Key political risks to watch in Kenya

By Wangui Kanina

NAIROBI Aug 2 (Reuters) – Kenyans vote on a new constitution on Aug. 4 amid optimism a “Yes” victory will boost investor confidence in east Africa’s biggest economy and send the local currency and stock market rising.

The new charter is central to political reforms meant to avoid a repeat of the 2008 post-election violence that killed 1,300 people, devastated the economy and hurt regional trade. It is also a major test for the coalition government.

Here are some factors to watch:

FLARE UP OF VIOLENCE

Campaigning has become increasingly divisive and personalised, tainted by occasional attacks and skirmishes between supporters of the opposing camps.

In some areas that were flashpoints in 2008, residents have left their homes and returned to refugee camps as they fear attacks by other tribes. Hate leaflets have been circulating.

A grenade attack at a Christian prayer meeting and rally earlier in June that killed six people and wounded more than 100 renewed the threat of political turbulence.

President Mwai Kibaki suspended an assistant minister charged with threatening to evict people from their land if the constitution is adopted. Two other legislators are also facing hate speech charges for stirring up tribal tensions.

Kibaki and Prime Minister Rail Odinga have been campaigning for a “Yes” vote. Some politicians, led by Higher Education Minister William Ruto, a former Odinga ally, and former President Daniel arap Moi are against it.

Others in the “No” camp include Christian church leaders opposed to the inclusion of Muslim Kadhi courts and measures allowing abortions on medical grounds.

A poll by Strategic Research showed 66 percent of Kenyans intend to vote in favour of the new legal framework and 87 percent said they would accept the result which ever side won.

Any turmoil in Kenya risks paralysing trade and transport with its land-locked neighbours, especially Rwanda and Uganda which depend heavily on the Kenyan port of Mombasa for imports.

What to watch:

— Odinga’s health. The prime minister had surgery in early July to relieve pressure on his brain and left hospital on July 4. Doctors advised extended rest and Odinga left Nairobi for an undisclosed location, fuelling speculation about his recovery.

The seemingly indefatigable Odinga has been key to the “Yes” campaign and analysts say his absence from the campaign trail risked damaging the campaign’s momentum.

But he made his first public appearence since leaving hospital at a sports event on July 30 in Nairobi. He told Reuters he was feeling great.

— The referendum has deepened rifts in the grand coalition led by Kibaki and Odinga that has been shaky since its inception, with constant bickering and infighting among members.

The coalition is also split along the “Yes” and “No” camps, while those ministers who are not stating their stand have been labelled “watermelons,” green on the outside and red on the inside — a reference to the colours assigned by the electoral commission. The “Yes” camp is green while the “No” camp is red.

— Ministers against the new constitution may be sacked if the charter is adopted. However, analysts do not believe that the coalition will fall apart. Under the terms of the peace accord, the coalition can only be dissolved if either Odinga or Kibaki decides to pull out. This would lead to an election, which commentators think is unlikely.

— Analysts say an even greater hurdle than passing the constitution is seeing through the changes because of the bitter divisions and vested interests of powerful figures. Kenyans have been waiting for 20 years for a new constitution to replace the current one, which critics say has exacerbated corruption and tribalism, while giving the president immense powers. In the new charter, presidential powers would be watered down and regional governments will be introduced with a degree of autonomy and a share of the national budget.

— More arrests of legislators during campaigns for using hate speech or inciting people to fight.

ETHNIC TENSIONS

Leaders from central province, led by Finance Minister Uhuru Kenyatta, have held meetings and rallies where they urged the Kikuyu community to vote for the new constitution. At the same time Kalenjin leaders in the Rift Valley province, a flashpoint during the 2008 violence, have been holding meetings led by Ruto and Moi urging the community to reject what they see as a divisive constitution.

Moi and his family have weighed in heavily, criticising the proposal and exchanging jibes with Kibaki.

Critics have accused politicians of playing on the fears of Kenyans that they may lose their land, an emotive subject in Kenya, once a new charter is passed.

The meetings have led to fears ethnic tensions between the two groups could ignite once again and bring more bloodshed.

What to watch:

— Possible return of dormant tribal militias, paid by politicians to kill and cause mayhem, mainly during elections.

— Adverse reaction to a “Yes” victory in the Rift Valley where land ownership is a highly sensitive issue.

ECONOMIC RECOVERY

Kenya’s central bank unexpectedly slashed its benchmark lending rate to 6.00 percent from 6.75 percent on Wednesday to boost commercial bank lending, defusing concerns that market rates were about to rise and boosting market confidence.

What to watch:

* Commercial bank lending rates. The central bank has been urging banks to lower their lending rates to stimulate credit and boost growth. Analysts say the rate cut to 6 percent will maintain low yields on goverment paper and pressurise banks further to drop their rates. [ID:nLDE66S0N6]

* The performance of the Kenyan shilling which in the last week has appreciated amid increasing optimism the new charter will be endorsed. Traders say a “Yes” vote would slingshot the shilling below the 80.00 level.

* A bull run in the stock market. Kenyan stocks were badly hurt in 2008-2009 by the triple-shock of post-election bloodshed, global downturn and drought. Analysts say the combination of a yes vote and a market-boosting rate cut would spur a rally in the markets. Equally a “No” vote could risk sending negative signals to investors.

2008 VIOLENCE PROSECUTIONS

The International Criminal Court Chief Prosecutor Luis Moreno Ocampo has began investigating the masterminds of the unrest. Ocampo says he will seek arrest warrants for up to six Kenyans, and will prosecute the two to three most responsible from both sides before the end of this year.

Analysts say that if Ocampo issues arrest warrants for key political figures, it will be a positive sign of action and should reduce political risk.

What to watch:

— Ocampo has said arrest warrants will be issued by the end of 2010 and expects trials to be over in 2012. But there could be violence repercussions if one ethnic community or another feels its leaders have been singled out.

SOMALI ATTACKS

Somali rebels with links to al Qaeda killed 79 people last month in the Ugandan capital in what they called a revenge attack for the presence of Ugandan peacekeepers in Mogadishu.

The al Shabaab insurgents have also threatened to attack Burundi and Kenya’s capital Nairobi. The rebels ambushed a Kenyan border patrol in July, wounding one officer.

What to watch:

— Any attacks by Kenyan security forces on the rebels across the porous northeastern border could heighten the risk of a rebel attack elsewhere in Kenya. Al Qaeda has already hit Kenya twice, in 1998 and 2002.

— Security alerts from the government or Western diplomatic missions based in the capital Nairobi. (Editing by David Clarke)

Source: Reuters