2012 a make-or-break year for Kenya as a number of things could go wrong

Politicians, pundits, and (sometimes) development practitioners exaggerate a point to better drive it home. Many have been arguing that 2012 will be a make-or-break year in Kenya’s history, similar to 1963 or 1992.

But, is the 2012 challenge for real or just a case of pundits playing Cassandra? Will it really be a defining year for the country?

Kenya can still turn the corner if 2012 turns out to be an average or even a weak year but a number of things could go wrong next year with long term adverse consequences.

Specifically, there are three challenges coming together.

First are national elections. The last General Election ended in a catastrophe.

May be tarnished

If the 2012 elections are again violent, Kenya’s image as a peaceful and mature democracy may be tarnished for a generation.

Investors and tourists would be even more reluctant to come to Kenya and quick to dismiss the “friends of Kenya” (including your columnist) who strongly believe in the strengths of this country and its medium-term potential.

In news headlines, Kenya would join the ranks of other unstable African countries such as the Congo or Cote d’ Ivoire and drift away from emerging economies such as India and Indonesia.

Second is implementation of the Constitution. Even though all eyes are on the presidential race, elections will be held simultaneously for parliament and the brand new 47 counties, governors and assemblies.

This will not only make it the most challenging logistical effort in Kenya’s electoral history but also establish a new system of devolved government and alter Kenya’s structure as a country.

Kenyans bring to this process tremendous enthusiasm and energy, but the devil lies in the detail.

The specific design of fiscal architecture, accountability systems and the management of this massive transition will determine whether Kenya can weather the economic storm in a way that enhances social equity, service delivery, citizen engagement, and so deliver the promise of institutional transformation.

Third is the next global economic crisis.

It is clear that the world economy will be in turmoil in 2012, the only uncertainty is about the extent of the crisis. Europe’s inability to solve its debt problems is directly affecting economic prospects in developing countries.

Flowers and vacations are luxury goods, which Europeans are likely to sacrifice first as their income drops. Unfortunately for Kenya, they are among the main sources of foreign exchange for the country.

During 2008/09, Kenya was able to weather the global financial crisis by using fiscal and monetary stimuli.

But today, Kenya’s economy is in a weaker position and fiscal buffers need to be rebuilt before they can be used again.

Could go wrong

Also, these economic challenges come at a time when more resources are needed, including for decentralisation and the war in Somalia.

These are the key reasons why 2012 could go wrong. But Kenya’s policy makers can rise to the challenge and engineer a turnaround.

In defining years, countries can re-invent themselves.

In 1990, Germany took the opportunity of reunification swiftly.

In 1994, South Africa delivered surprisingly free, fair and stable elections ending apartheid.

In 1999, after the fall of long-time dictator Suharto, Indonesia introduced democracy and sweeping devolution.

All three countries made big mistakes in these crucial years, especially in economic policy, which are still being felt today.

But at the same time, all three countries adopted more stable, democratic and flexible institutions, which have paid-off in the medium-term and helped them during the recent economic challenges.

Some countries even managed to turn around after war and crisis, including the Asian success stories of South Korea and Vietnam.

In Africa, more recently Mozambique, Uganda and Rwanda all have experienced political stability and economic recovery after destruction.

Although the particular context and dynamics are different, Kenya is at a similar turning point in its history.

There is a direct relationship between the 2007/08 post-election violence and the adoption of the new Constitution, with its radical provisions for improved governance and devolution.

2012 will be the first big test of whether the “New Kenya” can deliver free, fair and peaceful elections as part of a new institutional structure and at the same time provide continued growth during a global economic crisis.

Kenya’s politicians may keep these challenges and opportunities in mind as they finalise their wishes and resolutions for the New Year.

You can also read Mr Fengler's blog in Africa Can here

Wolfgang Fengler is the Lead Economist, World Bank Kenya Programme