Nullification of August 8th Election: What are the Economic Impacts?

On the 1^st of September 2017, the Kenya Supreme Court nullified the August 8^th presidential election results making Kenya the first African country to nullify an election. The court’s ruling supports the opposition’s claims that there was gross misconduct of the Independent Electoral and Boundaries Commission and that the institution failed to abide by the constitution during the August election.

The six-judge panel also found that President Kenyatta’s administration did not engage in any election malpractice but found that the IEBC engaged in various irregularities and illegalities in the transmission of the results that affected the integrity of the poll.

Personally, I think it is important to understand that the winner here is not the government, neither is it the opposition. The winner here is democracy and the independence of the judiciary. The judiciary’s independence is something Kenyans have been fighting for since independence, if not before.

In 2010, Kenyans took to the polls and voted for a constitution that would serve Kenyans in the best way possible. And this included an independent, non-bias judiciary which has the maximum respect for the rule of law. A hundred years from now, this historic decision will be remembered because it reaffirmed Kenyans’ strong belief in constitutionalism, peaceful resolution of conflict and the rule of law.

But what are the consequences of the Supreme Court decision to Kenya’s economy?

Delayed Government Spending

The government is the biggest spender in the country. For it to make money, it has to spend money for it to circulate in the economy. When a presidential election is declared null and void, that means any budgetary plans made previously will also be on hold.

A fully functioning government is the only institution that can authorize any monetary transactions. This means any financial deals that were not settled before the nullification will have to be put on hold until there is a fully functioning government in place.

As we know, time is money. The longer the delay, the less money is being circulated within the economy. The private sector suffers as well due to the retaining of funds

Costly Credit

According to the Business Daily, domestic debt has jumped to Ksh36 billion. Why? Because the treasury was forced to increase borrowing after the court ordered a fresh presidential election. This money will either come from the tax payer, private sector, donors or taxes.

Currently, there is a slowdown in tax collection therefore the government may turn to government bonds to source for cash. As we know, government bonds are a money back guarantee. Because the government needs the money, it will start issuing more government bonds at a slightly higher interest rate.

While this is good for the individual in the short term, increased government borrowing could send the general cost of credit up. That means, banks and other lenders will increase their interests making it hard for an individual to access or even afford a small loan in the long run.

Delayed Private Sector Decision Making

With the current uncertainty, most businesses are holding on to their money. The conversation in boardrooms amongst entrepreneurs and investors is “Let us wait after the elections”. This affects the circulation of money in the economy.

That uncertainty prompts investors to be hesitant with funds. In turn, that leads to delayed spending from the private sector leaving entrepreneurs between a rock and a hard place. Circulation of money in the economy becomes distorted because, on one hand, you have increased borrowing from the government and not enough spending, and on the other, you have less investment from the private sector. One hand is feeding off too much from the other hand.

So in the end, the taxpayers and the private sector end up getting the short end of the stick because these two sectors rely heavily on government spending to keep afloat.

My hope is that the country holds the presidential election soonest. This will now back economic normalcy. Just think about it, if the nullification could trigger a circuit breaker at the Nairobi Securities Exchange, causing losses of over Ksh50 billion in 10 minutes, imagine what could happen if the elections continue to delay.