Kenya – Swift resolution to the crisis required

The post-election violence in Kenya is disappointing, and should be handled carefully by the opposing parties, lest it escalate and do permanent damage to the social fabric and economy of what has been one of the most stable countries in Africa. Although we have seen some election-related unrest before, and it has proven to be short-lived, a return of such instability is unfortunate and does the image of the economic power-house of East Africa no good.

Mr Kibaki’s term in office, from a base of high expectations, has disappointed in a number of aspects, most notably his failure to deal decisively with corruption, and widespread perceptions of favouritism toward his Kikuyu tribesmen. Mr Odinga’s popularity can in part be attributed to resulting anti-Kikuyu sentiment.

The presidential election was expected to be a close call, based on polls over the last few months. With neutral observers calling for an audit of the result, widespread allegations of vote-rigging and an apparent victory for Mr Odinga’s Orange Democratic Movement over Mr Kibaki’s Party of National Unity in the simultaneous parliamentary election, it seems likely that Mr Kibaki “won” a flawed presidential election.

While it is possible that the problems escalate and become more widespread, we expect sanity to prevail amongst the leadership, and for the violence to blow over relatively speedily. Exactly how the current political impasse will be resolved is unclear. It will depend on the willingness of the protagonists to accept compromise over an all-or-nothing approach.

“The private sector, stock market and economy in Kenya have been thriving in recent years. Although we quantify and take into account political risk in our investment decisions, the reason for Investec's Africa Funds' current limited exposure to the Kenyan market has largely been due toits relatively lofty valuations.

“If, as expected, the violence and disruption are short-lived, we foresee a continuation of strong economic growth. With three sessions of trading since the election result, the stock market has remained fairly steady and was actually marginally firmer on Monday 7^th January. We will be watching the situation carefully, but will not be making any rash investment moves. Events in Kenya are perhaps a timely reminder that while attractive returns can be generated across the continent, political risk always needs to be taken into account when investing in Africa."