Economy gets a boost from court decision on poll

Tight security outside the Supreme Court in Nairobi during the ruling on PM Raila Odinga’s presidential petition on Saturday. Photo/JENIFER MUIRURI 

By GALGALLO FAYO

IN SUMMARY

• The unanimous decision delivered on Saturday and the relative calm that followed is expected to put economic activity back on track.
• PM Raila Odinga, who challenged Mr Kenyatta’s victory in the Supreme Court, accepted the decision and appealed to his supporters to keep the peace.

The Supreme Court’s decision to uphold the election of Uhuru Kenyatta as Kenya’s fourth president has lifted the dark clouds that hung over East Africa’s largest economy in the past three months, analysts said.

The unanimous decision delivered on Saturday and the relative calm that followed is expected to ease investor concerns over a possible outbreak of post poll violence and put economic activity — held to a near standstill since the beginning of the year — back on track.\

The Supreme Court declared Uhuru Kenyatta and William Ruto duly elected as President and Deputy President respectively saving the country billions of shillings that would have been spent in a fresh or second round election had their victory been quashed.

“As to whether the third (Kenyatta) and fourth (Ruto) respondents were validly elected and declared President and deputy president-elect of the Republic of Kenya respectively, by the second respondent in the presidential elections held on March 4, 2013; it is the decision of the court that the third and fourth respondents were validly elected,” said Chief Justice Willy Mutunga in a short judgement read to the court at 5 pm.

Prime Minister Raila Odinga, who challenged Mr Kenyatta’s victory in the Supreme Court, accepted the decision and appealed to his supporters to keep the peace lowering the tension that had built ahead of the judgement.

The Independent Electoral and Boundaries Commission (IEBC) had estimated that a presidential election run-off would cost Sh6 billion. The amount was however expected to rise significantly because the electoral body would have been forced to spend millions of shillings in the upgrade its voter identification and results transmission system that failed during the March 4 elections.

Validation of the results came as a great relief for the Treasury, which has been struggling to meet the many competing public expenditure needs against the backdrop of dwindling tax revenues.

The latest Controller of Budget’s report shows that a massive revenue shortfall and slow disbursement of donor funds pushed the government into a deep financial hole, throwing a number of programmes in disarray.

Total revenue collection stood at Sh360.3 billion in the first half of the current financial year ended December 31 against a target of Sh404.3 billion.

That outcome left the government with a financial shortfall of Sh44 billion that the Treasury has been struggling to manage through borrowing and suspension of spending programmes.

(Read: KRA faces tough last quarter with Sh365bn tax gap)

Uncertainty over the outcome of the election – the first since the tumultuous 2007 poll – had hit key sectors of Kenya’s economy, including tourism, which the largest foreign exchange earner, exposing the country to exchange rate volatility and continued widening of the current account deficit.

The tourism sector has particularly been hit by low arrivals from key American and Western European markets following the release of a series of travel warnings by the various governments fearing the outbreak of post poll violence.

The US and the UK issued fresh travel warnings last week asking their citizens to avoid travelling to certain parts of the country ahead of the Supreme Court decision.

The combination of travel warnings and a general fear of possible outbreak of violence left most hotels operating at half capacity and below during the peak Easter tourism season.

Local and international investors have also held billions of shillings worth of investment decisions stifling economic growth and slowing down revenue growth.

(Read: Economy at a standstill as Kenya awaits polls result)

The crisis deepened two weeks ago when the Head of Public Service and Secretary to the Cabinet Francis Kimemia issued a circular stopping any payment to government suppliers of more than Sh500,000 and the award of new contracts and tenders worth billions of shillings.

Government remains the single largest buyer of goods and services in the Kenyan economy and its absence from the marketplace left thousands of suppliers in a business and financial black hole whose end remained tied to resolving the presidential election stand-off.

Besides unlocking the expenditure gridlock, the April 9 swearing in of Mr Kenyatta and the formation of a new government is expected to return the country to normalcy, paving the way for businesses and individuals to release billions of investment funds they have been holding in wait for the elections outcome.

Betty Maina, the chief executive of the Kenya Association of Manufacturers (KAM) called on the Kenyatta government to speedily review Mr Kimemia’s directive on payment of outstanding bills and the award of new contracts.

“We appreciate the need for some kind of controls to ensure accountability but it should be clear to everyone that such rigid measures hurt business and ultimately the economy. Healthy government spending is good for the economy,” said Ms Maina.

Analysts believe that Kenya’s economic fundamentals are strong enough to allow a speedy take-off but that will depend on how Mr Kenyatta manages his relations with a Western world that is nervous about his presidency over the crimes against humanity charges facing him at the International Criminal Court (ICC).

Kenya’s trade with the United States and Western Europe accounts for more than a third of the total external trade and the two regions accounts for more than 60 per cent of foreign aid worth billions of shillings that the country receives every year and public budget and non-governmental support.

Slow disbursement of donor funds in the first half of the current financial year threw a significant fraction of government spending programmes off course, according to the Controller of Budget’s report and the situation is expected to persist unless the new government improves its relations with the donors.

Intense electoral pressure in the past three months nearly brought private sector spending to a standstill and invalidation of Mr Kenyatta’s election risked dampening the economic outlook further by prolonging political uncertainty.

Uncertainties surrounding the March 4 General Election saw banking sector deposits drop by Sh10 billion causing fears of net capital outflows by residents and foreigners seeking safer havens.

gfayo@ke.nationmedia.co
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