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Impact of the US Elections on the Kenyan Economy

By Cytonn Research Team, November 20, 2016

On 8th November, 2016, Donald J. Trump emerged the victor in the US presidential elections, winning 290 electoral votes, out of the 270 required to emerge victorious. Further to a Republican winning the presidential seat, Republicans additionally won the House and the Senate, restoring the Party to the pinnacle of the US Government.

As is the case with any change of administration, the US President-elect will try to make good on his campaign promises to the voting public, which are expected to potentially change the way the US relates with the rest of the world.  In this weekly, we look at the areas in which Kenya partners with the US, highlight the current state and impact of the partnership, then move to analyse how the landscape will most likely change under the Trump administration, and finally give our outlook on the future relations between Kenya and the US.

Kenya and the US have maintained a mutually beneficial partnership for years. The US began relations with Kenya decades ago, having opened up an Embassy in Nairobi on 12th December 1963. Since then, Kenya has proven a strategic geopolitical location since the Cold War up to date, a key ally in their global campaign against terrorism, as well as Foreign Policy in the East African region.

The unexpected victory of Donald Trump has sparked debate, especially criticism of how the US foreign policy would look like under his administration. During his campaign he highlighted that he is keen on making “America great again” by (i) redirecting focus from the global arena and dwell majorly on the American economy, (ii) being extremely stringent on immigration laws and deporting illegal immigrants, (iii) renegotiating global trade deals he terms as punitive to the US economy, and (iv) wiping out extremism. The US has a major influence on the globe economically, financially and politically; and it is due to his “radical plans” that many believe that global markets should prepare for a bumpy ride.

Below is a table highlighting the current relationship status between Kenya and the US and how it might change under Trump:

 

Attribute

Commentary

Trump’s Policy

Effect

1

 

Trade and Investments

Under the Obama administration trade and investments between Kenya and the US recorded remarkable growth, with net imports increased by 206.4% from the Bush administration, highlighting the improved activity in trade between the 2-nations. Key to note is that imports from the US increased by 90.4%, faster than our exports to the US, which grew by 81.9%, an indication that Kenya depends more on the US; and with over 96 investment projects in Africa worth USD 6.9 bn as at 2015, the US remains to be the single largest investor in Africa. Kenya receives a large proportion of these investments and as at 2015, Kenya recorded a 12.3% share of Africa’s FDI

As per Trump’s policy, his 7-point plan to rebuild the American economy involves fighting for free trade. His plan involves withdrawal from the Trans African partnership and the renegotiation of trade agreements to better suit the American worker. However, there is no direct mention of any changes to trade between the US and Kenya.

Neutral

2

Democracy and Governance

The US emphasises on democracy and proper governance and is known to sever relationships with authoritarian nations. Due to their influence in the global arena, the US has also imposed sanctions on several countries deemed to be undemocratic. With regard to Kenya, the US has always been keen on democracy and as witnessed during the 2013 elections, President Obama allowed for the democratic process to prevail while emphasising that Kenya had to uphold its international obligations and respect international justice. This pressure meant that the newly elected Kenyan President and his deputy had to face the ICC and get cleared before the international community.

Trump once said “Look at African countries like Nigeria or Kenya for instance, those people are stealing from their own government and go to invest the money in foreign countries. From the government to the opposition, they only qualify to be used as a case study whenever bad examples are required”.  Basing on his statement, in order for the US to fully collaborate with Kenya, we need to address graft. His election can only help confront graft, but we also believe that the Trump administration will largely be inattentive to Africa.

Positive

3

Peace and Security

Kenya offers a strategic geopolitical location to the US ever since the Cold War and currently as the US marshals a global campaign against terrorism. Kenya is also a global leader in terms of humanitarian relief operations, having played a significant role in refugee situations in South Sudan and Somalia. In return, Kenya is one of the largest recipients of US security assistance, having received over USD 80.0 mn to date under the “train and equip” mandate by the US Department of Defence.

Trump cites peace to be the centre of his foreign policy and he plans to achieve this in a more peaceful manner. He also welcomes working with other nations in a bid to eradicate extremism. For Kenya, terrorism has plagued us for a while and a expect US engagement to continue.

Neutral

4

Aid

Kenya has received almost USD 1.0 bn annually in aid from the US and ranks in the top 10 US aid recipients. Under the Obama administration the USAID formulated the “Country Development Cooperation Strategy” to run from 2014-18; with 3 main goals namely: (i) implement devolution effectively, (ii) strengthen health and human capacity, and (iii) execute an inclusive, market-driven and environmentally sustainable economic growth

Trump during his primaries claimed that his number one priority is to strengthen America and this will involve cutting Aid to countries where they receive no form of “return”. This could prove punitive to Kenya as we are one of the top recipients of USAID.

Negative

5

International Organisation

Kenya’s economic prosperity and a diverse economy has attracted several international companies that have set up their regional headquarters in Nairobi. Kenya’s sustainable relationship with the US has attracted major US firms such as Coca Cola, General Electric, Google, IBM and Intel to name a few. This is a clear sign that Kenya is emerging as a regional hub and with such firms setting up shop, Kenya is set to benefit in terms of job creation and skill transfer.

Attraction of international companies into Kenya is due to Kenya’s status as a regional hub and is not politically motivated. Given this, we do not see a Trump presidency as being negative towards this.

Neutral

6

Immigration - The Diaspora

The Kenyan born population in the US is fast growing and is now the 2nd highest contributor to diaspora remittances into the country after the United Kingdom. Kenyans have been legally admitted into the US either through (i) family sponsorship (3%), (ii) employment sponsorship (7%), (iii) as a refugee and asylee (26%), (iv) the diversity VISA programme (28%), or (v) being an immediate family member to a US citizen (35%). Diaspora remittances currently the highest foreign exchange earner for the country, with cumulative 12 months’ diaspora inflows to June 2016 increasing by 11.0% to USD 1.7 bn from USD 1.5 bn in the year to June 2015.

Trump plans to prioritise job security for all Americans. Under this he is willing to (i) establish new immigration controls, (ii) select immigrants based on their likelihood for success in the US, (iii) end Obama’s illegal immigrants amnesties, (iv) force other countries to take back their illegal immigrants, and (v) reform legal immigration to serve America’s best interest.

Negative

 

Overall Effect

 

Neutral 

As per the above, we have 1 positive indicator (democracy & governance), 3 neutral (trade, peace & security and international organisations) and 2 negatives (aid and immigration). It is due to these factors that we believe a Trump presidency is largely neutral towards Kenya’s economic growth.

The Kenyan economy is one of the most diversified in the region and has displayed resilience to global shocks, as witnessed by the IMF projecting a 6.0% growth for 2016, despite other African countries being downgraded on account of global turbulence, especially due to commodity prices. As per our topical on “Kenya’s Economic Growth” we noted the key hindrances to Kenya’s growth being (i) security, (ii) political stability, (iii) corruption, and (iv) weak export growth. As highlighted above, we see the Trump effect to have a positive impact on security and governance, and neutral on trade and investments under which we highlighted export growth being an issue.




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Disclaimer: The views expressed in this publication, are those of the writers where particulars are not warranted. This publication, which is in compliance with Section 2 of the Capital Markets Authority Act Cap 485A, is meant for general information only, and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.

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© 2017 Cytonn Investments Management Ltd