Kenya’s Pesky Performance Indictments
Kenyan shares seeking to break from 2011’s abysmal African frontier showing were again trounced by Hague tribunal indictments of Finance Minister Kenyatta and other prominent figures for inciting hatred during the last elections as political and tribal groupings prepare for the 2013 rematch. The writs follow lengthy maneuvering which had considered domestic human rights panel alternatives before allowing international prosecutors to press their investigations. According to the findings, thousands died in ethnic fighting and lands were seized and never returned as subsequent resettlement slowly occurred. Security forces were deployed to pre-empt further unrest after the announcement, which reactivated popular outcry over the tragedy as economic pain bites. Food and fuel-driven inflation is 20 percent, and the shilling in recent months plunged below 100/dollar as emergency IMF credit was obtained to forestall a balance of payment crisis. With heavy domestic borrowing as T-bill rates quintupled over the past year the public debt ratio approaches 60 percent of GDP. The benchmark central bank rate is 18 percent as listed lenders struggle with volatility in the government securities portfolio and mounting bad consumer and corporate credit provisions. Treasury paper tops the sub-region in amount outstanding at one-quarter of GDP and maturities out to 30 years, although corporate instruments trading on the Nairobi exchange remain at a “nascent stage,” according to recent IMF analysis. Capital markets are overly confined to state issuers and the investor base is comprised disproportionately of banks and pension funds which prefer to buy and hold, cramping liquidity. An East African Common Market is slated for mid-decade which will allow cross-listings and align regulation, infrastructure and taxation. Burundi and Tanzania still must liberalize the capital account, and supervisors have a joint body which has forged uniform registration criteria for the larger exchanges. Plans call for demutualization and eventual integration, although debt and equity price changes are largely uncorrelated, according to empirical data.
The Fund urges area authorities to incorporate strategies such as the supra-national one in the CFA Franc zone with a unified bourse or the Asia Bond Market Initiative-type cooperation among Asean members for better policy and practical outcomes. Multilateral institutions could be regular sponsors and issuers as the East African Development Bank and other parties become more active. The official resort could turn more compelling according to the response by African commercial banks to the IIF’s latest emerging market lending conditions assessment. It revealed a “sharp deterioration” in local and external funding availability amid still strong trade finance demand as commodity exporters face their own trials.
