Kenya sees fall in capital spending ahead of elections

Kenya has seen a decline in capital spending as non-financial corporates in the country have postponed new large-scale expansion projects ahead of the general elections next month. This trend has raised concerns about the potential impact on the economy as global ratings agency Moody's projects a slowdown in EBITDA and cash flow from operations growth in the next 12-18 months due to delayed spending. Douglas Rawlings, Assistant Vice President of the Corporate Finance Group at Moody's, shared insights on the implications of this capital spending reduction in a recent interview with CNBC Africa. Rawlings highlighted that many corporates in Kenya, including major players like SafariCom and East African Breweries, have scaled back their capital expenditures in the run-up to the elections. While some companies, such as ARM Cement, have maintained their investment spending levels, overall there has been a noticeable decrease in capital expenditure across various sectors. This cautious approach is attributed to uncertainty surrounding the election and a desire to wait for a newly elected government to establish a clear economic direction. One significant factor contributing to the reduction in capital spending is the interest rate cap introduced in September, which has affected borrowing dynamics in the country. Many corporates rushed to secure funding before the implementation of the cap, leading to a tightening of credit conditions as banks became more selective in their lending activities. Rawlings pointed out that the uncertainty associated with the election has further prompted corporates to lock in funding at lower rates while maintaining financial stability. The reevaluation of business strategies by both non-financial and financial corporates has resulted in a 'pause button' on investment decisions, reflecting a cautious approach in the current economic climate. This strategic reassessment is seen as a temporary measure until the political landscape becomes clearer post-election. The hope among corporates is for a continuation of pro-growth policies to sustain the positive business environment that Kenya has experienced in recent years. However, Moody's anticipates that the delay in capital expenditure could lead to a lag in earnings growth and hinder the expansion plans of companies in the short term. The analysis suggests that until a new government is in place and economic policies are reaffirmed, corporates are likely to remain conservative in their investment decisions, potentially impacting their growth prospects. As Kenya prepares for its general election, the corporate sector is bracing for a period of uncertainty and cautious optimism. The outcome of the election will play a critical role in shaping the economic landscape and determining the future trajectory of capital spending and investment in the country.