The economic cost of elections in Africa

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ABDI LATIF DAHIR/YOMI KAZEEM

At the end of last year, everything was set for a local consultancy firm to work on a research project with the government of Lagos, Africa’s largest city. All the details had been agreed with the contract due to be signed, but it eventually did not materialise. Within weeks, the state’s governor lost his party’s primary elections, and he soon “lost interest” in the project.

It is a recurring theme across Nigeria, Kenya and many other African countries where elections and the accompanying political uncertainty have usually had adverse effects on big and small businesses – impacting short-term growth.

With at least 20 African nations holding elections in 2019, (Nigeria and Senegal‘s presidential polls took place this month), the impact of the electioneering processes on economic growth across the continent is often significant. Even though it is impractical to make sweeping forecasts given that the continent is home to divergent economies, tangible economic costs of elections are a common feature, especially among younger and fragile democracies.

While there is much variance when it comes to democratic maturity in Africa, there is little doubt that political democracy has spread across the continent since the 1990s, away from the days of military regimes and dictators leading to the introduction of multiparty elections. To be sure, there are still autocratic, longterm rulers on the continent but there is generally a sense that most African countriesattempt to at least “perform” democracy with elections, even when most people know the outcome ahead of time. All of this can end up being expensive. Having contracts stalled and major projects abandoned in the run-up to elections is “very common” in Africa. “Election becomes a priority, and all money goes into that,” says a consultant in Lagos.

In the months leading up to elections in several African countries, governance is practically deferred while politicking largely takes over at significant expense. Amid the uncertainty, businesses and investors also often adopt a wait-and-see approach – dampening economic activity.The ambiguity over regulatory and policy direction during elections can also have an adverse effect on economies. In election years, governments can either be parsimonious or generous, depending on their desire to complete legacy projects.

This affects how companies and investors, working directly with the government (through public-private projects) or indirectly (sourcing, from say, farmers who receive government funding), make plans, says the Kenyan angel investor Stephen Gugu.

Because of the heightened mood, vibrant cities like Nairobi and Lagos go quiet with the traditionally clogged streets emptying of traffic. As a bulk of voters travel to their ancestral homes to cast their ballots, businesses are forced to shut or maintain skeletal operations. This adds up to the overall negative impact in countries like Nigeria, where the postponement of the polls by a week is estimated to cost the economy $2,2 billion, according to the Lagos-based research firm, SBM Intel.

In Kenya, the effect of the 2007 post-election mayhem saw growth rates fall from 7,1% to 1,7% in 2008. Despite holding one of Africa’s most expensive polls in 2017, the economy also shed 1% of GDP due to disputes and prolonged electioneering.

Cumulatively, research from the Daily Nation newspaper has shown that Kenya lost more than 50 billion shillings (US$500m) since independence in 1963 due to electoral turmoil.

The financial toll of election uncertainty also differs from country to country depending on the make-up of the economy. For instance, the postelection crisis that rocked The Gambia after the December 2016 poll continues to impact its tourism sector, a key foreign exchange earner.

But for commodity-dependent economies, exports and pricing remain crucial for growth, says Charles Robertson, global chief economist with investment bank Renaissance Capital. Despite sluggish growth in the first quarter of 2019 in Nigeria due to elections, Renaissance research shows a moderate pick-up in growth to 2.5% versus 2% in 2018, mainly on the back of higher oil production and sustained growth in the non-oil sector.

African economies also differ in how long they take to recover from the all-round effects of electoral uncertainty. But the safe approach that can work across the board for international investors is to build a cash buffer, diversify across countries, and not make significant moves or entries during voting years, according to Gugu. For local businesses and investors, however, owing to being in the market for the long run and likely having a better understanding, they have the option of choosing to remain bullish and possibly looking for bargains.

Ultimately, the onus is on governments to lessen election-related economic volatility. One way to do that is for states to exercise fiscal discipline. In trying to win votes and restore investor confidence, governments like Ghana’s have borrowed heavily right before polls, heightening risks of messing up public finances.

“That can have quite a long term economic impact and the economic damage can take a few years to recover,” says the consultant in Lagos. (Quartz)