month compared to 24 per month for the six months before 2013’s poll, according to the Armed Conflict Location & Event Data Project (Acled).

But protests and riots in the lead up to an election are not necessarily a good predictor of what to expect thereafter. In 2007, there were only 24 protests and riots in total in the six months leading up to those controversial polls, but the violence that followed the announcement of results claimed around 1,113 lives and left hundreds of thousands displaced.

The fallout from the disputed results of the August 8 election was more violent than we had expected. Although there were fewer recorded protests and riots than in 2013 (31 in August 2017 compared to 34 in March 2013), the number of fatalities attributed to post-election unrest so far this year was significantly higher (Human Rights Watch puts the figure at 24 but said that this was likely an underestimate, while Acled data states as many as 45 lives were lost).

The police have yet to be officially censured and there are calls for the Independent Policing Oversight Authority (IPOA) to investigate, but with 60 days until the next election, there is not much time to have any effect on policing culture. The official commission of inquiry into the 2007/08 post-election violence attributed 405 of the 1,113 deaths to the police.

Tensions may increase ahead of the October polls, but the real danger will come once the results are announced – whichever way they go.

With regard to the expected result of the re-run election, we still believe that President Uhuru Kenyatta is the favourite to win.

Prior to the August 8 poll, we had forecast that he would win with around 52.3% of the total vote (the annulled results showed that he received 54.3%).

The main factor to watch remains turnout. As can be seen in the graph, Mr Kenyatta’s Jubilee Party is dominant in the country’s most vote-rich regions.

If turnout is higher in October than in August, as we suspect it will be, the likelihood of the incumbent retaining his place will also be higher. We had anticipated a turnout of 78.6% ahead of the August 8 poll (compared to 84.9% in 2013), and the IEBC’s annulled results showed a turnout slightly lower at 77.5%.

The annulled results, while in line with our forecasts, did show some surprises. We had expected Mr Odinga to do better in Nairobi and for turnout in the Rift Valley and North Eastern regions to be higher (which would have favoured Mr Kenyatta).

Of course, there is still a chance that Mr Odinga could win the presidential election. If this were to occur and there were no re-runs of elections for parliamentary seats, it would mean that he would be president while the Jubilee Party had a significant majority in the National Assembly.

This would in all likelihood lead to his policies being stonewalled – effectively making him a lame duck president – and would have serious implications for economic growth.

Turning to implications for the economy, our next forecasting round is only at the end of October so we do not have any new figures at the moment, but we have narrowed down the possible impact on our forecasts.

Arguably the biggest risk relates to the country’s fiscal position. The 2017/18 budget has allocated just under $400m towards the IEBC for election-related expenditure, but some estimates put the actual cost of the election at around $500m.

It should be noted that a large proportion of this spending would have been once-off purchases that will not have to be repeated, and donors would have also footed a proportion of the bill – and we can expect external donors to remain engaged for the October elections given the positive light in which the Supreme Court’s decision has been received, at least from an institutional perspective.

Still, the amounts involved do raise some concern, particularly when considering Kenya’s already precarious fiscal position.

However, precisely because of this precarious fiscal position, we expect Kenyan authorities to keep a firm grip on any unplanned spending in order to contain risk perceptions. The IMF has continued its unwavering support for Kenya despite the country’s disappointing fiscal consolidation track record, but the Kenyan authorities would not want to push their luck in this regard.

Also, every major rating agency identifies Kenya’s fiscal position as risk negative, and Kenyan authorities will need to ensure that these perceptions do not deteriorate going forward. Consequently, we do not expect any significant difference to the country’s fiscal forecasts.

One important channel through which we do expect the re-run of the election to have an impact on our forecasts is on external balances.

It was quite telling how quickly regional traders (particularly Ugandans) were willing (and able) to channel external trade through Tanzania at the expense of Kenya due to fears of trade disruptions during the election period.

Given that this period is now being extended, we can expect more trade to be directed away from Kenya – re-exports has become an increasingly important trade category in Kenya.

In addition, the uncertainty created by the political environment will also have a negative impact on tourism, which will reduce services receipts. The overall impact on external balances will be notable but won’t have a material impact on external risks.

With regard to GDP growth, the re-run is expected to have a marginal negative impact.

This will primarily be through the impact on risk perceptions, with both domestic and external investors adopting a wait-and-see approach.

Foreign direct investment (FDI) dropped from just under $600m in 2015 to just over $300m last year. Our previous forecasts incorporated a notable rebound in FDI this year, but these figures will be adjusted to show relatively stable FDI in 2017.

Furthermore, the negative impact on GDP growth in 2017 will be largely offset by a slight improvement in 2018 growth as insecurity perceptions subside.

There is still a lot of uncertainty regarding the October re-run elections. We do not know what changes will need to be made to the IEBC and whether they will have time to implement them. We do not know whether other elections (legislative, governorship and MCA) will also be re-run. And we certainly do not know whether candidates are going to call for calm in order to avoid further violence.

What we can perhaps be more sure of is that Kenyans will be more motivated to vote when elections do occur – meaning voter turnout would be higher which would boost Mr Kenyatta’s chances of re-election.

If legislative elections are not re-run and Mr Odinga pulls off a surprise win, we can be sure that a Jubilee-dominated Parliament would make policy making very difficult for him and this would have negative consequences for the economy.

We can expect the economy to suffer over the short term due to these multiple uncertainties and the country’s already-precarious fiscal position could be negatively affected.

There was euphoria in many quarters when the Supreme Court made its historic ruling. The institution’s independence is positive and the precedent set will hopefully lead to better elections going forward. However, the ruling has not been without its costs.