Indepth Business Consultants

Kenya - Kenyatta Victory In Rescheduled Vote Is Most Likely Scenario

Uhuru Kenyatta remains the most likely winner of Kenya's rescheduled presidential elections due to take place on October 17, which underpins our expectation of gradual fiscal consolidation in the years ahead. That said, with the potential of a decline in turnout amongst Kenyatta supporters, this analysis also examines the possibility of a victory for challenger Raila Odinga and the impact this would have on the Kenyan economy.

The Supreme Court's decision to annul the result of the August presidential election will elevate political uncertainty over the coming months. Although our core view maintains that incumbent President Uhuru Kenyatta will win the rescheduled vote on October 17 (albeit by a diminished margin), there are a number of risks to this view, not least lower-than-expected turnout in the rescheduled vote. In this scenario analysis we assess four potential scenarios - our core view and three others - and highlight the likely implications of each. While a return to the levels of election-related violence seen in the aftermath of the 2007 vote is unlikely, most scenarios include a relatively high likelihood of unrest. Moreover, while under our core view Kenyatta will be well positioned to push through his policy platform - not least plans for fiscal consolidation - other scenarios acknowledge a high risk of greater spending in the coming years, eventually necessitating a sharper pullback further.

Scenario Probability

Kenyatta re-election (slim majority) 35.0%

Kenyatta re-election (large majority) 20.0%

Odinga victory 25.0% .

Wild card - no election 20.0%

Scenario One: Kenyatta Re-Election With Slim Majority (35% Probability)

Our core view remains that President Uhuru Kenyatta will win the presidency in the rescheduled vote. We believe that Kenyatta's margin of victory in the August poll was sufficiently large to ensure he will win re-election when the vote is held again in October. According to the now annulled results, the incumbent president took 54% of the total vote share, compared to 45% for opposition candidate Raila Odinga. While the court's ruling that the electoral process contained sufficient 'irregularities and illegalities' to require a revote, we believe any rerun will likely produce a similar result. The 2017 results correlate with previous elections, displaying clear trends in regional voter preference and turnout. For instance, the Rift Valley and Central regions that are home to much of Kenya's Kikuyu and Kalenjin ethnic groups, voted overwhelmingly for Kenyatta and his running mate William Ruto, both of whom come from these areas. If the irregularities with the process cited by the Supreme Court did indeed affect the result, a regional breakdown of results suggest it is unlikely that they afforded Kenyatta all of the 1.4mn vote majority over his opponent declared by the Independent Electoral and Boundaries Commission (IEBC).

The court's decision will have likely dampened enthusiasm amongst Kenyatta supporters, with a combination of voter fatigue and declining enthusiasm for their candidate possibly weighing on turnout when the election is held again on October 17. Although the court's initial statement on its ruling directed criticism towards the IEBC, rather than Kenyatta himself, it will likely prove difficult for the president to emerge entirely unscathed from the incident. That said, we believe the Kenyatta campaign will be wary that a substantial decline in voter turnout could be enough to hand victory to Odinga, and so will look to prioritise this threat in the weeks ahead, possibly by resorting to increasingly extreme rhetoric. Ultimately, we believe that ethnic and regional loyalties will ensure Kenyatta achieves sufficient turnout amongst his supporters to hold onto office. While association with the now discredited August election could discourage some supporters from voting, we do not believe this will amount to the 17.1% decline in Kenyatta's vote share that would have resulted in an Odinga victory in August. This will see Kenyatta retain his majority, albeit by a smaller margin.
Implications: Under our core scenario, we could see a brief uptick in social unrest as opposition supporters once again take to the streets to vent their frustrations with the lack of progress at the ballot box.

Odinga's decision to take his rejection of the previous result to Kenya's courts, rather than use it to incite p***c protests, was instrumental in limiting violence after the initial verdict was announced. If the court upholds a Kenyatta victory in the rescheduled election, the risk of violence becomes far more pronounced as Odinga looks to exhaust all his options in denying Kenyatta a smooth transition to office. We believe this would become particularly likely if the result was close. Believing they have already been denied one rightful victory by corrupt electoral institutions, a narrow defeat would only add to the frustrations of Odinga supporters, as their candidate is likely to reject any result other than a victory. It is impossible to say exactly how severe any violence would become, but given the tensions that the Supreme Court's decision has fuelled, we believe there is a strong risk of widespread unrest in the weeks that follow the result, weighing on economic activity over Q417.

Longer-term implications revolve mostly around Kenya's fiscal position. In addition to expansive fiscal policy in the months leading up to the August election, holding a second vote will add further costs to the government's budget, increasing the need for a consolidation of spending over the coming years. Our core view holds that a Jubilee government under Kenyatta's leadership will look to rein in the country's large deficit, which we estimate reached 9.6% of GDP in the 2016/2017 fiscal year. Indeed, shortly after election, the Jubilee-controlled parliament reaffirmed its commitment to reining in recurrent spending after the Kenyatta government had made significant increases to public sector wages in the months preceding the vote.

Scenario Two: Kenyatta Re-Election With Large Majority (20% Probability)

Although the Supreme Court's decision will likely dissuade some Kenyatta supporters and swing voters, a successful campaign over the next six weeks could see the incumbent re-elected on a large majority - similar to the initial result. As mentioned above, correcting any irregularities in the electoral process is unlikely to swing the vote share in favour of Odinga, so even if the rescheduled election is carried out under greater scrutiny, it is possible Kenyatta could again win 55.0% of the total vote share. A large portion of the Kenyan electorate vote along ethnic and regional loyalties, with presidential candidates building a complex network of support amongst local leaders. We think it unlikely that these networks will see any dramatic change in the weeks preceding the second election, opening the door for another convincing win for Kenyatta if turnout remains high.

Implications: This scenario would probably entail the least damaging implications for Kenya's political and economic outlook. Although we believe Odinga would still look to trigger public protest should he lose, if confirmed by the Supreme Court a result in favour of Kenyatta similar to one achieved in the first election would weigh on any argument that irregularities in the electoral process had affected the final tally. Furthermore, a large victory in the rerun presidential election would only strengthen Kenyatta's mandate, increasing the likelihood that the Jubilee coalition will successfully rein in public spending over the coming years as potential obstacles to policy-making that would arise from a split government failed to materialise.

Scenario Three: Odinga Victory (25% Probability)

Although not our core view, we cannot rule out the possibility that Raila Odinga will win the rescheduled presidential election on October 17. As mentioned above, the key to an Odinga victory will be turnout. The Supreme Court's decision could affect voter turnout out in two key ways. Firstly, it will offer encouragement to Odinga supporters, who will believe their candidate stands a real chance of winning the election now that the process is likely to attract greater scrutiny. Secondly, it could discourage turnout amongst Kenyatta supporters whose faith in the president has been questioned by the Supreme Court's decision. The six weeks of vigorous campaigning we expect will precede the second election will likely guard against any significant change in turnout. However, when combined with a possible surge in swing support for Odinga amongst those who hold Kenyatta responsible for a fraudulent election, even a moderate change in turnout could be enough to clinch victory.

Implications: The most significant implications of an Odinga victory would be a result of a split government, whereby Kenya's executive and legislature are controlled by opposing parties. We believe this would pose significant headwinds to policy-making over the next four years, as key legislation is blocked by either branch of government. Perhaps most crucially, this would present an obstacle to much-needed consolidation of the government's fiscal position. Although Jubilee are nominally committed to reining in areas of recurrent expenditure, Raila Odinga campaigned in the August election on a populist platform that promised significant increases in social handouts, including on education, housing and food.
If divisions between the different branches of government prevent progress towards fiscal consolidation, we would expect a deterioration in investor sentiment to follow, with a higher premium attached to the cost of government borrowing. Although we do not believe this would lead to any imminent threat of sovereign default, it would likely force a more severe pullback from government spending toward the latter part of Odinga's five-year term in office, as debt servicing costs continue to rise. Eventually, a necessary sharp pullback from public spending would add a new headwind to real GDP growth and likely lead to downward revisions to our own forecasts.

We also cannot rule out the threat of violence if Odinga wins the rescheduled election. Kenyatta and members of his Jubilee coalition have already employed hostile rhetoric in his efforts to discredit the Supreme Court's decision, calling judges cheats and referring to Odinga as a 'demon'. Kenyatta's position as incumbent means it would be difficult to use electoral fraud as a means of whipping up public unrest following the second vote, but we cannot discount the possibility that the party's supporters will take to the streets if denied victory, adding further headwinds to economic activity in addition to those triggered by a decline in investor sentiment in response to a divided government.

Scenario Four: Wild Card - No Election (20% Probability)

Although our final scenario is unlikely, we cannot completely rule out the possibility that the election does not go ahead as planned. Raila Odinga has threated to boycott the rescheduled election after complaining that his party was not consulted on when it would be held. We believe this is likely just rhetoric aimed at further fuelling perceptions of an institutional bias against his party amongst the electorate, but there is also a slim chance it is part of a broader strategy to secure a power-sharing agreement with Kenyatta and the Jubilee coalition. At 72 years old, many suspect this is Odinga's final run at the presidency, and fearing another defeat at the ballot box, he could look to secure a position in government by boycotting the election. If Odinga follows through with his threats, the two-candidate race would lose all credibility, throwing the country into even greater uncertainty as the election faced cancellation.
Implications: This scenario contains the most unknowns in our analysis. Much would depend on whether the two candidates could agree on some kind of power-sharing arrangement, similar to that formed in 2008 after another contested election sparked widespread violence between opposing groups of supporters. Given apparent policy differences regarding fiscal consolidation, any such agreement could pose headwinds to prospects for more restrained government spending.
That said, we see such a scenario as highly unlikely. After greeting the Supreme Court decision with such praise and jubilation, we do not believe Kenya's population would accept elites coming to their own arrangement behind closed doors. Furthermore, rhetoric suggests that both party leaders believe they can win in the rescheduled vote, making the idea of a power-sharing agreement all the more unlikely.

Adapted from BMI Research

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