With 2019 elections set to take place in Africa’s two biggest economies, Nigeria and South Africa, Kenya’s current and past presidential election experiences can serve as a lesson for those two African powerhouse nations.
Kenya’s recent presidential elections held on Aug. 8 were nullified by the supreme court in the country after allegations of hacking and manipulation in favor of incumbent Uhuru Kenyatta, with the court stating that the election was not conducted in accordance with the constitution.
No blame was placed on Kenyatta and his party, however, with the supreme court finding the election commission at fault and ordering new elections within 60 days.
Kenya prides itself on uniqueness. The darling of East Africa is a hub for banking, investment and entrepreneurship.
Between Karen and Westlands in Nairobi, it is easy to come across the familiar East African (and Pan-African) names changing the African business landscape.
Business people choose the country for all the aforementioned reasons, coupled with moderate political stability.
Yet the last few months have not given business professionals great confidence, as the economy has partially stalled in the midst of a second election. The Kenya Supreme Court invalidated August’s president election and ordered a new vote for this month.
Trading was briefly stopped at the Nairobi Stock Exchange, following the announcement last month, as a drastic sell-off took hold and the Kenyan Shilling slid against the U.S. dollar.
Small protests have persisted as a backdrop to public committee discussions around how to improve procedures and rules for the Oct. 26 election re-run.
The tension and unrest, as well as an elongated political process, is having adverse effects on the economy. The delays and theoretically “sitting still” until the process has passed has dragged growth below five percent for 2017, compared to original predictions of around six percent for this fiscal year.
Another election will entail another week (or two weeks) of Kenyans missing work to go “upcountry” (go to their home town/village) and foreigners leaving the country for up to a month in case 2007 repeats itself.
Locals strongly believe Kenya is beyond the post-election violence of 2007 and 2008. The violence then left hundreds dead and hurt Kenya’s global reputation.
Visitor numbers plummeted one-third in the 12 months following the unrest. Terrorist attacks in 2013 and 2015 – coupled with travel warnings by Western governments – further jilted outside perspectives.
Any repeat of similar violence in the aftermath of this election would be damaging. Such unrest is not expected, but the uncertainty leading up to the Aug. 8 and now Oct. 26 election dates show that political and economic instability can be a derivative of violence and unrest, as well as uncertainty.
Markets are still betting on a “repeat” victory by incumbent president Uhuru Kenyatta. Then again, the markets bet against U.S. president Donald Trump and Brexit, and underestimated the vote count for the Alternative for Germany (AfD), the alt-right party in Germany’s recent election.
Africa’s two biggest economies will have an election in 2019, with many observers and investors speculating on the side-effects of the political process on both economies, especially if fallout comes about before or after the process takes its due course.
GDP contracted 0.3 percent and 0.6 percent respectively in the fourth quarter of 2016 and first quarter of 2017. The country exited recession in the second quarter of 2017 with 2.5 percent growth, reflecting a 1.1 percent growth from a year earlier.
The figures have dampened investor excitement and local market confidence. Exports have slowed and productivity, especially in key industries such as mining, have only exacerbated bad headwinds such a low commodity prices.
South African president Jacob Zuma cannot run for another term. That news excites many critics who consistently point to corruption claims and poor management as weights on the back of the economy.
The 2019 elections will result in the fifth elected president in post-apartheid South Africa. And it may embody the most contested (and uncertain) election as the pro-Zuma and anti-Zuma factions fight within the African National Congress (ANC) for control.
Deputy president Cyril Ramaphos, alongside former deputy finance minister Mcibisi Jonas recently threw their hats in the race.
Ramaphosa is considered the representative of the anti-Zuma faction as well as a strong businessman, considering his business endeavors and board membership with MTN and Lonmin.
The pro-Zuma faction is led by Nkosazana Dlamini Zuma, the ex-wife of Jacob Zuma.
The Democratic Alliance (DA), led by Mmusi Maimane, and the Economic Freedom Fighters, led by Julius Malema, will also contest the election as opposition parties, with the DA and EFF looking to turn their combined 29 percent from 2014 into a plus-50 percent in 2019.
Business owners and investors cannot predict what the spillover effect will be from the ANC internal battle and larger election on the economy. Some economists speculate that the economy should lose 1-2.5 percent off of GDP in the occurrence of a very contentious political fight.
Nigerian President Muhammadu Buhari was elected in 2015 and is eligible to run again in 2019. But he has indicated a lack of interest in seeking re-election, with critics believing this position more and more as he has spent months in London this year due to health reasons.
Speculation is rife on who may be the candidates in 2019. Many are organizing quietly behind the scenes as Buhari could easily choose to run again, with his party open to this scenario.
As a consequence, many political observers and economists expect the election (and the accompanying campaign spending) to hit the country hard around mid-2018.
Business leaders are planning for a contentious process if there is no incumbent and no long standing opponent in the waiting. Buhari represented the latter, having run for president in 2003, 2007, 2011, and 2015 when he challenged former president Goodluck Jonathan.
New faces create new opportunity for change, particularly with rearranging an economy heavily depending on oil tax revenue.
Locals, at the same time, caution themselves and investors because changing the Nigerian government system is not simply about changing the people, as one prominent local businessman stated it, but also a rearrangement of institutions, the economy and budgeting.
As a result, most investors (and donors) have cautioned that Nigeria could be in a “holding stage” until the election has passed and the new administration has put a few strokes to the economic canvass that is Nigeria.
The growing concern in different corners of Africa is that investors may simply take Kenya’s election and extrapolate good and bad lessons to the rest of the continent.
Economists speculate that South Africa and Nigeria could both lose 1.5 percent of GDP – give or take some percentage points depending on how long the electoral process goes on (including campaigning, administration handover, and filling of cabinet spots).
And, similar to Kenya, the uncertainty will surely have some effect on the local currencies against the U.S. dollar, as well as require a week or two of downtime for urban workers to travel to local towns and villages to vote.
Foreigners equally may exit the country for weeks to a month to watch from afar the rollout of polls, results, and administrative handovers.
Donors and investors, already citing shaky economic numbers from 2016 and 2017, are quietly expecting capital investments into these two big giant economies to slow somewhere around the third quarter of 2017.
Private equity fundraising in previous years already suggests that the risk during the political uncertainty—rather accurately stated or overstated—will hit a bump in the road on a similar timetable.
Further exacerbating the economics is the overhang of bond status reconsideration. Moody’s is currently reassessing Kenya’s status in the midst of this election and high debt loads.
Voters and investors may equally be reassessing the current political system and trying to assess what the future holds for their pockets once the storm calms. That hesitancy may underpin the storm’s aftershocks in the months following the election.
Kurt Davis Jr. is an investment banker focusing on the natural resources and energy sectors, with private equity experience in emerging economies. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at kurt.davis.jr@gmail.com.
