By Allan Olingo

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Kenya’s drawn out election coupled with the political impasse is impacting negatively on the economy, threatening to have a spillover effect on the neighbours with whom it trades heavily.

Latest market and economic data, with a few exceptions, such as tourism and horticulture paint a picture of an economy in suspense as the two political poles maintain hardline positions, whose negativity is already showing in the macro and micro sides of the region’s largest economy.

The data from the Central Bank of Kenya’s Credit Survey released last month paints a gloomy picture as commercial banks lament how raised political risks have led to a tightening of credit and are jeopardising almost all economic sectors.

Already, the banking sector’s loan book growth shrunk by 0.84 per cent in June from March’s two per cent, while the ratio of gross non-performing loans to gross loans increased from 9.5 per cent in March to 9.91 per cent in June, attributable to the challenging business environment.

“This decrease in gross loans was mainly attributable to a reduction in loans granted to support the transport and communication, trade, agriculture, real estate, mining and quarrying sectors. Commercial banks expect an increase in the levels of non-performing loans (NPLs) in the third quarter of 2017 with 42 per cent of this expected rise in NPLs is attributed to the industry’s perceiving increased political risk ahead of the upcoming presidential election,” the banking regulator said.

To the economy, this is bad news given the fact that economic growth figures for the third quarter that ended last month are yet to be released.

The Kenya National Bureau of Statistics (KNBS) data released two weeks ago shows the economy slowed to five per cent in the second quarter as compared to 6.3 per cent over a similar period last year even as the National Treasury is grappling with a $276.19 million shortfall in the revenue targets for the first quarter of the 2017/18, with the second quarter already predicted to be even lower.

“Growth was constrained by subdued performances in agriculture, manufacturing, electricity and financial sector thereby dampened the overall growth momentum during the quarter in review,” KNBS said, adding that the growth in financial sector was also dampened by the effect of continued slow uptake of credit.

Central Bank of Kenya Governor Patrick Njoroge admitted that the extended low activity in the post-election season would affect the economy.

“Consumers will delay their decisions if there is too much uncertainty. That has ripple effect. If there is more noise there will also be delay in terms of government execution of products.”

Stanbic Bank’s PMI survey, a measure of private sector activity, dropped sharply last month to 42 from 48.1 in August, which was already its lowest ever figure since the index started three years ago. Any reading below 50 is a sign of contracting business.

“We saw companies report that the general election choked the private sector economy, citing lower business due to uncertainty amid the heated political climate. This resulted in a downturn for the private sector,” Jibran Qureshi, Stanbic regional economist said.