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KENYA: E&P Uncertainty After Elections

Bottom Line: Kenya’s new president-elect has scratched by with a very narrow victory that is likely to be challenged by his key opponent, but the public has indicated—through non-violence—that it is ready to move forward and focus on the economy. The biggest change for investors may be plans in motion for an unprecedented decentralization of government, which could affect the power-broker playing field for oil and gas license holders.

Analysis: Kenya’s presidential elections unfolded without any significant security incidents as Uhuru Kenyatta narrowly won with just over 50% of the vote against Raila Odinga. There were small protests but nothing on the scale of the last elections. There will be some legal battles ahead, though, with Odinga vowing to challenge the results in court. Also complicating matters is the fact that Kenyatta faces international charges of crimes against humanity for his role in the security crackdown on protesters during the 2007 elections in which more than 1,000 people were killed. He is due to stand trial before the International Criminal Court in early July, and so is his running mate, William Ruto.

There is a potential cause for concern due to the narrow victory. Kenyatta won only 50.07% of the vote, just enough to avoid a run-off. Kenyatta—the country’s richest man and the current deputy prime minister (as well as a former finance minister and the son of Kenya’s first president Jomo Kenyatta)—will not go unchallenged. The margin is much too narrow and the vote-count has already been tainted by delays and spoiled ballots that could have changed the results enough to necessitate a second round of voting. That said, by 12 March, Kenyatta was accepted as Kenya’s new president, though Odinga will still appeal this decision in the Supreme Court. At the same time, the public seems to be more concerned with economics than with justice over the 2007 violence. Nor is the public sentiment in favor of an ICC trial, which is largely viewed as a biased Western institution with a penchant for lashing out only at Africans.

Uhuru Kenyatta

One thing investors should monitor closely is how power devolves. These elections are different than previous polls in Kenya because they usher in a new era of decentralization. The new government will now reorganize the relationship between the central government and local governors, senators and county assemblies in a major devolution of power that will reshape the political landscape. It is not clear yet how this will affect foreign oil companies, or how much power lower levels of government will have over natural resources and license agreements in their areas of control. 

Recommendation: E&P companies and investors should be cautious of a possible rise in anti-Western sentiment over the course of the next few months. Investors should also keep an eye on indications of adjustments to oil and gas regulations that would shift more profits to the government, as well as closely monitoring the devolution of power and keeping track of the emerging gatekeepers on the lower levels in this process.

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