Kenya’s Ponderous Poll Judgment

Kenyan shares stayed in the MSCI frontier lead pack after initial upset over a delayed presidential vote count and ballot disqualifications, as the son of independence fighter Kenyatta got just over 50 percent to avoid a runoff and stressed political reconciliation and unity despite his Hague indictment for inciting tribal violence at the last contest. The wealthy landowner and former Finance Minister was believed to vastly outspend rival party alliance leader Odinga, who will proceed to challenge the outcome, aided by international observer doubts about fairness, through procedures established after 2008’s deep dispute. On the diplomatic front, countries like the US and UK recognized the results with the stipulation that the new government head could be held at arms-length while under investigation, although charges against an alleged accomplice were dropped by the tribunal. His running mate Ruto was also implicated, and previously left a ministerial post on mismanagement reports. As the transition proceeds GDP growth and inflation should both be around 5 percent, and the central bank should claw back interest rates another 100 basis points. Agriculture and tourism should do well even though flower exports were stunted by the election during the peak shipping season, and financial services could benefit by Odinga’s defeat as his platform suggested rate ceilings for borrower relief. Housing credit has been on a tear, with the World Bank’s IFC affiliate just providing additional lines, and cross-border retail expansion is a prominent trend with supermarket Uchumi now cross-listing in Tanzania and Uganda. During the campaign both contenders agreed to boost the minimum wage and cited the need for better tax collection as spending will automatically increase under more decentralized executive and legislative functions accompanying previous constitutional changes. The public debt/GDP measure approaches 50 percent, but a $750 million pilot external sovereign foray is in the works amid a continental rush to market. It may contain special features as Kenyatta pioneered a tax-exempt local infrastructure bond as Finance Minister. He may also continue outreach to the Horn of Africa, in Ethiopia, Somalia and the Sudans, to bolster commercial and banking ties outside the East African Community.

South Africa is at the opposite point on the spectrum as a bottom core universe performer entering its own election period, with President Zuma now facing opposition from a new splinter group launched by a celebrated anti-apartheid figure who later worked at the World Bank. The economy is the overriding issue as growth and fiscal outturns both disappointed, the current account gap swelled to 7 percent of GDP, and the rand crashed through 9 to the dollar. Portfolio inflows in the last quarter were off sharply, as negative ratings watches from all three agencies may remove Citi World Bond Index eligibility. The President’s rhetoric prefacing a BRICS summit accusing Western firms especially in the mining sector of a “colonial” approach may continue to sway their judgment.