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Kenya’s business environment stable on political truce - IMF

The country's uncertainty level started easing from the third quarter of last year

In Summary

• The heated political wave during and after the two Presidential elections led to investor flight.

• Uhuru and Raila shook hands as a symbol of peace on March 9, 2018.

President Uhuru Kenyatta and Opposition leader Raila Odinga share a light hearted moment at the foot steps of Harambee House after their meeting where they resolved to work together and unite the country after the long protracted elections. March 9, 2018.
President Uhuru Kenyatta and Opposition leader Raila Odinga share a light hearted moment at the foot steps of Harambee House after their meeting where they resolved to work together and unite the country after the long protracted elections. March 9, 2018.
Image: FILE

Kenya’s business environment has greatly improved on political truce between President Uhuru Kenyatta and his rival Raila Odinga, according to an International Monetary Fund document.

Released Tuesday, the quarterly World Uncertainty Index (WUI) which tracks 143 countries globally shows Kenya’s uncertainty level started easing from 0.7 points in Q3 2018, to hit about 0.2 points in Q1 2019.

The two protagonists symbolically shook hands on the steps of the Office of the President on March 9, 2018, as a symbol of peace  in a historic gesture that followed acrimony from two disputed elections in 2012 and 2017, in which the former Prime Minister accused Kenyatta's Jubilee party of stealing the vote.

The heightened campaigns and the subsequent post election tension after the two Presidential elections led to investor flight while others adopted a wait and see mode, fearing a repeat of the ethnic violence witnessed in 2007 that left at least 1,300 people dead.

According to the index based on reports from the Economist Intelligence Unit (EIU) dating back to 1996, Kenya’s business environment worsens mostly in periods of general elections, the highest being 1.2 points in Q4 of 2002.

To calculate the new gauge, IMF researchers counted how often the word 'uncertainty' appears in the EIU reports near terms such as 'tariffs,' 'protectionism' or 'trade. A higher score points to a greater level of uncertainty.

Kenya and Africa’s uncertainties are shrinking despite the global index being 10 times the peak seen in the previous two decades due to trade disputes between US and China.

 "The index shows increased uncertainty starting around the third quarter of 2018, coinciding with tariff increases by the US and China. It then declined in Q 4 2018 as both countries announced a deal to halt the escalation of tariffs in December last year,’’IMF said.

However the respite was brief as uncertainty surged significantly in the first quarter of 2019 following a substantial expansion of American tariffs on imports from China on March 1.

Uncertainty is expected to spike further after US President Donald Trump announced plans to impose more barriers on China yesterday.

According to the Brookings Institute, the increase in trade uncertainty observed in the first quarter of 2019 could be enough to reduce global growth by up to 0.75 percentage point in 2019.

The lender has maintained a pessimist outlook on global growth with forecast at 3.2 percent in 2019, picking up to 3.5 percent in 2020.

According to the report, high levels of trade uncertainty have been recorded in key US trading partners like Canada, Mexico, Japan, large European economies and in countries geographically close to the United States and China.

While advanced economies registered the highest trade uncertainty followed by emerging markets, it remained at average low in low income economies.