Political risk for investors in Kenya exists despite peaceful elections

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“Financing is needed in abundance for many projects across Africa, and that’s virtually every country. Financing is available from a number of sources now, both from Western Europe, the US and further afield. The possibility of investment partners now for African countries is huge,” JLT Specialty head of credit and political risk analysis Elizabeth Stephens told CNBC Africa.

“We are seeing changes to the patterns in investment into the continent, we’ve seen a slight contraction from European investment as a result of the Euro Zone financial crisis, which is still continuing, and likely to continue in the future as banking regulation is tightened.”

Political risk was perceived as high for Kenya’s elections earlier this year due to a previous bloody and violent election in 2007. Fears of possible election violence for this year’s election have since been dissipated.

“The political risk has general subsided, and also if you look at the greater East African region, the political risk has taken a back water. What we’ve seen is an increased focus, especially on the deals in this region, and more specifically on the trade finance deals,” said George Bodo, the head of the financials desk at Ecobank Research.

“You’re looking at areas like oil exploration. Kenya has just discovered huge deposits of oil in the Northern part of the country, so we’ve seen a lot of attention coming in this region.”

Other African countries are also looking to invest in Kenya. Nigeria’s Guaranty Trust (GT) Bank acquired a 70 per cent stake in Kenya’s Fina Bank, which has a regional presence. GT bank is one of Nigeria’s largest banks by market capitalisation.

According to Trading Economics, however, Kenya recorded a trade deficit of 70063 million shillings in May.

Stevens added that while a number of investors’ fears were quelled after Kenya’s peaceful election process, political risk for foreign investors is yet to be fully eradicated.

“Two weeks ago, the Kenyan government announced that it would be reviewing all mining contracts that had been signed in the first five months of this year with foreign investors, and a number of those contracts will be revoked,” she said.

“We’re seeing changes to the tax and royalties system for mining projects and we’re likely to see the same for oil and gas projects. So if you’re a foreign investor into that territory, political risk is still a factor, it’s just taking a slightly different form.”