Kenya violence, poll dispute to push investors away

LONDON (Reuters) - Rioting, political instability and a spiraling death toll following Kenya's disputed election is seen 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 on Sunday with a narrow majority. The opposition says the poll had been 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 5 percent growth 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 percent versus the dollar this year KES=. Fitch and Standard & Poor's have issued the country debut credit ratings of 'B+' citing its diversified economy which is expected to grow 7 percent 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 shilling currency KES= are likely to fall sharply. How much will depend on how long the violence continues, analysts say.

"Obviously it is extremely negative," said strategist Richard Segal at Renaissance Capital. "We don't know when the markets will open but certainly people will be looking to sell."

He said the violence and television pictures of burning buildings and riot police would probably hit interest in the planned sale of 25 percent in telecom firm Safaricom (SCOM.NR).

The sale of the 40:60 joint-venture between Kenya's government and Britain's Vodafone (VOD.L) had been eagerly anticipated by investors and was seen as key to boosting trade volumes on the Nairobi stock exchange .NSEK.

HOLDING BACK

The sale was scheduled for the coming days but has already been delayed several times.

"I can't see any international investors taking a serious look at it now," said Segal, adding that a decline in foreign investor interest could slow further planned privatization.

With both the European Union monitors and Britain criticizing the result, foreign donor flows are also seen potentially falling. Some investors might look at Nigeria instead, Segal said. That country was also the scene of a criticized election earlier in the year but Segal said that this time it might act as a relative safe haven.

A narrow opposition win on the other hand might have done much more to boost Kenya's reputation as a stable democracy. Economic policy was seen largely unchanged whoever won.

Going further forward into 2008, ongoing instability could hit the planned sale of a $300 million international bond expected after March. The bond had been expected to be in great demand after Ghana's sale of a $750 million eurobond -- the first in sub-Saharan Africa outside South Africa -- was four times oversubscribed.

But with the bond sale still likely months away, investors say there is time for the country to at least partially recover.

Few yet see a great risk of longer term tribal violence or civil war -- although much of the recent fighting has pitched ethnic Luos, who supported defeated opposition leader Raila Odinga, against Kibaki's ethnic Kikuyu group.

Investec fixed income fund manager Peter Eerdmans said he had been considering entering the Kenyan market but the disputed election and violence would put him off until there was more clarity. But it did not change his overall view of Africa.

"In developing countries where democracy is relatively young you always have these risks but our view of Africa...in general remains positive," he said. "What people can sometimes do is look at the continent of Africa and judge it on two or three bad examples but there is more to it than that."

(additional reporting by Sujata Rao; Editing by Ron Askew)