Why economy slows in election years


Why economy slows in election years

In 1992, Kenya’s economy collapsed, shrinking by 0.8 per cent.

Kenyans should be concerned about a slowing economy as election campaigns intensity if trends from previous elections are anything to go by, a Nation Newsplex analysis reveals.

World Bank data reviewed by Newsplex shows that the economy has been more likely to slow down to a near standstill during multiparty election years than to grow or slow down slightly.

Out of the 10 elections Kenya has held, the economy slowed or failed to grow in three of the five multiparty elections and in two of the five single party elections.  The time it takes to recover from the slowdown is also longer in the multiparty system period by eight months on average, the analysis done jointly with the Institute of Economic Affairs reveals.

This translates to a six in 10 chance of a slower economic growth being experienced in an election year in the multi-party period and a four in 10 chance in the single party era. Unlike in single party elections, the office of President was up for grabs in multiparty polls, raising the stakes and the likelihood of violent nationwide disputes.

We learned from the 2007 elections that the private sector, like other sectors has a key role in peaceful elections.

An examination of past economic surveys shows that the polarising and violent nature of Kenyan election politics and uncertainty about the outcome, are among the root causes of economic slowdown. 

In the first three election years of the multiparty era, Kenya’s economy slowed to a virtual standstill, shrinking by 0.8 per cent in 1992 and only inching forward by 0.5 per cent in 1997 and 2002.

In the next two election years, in 2007 and 2013, the plunge in economic growth did not materialise in the election year, a reversal of trend that experts attributed to governance and electoral reforms. 

The economy grew by an encouraging seven per cent in 2007 but the good news was short-lived. The contested election resulted in violence in 2008, and sent the economy spiralling down with the country recording growth of only 0.25 per cent.  

That year, according to the Economic Survey 2009, the economic growth momentum that started in 2003 was curbed by post-election disruptions. Even though the violence was experienced only in the first quarter of 2008, its spill-over effects were manifest throughout  the year resulting to substantial declines in growths of most of the sectors of the economy particularly the tourism sector, the second highest foreign exchange earner,  which witnessed one of its worst performances in recent history.

Negative travel advisories against Kenya by major tourism source countries resulted in a tourism earnings drop of almost 20 per cent, while the volume of international arrivals decreased sharply, by 34 per cent.

In 2013, economic growth remained at a steady 5.7 per cent although economists had predicted higher growth. It de-accelerated slightly the following year to 5.3 per cent. 

According to The Economic Survey 2014, challenges that impacted on the growth prospects of the country include slowed business confidence due to the general election during the first quarter, rising incidents of insecurity, and insufficient rains during the fourth quarter of 2013.

However, the negative impact of election uncertainty was mediated by the setting up of the county governments which impacted positively on economic growth as public consumption expenditure rose in line with the devolved system of government.

WAIT-AND-SEE ATTITUDE

Low economic growth means companies have fewer opportunities to grow and they hire fewer people, making jobs harder to come by. It also means less revenue for the government and more taxes to cover government overheads.   For the individual, it results in less money to spend, fewer job opportunities and a high cost of living.

“When the economy slows down, inflation and unemployment usually rise,” said Ms Kariuki, CEO of the Kenya Private Sector Alliance (KEPSA).

Previous economic surveys indicate that many producers in key sectors of the economy adopt a wait-and-see attitude during general elections. Agriculture, on which Kenya’s economy depends heavily, is disrupted by clashes over land, while tourists, both foreign and domestic cut short their visits.  Investors also put plans on hold decisions or cancel them completely in favour of other countries.

The fact that the 2013 election was held in April also meant that the fallout did not stretch in 2014, as happened in 2007.

The all-pervasive nature of the election campaigns also affect the work of non-governmental organisations engaged in non-political work.  “At Internews, we decided to reorganise our journalism training plans in early 2013, because political news clearly dominated the headlines,” recalls Ida Jooste, who was then Internews in Kenya Country Director.

“At the time, Internews had just been granted a health media training grant, Health Media Project. Recognising that the public’s attention was on the election campaign and on news of the Kenya Presidential Election Petition it made sense to postpose some of our planned activities – hoping to achieve greater impact when news audiences out there are ready to read and watch news that was not just about the election and the petition,”  she told Newsplex.

Ms Kariuki said the disputed 2007 election, which was followed by violence that killed nearly 1,000 people, came with some tough lessons for the private sector.  “We learned from the 2007 elections that the private sector, like other sectors has a key role in peaceful elections.

Ms Kariuki also recalled the Mkenya Daima partnership that brought together the private sector with media, civil society, religious leaders, political parties, youth musicians and others, that worked together to work for a peaceful election in 2013.

UNOPPOSED PRESIDENTS

The first General Election in independent Kenya was held inDecember, 1969. Kenya was a de facto one-party state, after President Jomo Kenyatta banned the Kenya People’s Union. 

Five months earlier, the country had witnessed unrest following the assassination of Cabinet minister Tom Mboya, which many people blamed on the government.

Despite these tumultuous events, GDP grew around 8.0 per cent, the same as the previous year. But the following year, 1970, the GDP growth rate plunged, to -4.66 per cent, meaning the economy contracted by the worst ever margin. It is unclear whether the slump in the following year was tied to the election and the prevailing unrest in the country.

Kenya was still a de facto one-party state in 1974, when the second election rolled around This time the pace of economic growth reduced in the election year by almost two percentage points, from 5.9 per cent to 4.07 per cent.

The slowdown accelerated the following year, by more than three percentage points, to a GDP growth rate of 0.88 per cent. The country was affected by a rise in global oil prices following the oil shock of 1973, and a recession that hit advanced economies over the same period.

The opposite happened in 1979, when the rate of GDP growth increased by almost one percentage point, from 6.91 per cent to 7.62 per cent. In this election, Daniel arap Moi, who was acting President following the death of Jomo Kenyatta, was elected unopposed.

Four years later, the 1983 election was held in September, just over a year after a failed coup attempt by rebel junior officers of the Kenya Air Force.  The economy barely grew both years, slowing from 1.51 per cent in 1982 to 1.31 per cent in 1983.

The last general election to take place in the single-party era was held in March 1988. The infamous mlolongo queue system was used in the primaries, and allegations of voter intimidation and fraud were widespread.

For only the second time in an election year in independent Kenya, the economic growth rate accelerated, from 5.94 per cent to 6.20 per cent. But the following year the pace decelerated by 1.5 percentage points.

MULTI-PARTY POLITICS

The 1992 election was the first of the multiparty era, and for the first time since independence, the President faced a challenger. This election was marred by allegations of ballot box stuffing, and Moi won election over a divided opposition.

That year, Kenya’s economy collapsed, shrinking by 0.8 per cent, the worst economic performance since 1970.   There were many reasons. Key among them was the dramatic political reforms resulted in re-introduction of multi-party political system, which was accompanied by economic uncertainty, especially towards the general election.

In some parts of the country, eruption of ethnic clashes, caused economic disruption and a fall in  agricultural output levels in the affected areas. Donors, unhappy with corruption, political repression and seeking liberalisation of the economy, withheld aid.

The Goldenberg scandal had drained Kenya’s foreign exchange reserves, ethnic clashes caused the death of hundreds and the displacement of thousands, and investors and tourists stayed away.

In 1997, the economy grow only by 0.5 per cent. Like in 1992, tribal clashes marred the 1997 election.

In the aftermath of incumbent President Daniel Moi being declared the winner, his closest challenger Mwai Kibaki of the Democratic Party of Kenya (DP) filed a petition contesting the result, but lost.

Earnings from tourism fell sharply by almost 12 per cent as tourist stayed away as a result of disturbances that occurred at the Coast.

MOI ERA ENDS

Kibaki was more successful in the December 2002 General Election, when he won the presidency. He ended the 24-year long reign of Daniel arap Moi and the long-standing dominance of KANU, which had governed Kenya since independence.

Investors were skittish, likely expecting a recurrence of violence, and the decision of Moi not to extend his rule probably reduced the expectations for conflict. Mwai Kibaki was elected the third President of Kenya in a peaceful election.

Soon after, a Gallup poll found that Kenyans were the most optimistic people on earth. Economic growth that had slowed down from 3.8 per cent to 0.55 per cent in 2002, accelerated by more than two percentage points to grow by  2.23 per cent in 2003.

In 2007, the economy grew by a rate of seven per cent.  However, controversy over the December, election contested between Kibaki and Odinga, sparked violence, resulting in the deaths of nearly one thousand people and the displacement of tens of thousands of Kenyans across the country.

It was the darkest moment in Kenya’s history since independence, and economic growth slowed to a crawl of 0.23 per cent in 2008.

The last General Election that was held in April 2013 saw President Uhuru Kenya succeed President Kibaki and was the first election under the new devolved system of government brought about by the promulgation of a new constitution in 2010. 

Mr Kenyatta, was declared winner of the hotly contested election with 50.5 per cent of the vote, meaning that a runoff was not needed. His main challenger, Mr Odinga unsuccessfully contested the results in the Supreme Court.

In 2013, the economy grew by 5.7 per cent, which dropped only slightly to 5.3 per cent in 2014 despite another disputed election, suggesting that Kenyans and investors had more confidence in the dispute resolution mechanisms created by the new constitution. The fact that the 2013 election was held in April also meant that the fallout did not stretch in 2014, as happened in 2007.