Handshake bears peace dividend for Kenya’s economy

If there is one thing that significantly transformed Kenya’s socio-political and economic landscape in 2018, it can only be the March 9 political truce between President Uhuru Kenyatta and opposition leader Raila Odinga -- popularly known as ‘the Handshake’.

It pulled Kenya back from the brink, cooled the excruciating political heat that followed the contested August and October 2017 presidential elections, put the country on the path of reconciliation and created space for a resumption of economic activity that had come to a near standstill.

The handshake came just four months after Mr Kenyatta was controversially sworn in for a second and final term following a repeat election that Mr Odinga’s opposition alliance boycotted and dismissed as a farce.

KENYA ON CLIFF-HANGER

Just five weeks earlier, Mr Odinga and his opposition supporters had put the country on a cliff-hanger with his January 31 swearing-in as the ‘’people’s president’’ at Nairobi’s Uhuru Park amid threat of bloody clashes with security forces.

But when they stood on the steps of Harambee House, the Office of the President, in central Nairobi on March 9 to announce the truce, the two leaders offered a diagnosis of what ails Kenya that did not surprise many. Defusing ethnic competition, strengthening devolution, inclusivity, avoiding divisive elections, security and shared prosperity is all Kenya needs to be at peace with itself and continue in its journey of improving the lives of its citizens.

The two protagonists turned friends then went on to announce that their rapprochement would mean an end to the violence, bitterness and political instability that followed the disputed elections and put the economy on the path to recovery.

BUSINESS

They were right. Weeks and now months since the handshake, Kenya’s business climate has stabilised and the economy, though struggling with major non-political challenges, remains on the growth path.

“The truce helped the economy, and stopped the disintegration of business associations,” said Nairobi lawyer Charles Kanjama even as he acknowledged that major challenges such as the ballooning national debt remain.

Kenya’s delicate tourism sector was one of the early beneficiaries of the truce that saw a steady arrival of thousands of foreign visitors, earning the country some valuable dollars that ultimately contributed to the shilling’s stability. This was the very first piece of the handshake’s ‘peace dividend’ that was then followed by key sectors such as the stock market.

The average daily traded turnover at the Nairobi Securities Exchange (NSE) rose 31 percent to Sh868 million in the six months to June compared to a similar period in 2017, setting up stockbrokers and their agents for higher commission earnings.

Ultimately, the Kenyan economy got enough headroom to expand by an estimated 6.3 percent in the first six months of 2018 offering hope for more jobs. That was until September when the government muddied the waters with the introduction of an eight percent value added tax on petroleum products that set inflation on a roll.

REBOUND

The Kenya National Bureau of Statistics (KNBS) data indicated that a rebound in the agriculture and a stable macroeconomic environment in the first half of the year helped lift the economy as the knocks of last year’s prolonged electioneering and drought faded away.

Kenya Private Sector Alliance (Kepsa) chief executive Carole Kariuki said the truce between Mr Kenyatta and Mr Odinga had boosted efforts to stabilise the economy and gave businesses breathing space from the political heat that hurts business and investments.

The Kenyan economy ordinarily takes a dip every five years as businesses hold back investment decisions awaiting the outcome of the ever contested elections.

“The truce enabled the private sector move into 2018 with renewed optimism and confidence as calm returned following the turbulent year that was 2017.” Throughout 2017, economic activity had buckled under the weight of a biting drought that crippled farming, and the elevated political uncertainty that characterised the bruising presidential contest as the country headed to the August polls – putting on hold investment decisions.

That, together with the debilitating effect of a sharp drop in loans to the private sector following the September 2016 introduction of a law capping interest rates, resulted in the slowest economic growth in five years at 4.9 percent.

Thanks to the handshake that had improved to 6.3 percent by the end of the second quarter of 2018.

Ms Kariuki said the business community, in partnership with the government, was building up on the gains from the truce to work on “targeted policy and business reforms”. That has since put Kenya firmly on the path of progress earning the country a better ranking (61) in the World Bank’s ease of doing business report and the third best in Africa.

“As we usher in 2019, we aspire to leverage on the momentum, work in partnership with all stakeholders and focus on the country’s ambitious development goals, including the Big Four agenda to stimulate further growth and development,” Ms Kariuki said, adding that “2019 is the year we define our future and put Kenya on path to economic supremacy.”

Meanwhile, the National Treasury has upgraded Kenya’s economic growth projection this year to six percent from 5.8 percent in June, largely banking on renewed private sector confidence and increased agricultural output.

Besides, heavy rains in the second quarter of the year portend good tidings for the agricultural sector that has made Treasury secretary Henry Rotich quip that growth could touch a seven-year high.

“Economic recovery is on course, reflecting a return to stability and renewed confidence following the conclusion of the lengthy electioneering process in 2017 and improving weather conditions,” Mr Rotich said.