Turmoil in Kenya likely to unsettle investors

Rioting, political instability and a spiraling death toll after Kenya’s disputed election is seen as drastically denting investor confidence in what had been seen as one of Africa’s emerging success stories.

Scores of people have been killed in turmoil since President Mwai Kibaki was declared the victor Sunday with a narrow majority. The opposition says the poll was stolen and European Union monitors say it lacked credibility.

Kibaki had been credited with turning around East Africa’s biggest economy from disaster to an average growth rate of 5% since 2002, and the country’s success had been held up as an example of a wider trend in Africa.

The Kenyan shilling is up 9% versus the dollar this year. Fitch and Standard & Poor’s have issued the country debut credit ratings of B+, citing its diversified economy, which is estimated to have grown 7% in 2007.

But now investors are likely to be less keen.

“The events in Kenya will frustrate some people as it is one of the African markets that investors have been focusing on in their hunt for new markets,” said Beat Siegenthaler, chief strategist at TD Securities in London.

“There are not that many countries in Africa with decent market infrastructure, and Kenya happens to be one of them. This will serve to remind people that it is not straightforward to invest in emerging markets.”

Kenyan markets are closed for the new year and will not reopen until later this week, but both the stock market and the shilling are likely to fall sharply. How much will depend on how long the violence continues, analysts said.