The Kenyan Election and Impact on Business Environment
Diverse financial literature has established that stock market return can mainly be explained by economic events. But economic news is not the only news that influences stock market movements. Political, environmental and other events are repeatedly considered responsible for such movements. There is empirical and theoretical literature discussing the effects of these other events, especially political cycles on the macro economy, which is specifically of interest in this research paper.
There are two models of politico-economic cycles that analyze the scope for government macroeconomic policies to influence the real side of the economy in a politically profitable way. The ‘‘political business cycles’’ (PBC) model stresses the opportunism of policy-makers trying to maximize their popularity and/or their probability of re-election. The PBC model predicts pre-electoral high growth and low employment, increasing inflation before elections, accompanied by postelection recessions, regardless of the political orientation of the government.
The PBC model was enriched with rational expectations (Cukierman and Meltzer, 1986; Person and Tabellini, 1994; Rogoff and Sibert, 1988), placing greater importance on information asymmetry between the government and voters. In this extended model, politicians know their own level of competence, while the voters, who are endowed with rational expectations conditional on the information set 2 vailable to them at any given time, discover the level of politicians’ competence only after the elections.
What do New Policies and New Opportunities Mean?
It seems to make sense that a victory by a presidential candidate who promotes alternative energy, for example, should benefit companies working in that industry. However, many factors can affect a newly elected president’s proposals: unforeseen circumstances may scale back major initiatives or refocus priorities; prior commitments made by an outgoing administration can hamstring an incoming one which controls government spending, may have a different agenda.
Is the Election Year the Best Time to do Business?
No! This is a risky period to operate a business more so a donor funded kind of business. The political atmospheres at the time are rise with full of uncertainty of the outcomes. This is the duration where donors reduce or withdraw their funding to avoid disruptions of their projects. Therefore, this will set a negative impact to NGO’s business by being forced to stop their projects hence leading to retrenching of employees.
Yes it’s the best time to do print media, advertising, operating banking institutions and running media stations. The aspirants eyeing for elective position will tend to spend or invest their resources to these media houses and radio stations selling their idea to citizen. This is usually the case in Kenya where political coverage is a boom to media house revenue. The financial institutions benefit in lending Loans to politicians to run their campaign through which high interest returns are expected.
Investors should be carefully when they plan and carry out investments during and after the periods of the general elections as the returns could be affected either positively or negatively during that period. Elections can have important consequences in the stock market hence impacting the businesses; therefore investors can devote a certain portion of money to invest in stocks before and another in stocks after elections. Many investors simply invest in stocks after elections where they presume that the market will be performing well as a result of the new regime. However, this is not the best option as expanding ones mindset may lead to discovery of high returns on stocks before the election or even after the election.