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Political uncertainty affecting economy

Most economists concur that political or election suspense has a negative effect on the economy.

The current back and forth arguments on whether or not the recent General Election was free and fair and the best course of action for Nasa, who are aggrieved with the outcome of the presidential election, has continued to affect the economy in various ways.

That Nasa has decided to challenge the presidential results in the Supreme Court only helps to thicken the hanging cloud on the Kenyan economy.

Political suspense denotes the possibility of change in the Executive power, either by constitutional or unconstitutional means.

Election suspense affects economic growth because it increases policy uncertainty, which has a negative effect on productive economic decisions such as investment and saving.

UNCERTAIN POLICIES

A high probability of a change of government implies uncertain future policies, so that risk-averse economic agents may postpone taking productive economic initiatives or might even leave the economy by investing elsewhere. Additionally, foreign investors are likely to prefer a stable political environment.

There are other challenges the economy experiences in these situations.

They include low personal income of the residents due to prolonged closing of most businesses, which directly affect workers, more so those working on commission, where their income fluctuates wildly from month to month.

Low industrial production occurs as the workers who had travelled to various parts of the country take time to resume duties owing to transport sector uncertainties.

MINING

Industrial production is the government’s broadest measure of activity in manufacturing and related fields like mining.

It is generally timed well to the business cycle, or can sometimes slightly lead it as it can reflect businesses’ estimates of consumer demand for durable goods in the near future.

Decreased industrial production is a major catalyst of economic collapse.

Instability also leads to decreased personal consumption, which measures household consumption of all kinds of goods and services, and which represents about 75 percent of the Gross Domestic Product (GDP).

This is also often strongly correlated to consumer confidence. But it arguably provides for a more tangible measure of the consumer, as it reflects how they are actually behaving with their income.

Inflation, the rapid increase in the cost of goods and services as measured through the Index due to uncertain supply of goods and services, will definitely be experienced.

ECONOMIC MEASURES

Inflation is among the most visible economic measures, and is among the most central in setting policy.

Decreased GDP occurs due to the negative effect on the variables comprising GDP like consumption and investments from both the private sector and the government.

The GDP will definitely take a dip.

Finally, there will be uncertainty in the stock market. The stock market is very sensitive to information and has some unique sensitivity.

The downside is that sometimes the stock market shifts for reasons that have less to do with macroeconomic performance including shifts in sentiment about political stability.

The economy is the lifeline of developing nations like Kenya, and they cannot afford undesirable fluctuations in the stock market values of the shares of listed companies and firms in which the government itself has huge stakes.

Dr Boni Wanjau is an economist

Medium, datum and other singular words that we have chosen to ignore

A moment of silence for Kenya’s 2017 elections, please