Researchers from global banking institutions have expressed concern that the pre-election splurging spree and heavy infrastructure spending to win over voters will damage Kenya’s economic growth prospects.

About 19 million registered voters go to the polls on August 8 to elect new leaders against a backdrop of economic challenges.

On the one hand, some government data paints a picture of a vibrant economy grown from 4.7 per cent in 2013 to 5.8 per cent in 2016, anchored by massive infrastructure development.

Other data shows that over two million small-sized firms have closed shop over the past five years, public debt has risen to Ksh4 trillion ($40 billion) while inflation is pushing double-digit figures.

Several corporates have either shut down and relocated from the country or scaled down operations, leaving thousands of workers jobless.

These include tyre maker Sameer Africa, dry cell manufacturer Eveready East Africa, chocolate maker Cadbury Kenya, Procter & Gamble, Reckitt Benckiser, Colgate Palmolive Bridgestone, Unilever and Johnson & Johnson, Softa Bottling Company and Kenya Fluorspar Company.

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Last week, a survey by CfC Stanbic Bank showed that output in the private sector declined for the third time in four months in May due to higher fuel costs, increase in raw material prices, financial difficulties and weak consumer demand associated with the forthcoming elections.

Overall month-on-month inflation for May increased to 11.7 per cent from 11.48 per cent in April and 10.28 per cent in March compared with 3.67 per cent in 2013.

“As we highlighted last month, the recovery in business conditions could prove to be transitory due to a cocktail of dangerous headwinds,” said Jibran Qureshi, an economist at CfC-Stanbic Bank.

Researchers at Citigroup said all infrastructure spending is not equally beneficial as governments are often tempted to support projects for electoral rather than economic motives.

“Inefficiency and corruption are more likely when projects are ultimately funded by the central government or through foreign aid but implemented and managed by state and local governments,” the researchers say.

Several economists and credit rating agencies have reduced their growth forecasts for Kenya in 2017.

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Perceived risk

Gross public debt hit Ksh4.04 trillion ($40.4 billion) in March 2017 compared with Ksh3.26 trillion ($32.6 billion) in the same period last year.

Economists at Standard Chartered Bank Plc said rising public debt would put pressure on the government to achieve fiscal consolidation. This will slow down large infrastructure projects.

According to the UK-based lender oil production in Kenya expected to start this month will not be enough to make much difference to the country’s growth outlook.

“Kenya’s elections are typically associated with slowing growth as investors turn cautious on perceived political risk and activity winds down. The effect is likely to be exacerbated this year by a regional drought that has driven headline inflation sharply higher,” said Razia Khan, the bank’s chief economist.

According to Ms Khan, Kenya still has substantial infrastructure deficit, but a higher debt level raises debt service costs.

READ: Kenya's economic growth to slowdown in 2017