Feb. 8 (Bloomberg) -- Kenya’s Finance Ministry is betting on peaceful elections next month to boost investment and economic growth even as tourists and exporters hold back amid concern about a renewal of ethnic violence.
Voters go to the polls in the world’s biggest tea-exporting nation on March 4, the first election since a disputed 2007 presidential ballot triggered two months of clashes that killed 1,100 people died and displaced a further 350,000. Economic growth slumped by two-thirds to 1.5 percent in 2008 as farmers were driven from their fields and tourists stayed away.
“A smooth transition would buy a permanent assurance that we have matured into a solid democracy and attract even more investors who are in for the long-term,” Economic Secretary Geoffrey Mwau said in an interview. “With a few weeks to go, there haven’t been acts of violence necessarily associated with elections or hate speech.”
Kenya has implemented a range of measures since the last vote to support the economy and ease ethnic tensions, including investing in roads and power and adopting a new constitution that will devolve power to county governments. That’s helped to support investor sentiment, encouraging companies such as Toyota Motor Corp., Google Inc., Visa Inc. and Pfizer Inc. to create their regional hubs in Kenya.
Concern that violence may flare up during the elections threatens to derail investor confidence. Some businesses, mainly local ones, have delayed investment decisions, according to the Kenya Private Sector Alliance, or Kepsa.
Political and ethnic clashes in the south-eastern Tana River delta region and elsewhere killed 450 people since last year, according to the United Nations. The spate of violence between the Pokomo and the Orma communities in Tana River erupted in August in a dispute over grazing land and water. Violence also marred party primaries last month when candidates were selected for the six-office vote.
The shilling has declined 1.6 percent against the dollar this year as businesses accumulate dollars ahead of the elections. The currency gained 0.2 percent to 87.51 per dollar by 9:06 a.m. in Nairobi.
Companies are saying they “may not expand as fast, or invest as much before the elections,” said Carole Kariuki, chief executive officer of Kepsa, which represents businesses in Kenya. “Some investors are saying they have everything ready to go right after the elections.”
Farms that supply a third of the flowers sold in Europe are accelerating output ahead of Mother’s Day celebrations, which in the U.K. falls on March 10 and in North America on May 12, according to the Kenya Flower Council.
Bookings by tourists, the second-biggest source of foreign-exchange income after tea, have fallen by as much as a fifth at the most popular coastal tourist destinations this year compared with 12 months ago, according to the Mombasa and Coast Tourist Association.
Prime Minister Raila Odinga is seeking to replace President Mwai Kibaki, who is stepping down after his two-term limit. Odinga’s closest challenger is Deputy Prime Minister Uhuru Kenyatta, the son of Kenya’s first president, Jomo Kenyatta. In the last election, supporters of Odinga, an ethnic Luo, clashed with members of the Kikuyu community to which Kenyatta belongs. The violence ended when Kibaki signed a peace accord that installed Odinga as prime minister.
Kenya has benefited from the first discovery of crude made by London-based Tullow Oil Plc and partner Africa Oil Corp. in March, boosting foreign inflows. The economy will probably expand “slightly above” 5 percent this year, Mwau said in a phone interview on Feb. 5. That compares with about 4.5 percent in 2012 and 7 percent in 2007, and remains below the government’s 10 percent target by 2017.
Kibaki has ordered security forces to ensure this year’s elections are peaceful, while companies including Safaricom Ltd., the country’s biggest mobile-phone operator, are appealing for voters to reject fighting through text messaging. The local Umati project is monitoring social media and blogs for hate speech and incitement.
The election outcome itself is a source of concern. The International Criminal Court in The Hague accuses Kenyatta along with his running mate William Ruto, a lawmaker, of directing some of the clashes five years ago and ordered them to stand trial in April. They both deny the charges.
Kenya may face international sanctions and diplomatic isolation if Kenyatta and Ruto are voted into office and fail to cooperate with the ICC, according to analysts including Aly-Khan Satchu, chief executive officer of Nairobi-based investment company Rich Management Ltd.
The lack of accountability for lower level perpetrators who murdered, raped and forcibly displaced people in post-election violence in 2007-08 is creating tension, New York-based Human Rights Watch said today in a report based on 225 interviews across the country. The public prosecutor’s office in Kenya verified 24 convictions as of August out of 6,081 police files connected to the clashes.
“The victims of violence feel that justice has passed them by and the people who caused the violence feel protected from the law,” Daniel Bekele, Africa director at Human Rights Watch, said in the report. “This is a dangerous cocktail for the approaching elections.”
For now, Fitch Ratings is signaling the vote may provide a positive outcome for investors.
The risk of a repeat of the 2007 violence in Kenya is “moderate,” it said on Feb. 6. Fitch rates Kenya at B+, four levels below investment grade and on par with Zambia and Ghana.
“Smooth elections that bring continued stability and a favorable impact on the investment climate would bolster creditworthiness,” Fitch said. “A repeat of the violence seen in early 2008 would be a major setback.”
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