Navigating Kenya’s 2022 Elections & Covid-19 Risks:  A CFO’s Guide


Sustainable business growth is nurtured in a peaceful and productive environment for capital multiplication and market expansion to accommodate additional capital investments. A company’s capital multiplier comes from its retained earnings or from capital gains for its shares; which are two key value creation drivers that are closely linked with prevailing business environment conditions. Since 2020, Covid-19 has been sending economic shockwaves to businesses across the world; resulting to situational business management to guarantee continuity, as new variants are announced.

At the peak of the pandemic, governments imposed restrictive regulations on organizations and their citizens, which negatively impacted supply chains and internal operational systems and processes for businesses. To maximize profits, businesses have been taking radical measures such as downsizing, cutting back on unnecessary expenses, and evolving into new business models that are aligned with the current digital reality in the global economy.

In addition to the prevailing Covid-19 slowdown, businesses in Kenya will face the election year challenges in 2022. As the two risks juxtapose in the same year; business owners and their management teams will need to re-evaluate their 2022 annual plans in order to counter their impacts to their business operations and sustainability.

Historically, during electioneering periods customers reduce their spending and hold onto their money as they wait for post-election normalization and predictability of the economy. On the other hand,  politicians hoard large sums of cash to be spent in their campaigns as they drum up support in the last months and weeks of the official campaign season. These two dynamics in electioneering years disrupt the general flow of money within the economy, and directly impacts business performance across the country

The private sector typically attributes the elections season in Kenya to a period of poor business as indicated by declining revenues and bottom-line figures. Long-term private equity and foreign direct investments are usually postponed during this period; while most foreign investors exit from the stock market due to the unpredictability of the investment environment.

Macro-economic trends in Kenya during electioneering periods

Since 1992, GDP growth in Kenya has dropped during the elections year and the inflation rate has risen after each general election. Kenya’s GDP growth rate shrank from 1.4% in 1991 to -0.8% in 1992, highlighting the economic shocks caused by the elections fever and the accompanying uncertainty in political stability. In 1997, the GDP growth rate dropped to .4% from the highs of 4.1% in 1996. In 2002, the economy grew at 0.5%, being a drop from the 3.8% growth experienced in 2001 before the election year.

Following the highly contested 2007/2008 General Election, the economy experienced a sharp drop in GDP growth rate from 6.9% in 2007 to 0.2% in 2008, and inflation soared from 4.3% to 15.1%. The 2013 general election had the country’s GDP growth rate drop from 4.6% in 2012 to 3.8% in 2013; a relatively smaller decline compared to the 2008 drop. The same trend of falling GDP growth rates in electioneering years continued in 2017 when there was a drop to 3.8% from 4.2.0% in 2016.

Going by the historical trends, we expect 2022 to follow the same pattern of dropping GDP growth rates as the elections lower investor confidence and consumer expenditure. Businesses in Kenya must therefore prepare internally for yet another downward cycle; by building financial resilience into their 2022 annual plans. CFOs and finance managers focus will be to optimize cash reserves and make sure that the business can fund its day-to-day operations throughout the year; as they prepare for the post-election recovery.

To address urgent priorities in a fast-changing environment, many companies in Kenya have to set up immediate guidelines and strategies on financial plans and processes to protect employees, customers, suppliers, and financial results. If a business operating in Kenya does not have a proper financial plan in place for 2022 when both Covid-19 lingering slowdown and the elections are juxtaposed; catching up with the recovery expected in 2023 will be a mirage.

Dealing with eventualities and unpredictable events

According to a Bain & Co. report, business CFOs must take these five steps to mitigate any unexpected events and accurately walk the path of stabilizing the business and positioning it to thrive when conditions improve:

Step 1: Create a central cash war room

This can be an addition to the existing cash war room or a separate one dedicated to cash management. The CFO typically leads the cash war room with a team of senior, dedicated, cross-functional teams empowered to make quick decisions. A war-room strategy allows for rapid, real-time decision-making and focuses leadership teams on the most pressing liquidity needs and cash-preservation actions. The decisions include but are not limited to:

  • Considering a line of credit when working capital is insufficient;
  • Seeking debt covenant relief as soon as possible to strengthen the balance sheet; and
  • Prioritize payments, and impose clear reporting metrics that track liquidity in real-time.

Step 2: Develop a single view of your liquidity position and outlook

Creating a cash flow forecast for the next 13 weeks. This determines the severity of the current situation. It also allows for meticulous cash inflow and outflow monitoring, planning, and forecasting. The forecast is updated weekly, and it is compared to real-time data.

Step 3: Launch decisive actions to preserve cash

CFOs have to really implement and demonstrate cost leadership to reduce unnecessary expenditure for the business. Examples include a hiring freeze, a review of external spending (e.g., marketing), and processes for top executives to approve spending.

Step 4: Control all cash outflows.

Initiate daily spending review sessions to challenge all purchase requests and instill a ruthless cash-preservation mindset across the organization. Focus on these questions.

What can we deny? Which outlays are not vital to operations and not yet committed?

What can we delay? Where do we have flexibility in timing or credit terms for required spending?

Should we invest? When is the business case for investment justified to enable continued operations?

Step 5: Prepare enterprise models based on different macro scenarios.

Modeling assists the leadership team in assessing the company’s level of exposure, stress testing the profit and loss statement, and developing contingency plans. Develop at least the best-case, base-case, and worst-case scenarios. A disastrous sequence of events should be envisioned in the worst-case scenario. Conditions are rapidly changing, and leadership teams should stress-test these scenarios on a regular basis.

Bootstrapping for the long haul

Regardless of the business stage or the amount of revenue a business is currently making, without proper preparation for any unforeseeable or unpredictable event, the business will suffer the heat. Together with other senior executives, CFOs must always evaluate the foreseeable future and prepare for any eventuality to ensure they always survive and skyrocket when the dust settles.

Business is not just about profit numbers but also the welfare of its people, and it has to marry the two whenever a decision is made; because business prosperity is always built on the cornerstone of its people. Hence, business management must always foster a good plan to safeguard its people and financial health.

On the other hand the Kenyan government must shield its business environment from the additional heat in the 2022 general elections by conducting the proper ethical campaigns and peaceful elections. Kenya must rewrite its historical narrative and encourage investment and business growth. COVID-19 has been a real eye-opener for the average mwananchi doing business in Kenya, and it is now time to keep the meticulous operational structure in place in case the worst happens.

Author: Victor Otieno