| NAIROBI, Sept 30
NAIROBI, Sept 30 Kenya voted peacefully in
favour of a new constitution to redraw the political landscape
but the optimism brought about by the vote is being tempered by
looming International Criminal Court (ICC) arrest warrants.
The revised charter aims to address ethnically divisive
issues that have plagued Kenya's post-colonial history, such as
patronage, corruption and land grabbing.
On the economic front, a resurgent tourism sector and
rebounding horticulture revenues are spurring the recovery of
east Africa's largest economy. The benchmark NSE-20 Share Index
is up around 40 percent for the year to date, lingering just shy
of its 2010 high, hit in early August.
Following are some of the main risk factors to watch:
ICC DEEPENS RIFTS
The ICC's investigations into Kenya's post-election violence
has driven a wedge through the cabinet. Justice Minister Mutula
Kilonzo in mid September said trials at the Hague-based ICC were
unnecessary as the cases could be heard by local courts.
Some cabinet colleagues quickly distanced themselves from
the comments which cast further doubt on Kenya's commitment to
cooperate with ICC chief prosecutor Luis Moreno-Ocampo.
A Synovate poll showed more than half of Kenyans want the
masterminds of the tribal bloodshed which followed the disputed
presidential poll in Dec. 2007 tried at the ICC. [ID:nLDE68L1FU]
Ocampo says he is on track to issue arrest warrants by the
end of the year for up to six key suspects.
Critics of the ICC's investigations denounce the court as a
destabilising force as Kenya heads towards the 2012 election.
Its supporters argue the fight against an entrenched culture of
impunity must not be compromised.
What to watch:
-- Kenya's cooperation with the ICC. The court's latest
request for the minutes from a series of meetings held by
security chiefs after the contested presidential ballot has
deepened fault lines within the coalition government.
The government's official stance is that it will cooperate
fully with the ICC.
But some political commentators have interpreted Kenya's
refusal to arrest Sudanese President Hassan Omar al-Bashir
during a brief trip to Nairobi [ID:nMCD730308] and Kilonzo's
comments as indications the government may not play ball.
-- Ocampo issues warrants for senior government ministers.
If top government officials prove to be on Ocampo's hit-list --
as is widely believed -- the warrants might intensify infighting
within the coalition, unsettling investors.
-- If senior officials who might be considering running for
president in 2012 elections are targeted, it could throw open a
political landscape where party leaders typically rely on
alliances with others to secure enough votes.
-- Possible violent repercussions if any ethnic community
feels its leaders have been signalled out.
East Africa's largest economy continued to expand in the
third quarter and the government's 4.5 percent growth target for
2010 still looks on track, according to the central bank.
The Central Bank of Kenya left its key interest rate
unchanged at 6 percent on Sept. 23, in line with market
expectations and analysts say the easing cycle could soon end.
What to watch:
-- End-year rainfall. Rainfall in the final quarter of this
year and perhaps the first half of 2011 will likely be below
average, sparking concerns of a higher food prices.
A sustained drought would also drive up energy costs, given
Kenya's reliance on hydro-power dams, and hurt tea output, a
major foreign exchange earner.
Official forecasts show inflation accelerating to 4.3
percent by December 2010 and 6.3 percent in 2011.
-- A dwindling appetite for government securities. For more
than 12 months, government paper auctions have been massively
oversubscribed but demand appears to be falling.
On Sept. 22, a 2-year bond received an oversubscription
rate of just 3 percent. A day later, the sale of a 91-day
Treasury bill was undersubscribed.
-- Central bank buying dollars CBK04. Traders say the
shilling's KES= fundamentals are stronger than its price which
has hovered around 81.00 to the dollar.
Some market players are frustrated at the central bank's
frequent purchases of dollars which they say have prevented the
shilling from breaking through a resistance level of 80.50.
The central bank says it is buying hard currency to boost
its official reserves and is not targeting any shilling levels.
NEW POLITICAL MAP
Kenya's parliament has reconvened and will begin voting on
legislation to bring the new constitution into force. First,
though, an implementation committee must be established to
oversee the preparation of more than 40 bills.
The revised basic law is expected to bring more political
stability by removing the winner-takes-all system of the past.
There are greater checks on presidential powers while the
creation of a new county level of local government, set to enjoy
some autonomy and a share of the national budget, is aimed at a
more equitable development of rural Kenya.
What to watch
-- Make up of the implementation committee. Prime Minister
Raila Odinga's Orange Democratic Movement (ODM) party has
blocked senior politicians who spearheaded the "No" campaign
from sitting on the commission to try to ease the passage of
bills through parliament.
-- More commissions will be formed to deal with political
hot potatoes, such as land ownership, where horse-trading is
likely ahead of the final passing of the relevant bills.
-- Political manoeuvrings as leaders eye 2012. Opinion polls
point to Odinga as the man to beat in the next presidential
ballot. But he will likely need to build new alliances to remain
as the 2012 frontrunner.
Political analysts say Odinga will need to woo the Kikuyu, a
major voting block, if he is to have a real chance of winning
the presidency. His one time ally turned rival, William Ruto, is
also likely to stand, taking with him a large chunk of the Rift
Valley vote that backed the prime minister in 2007.
-- Odinga's health. Odinga remains under doctors' orders to
keep his schedule light following surgery to relieve pressure on
his brain in early July.
Somalia's former Prime Minister Omar Abdirashid Sharmarke
resigned last month, paying the price for the government's
failure to quash an Islamist insurgency that has killed
thousands of civilians. [ID:nLDE68K0GY]
Somali rebels claimed responsibility for the July bomb
attacks in the Ugandan capital Kampala, their first on foreign
soil, and have threatened to strike Kenya's capital Nairobi.
Kenya's government is facing mounting criticism for
extraditing Kenyans suspected of involvement in the Uganda
blasts without following due legal procedures.
What to watch:
-- Protests by Kenya's Muslim population. The detention in
Uganda of Kenyan human rights activist Al-Amin Kimathi, a
prominent Muslim figure, has angered Muslims. Friday prayers
could be a flash point.
Kimathi says he was in Uganda to witness the court hearings
of Kenyans accused of playing a part in the attack. Leaked
Kenyan intelligence reports say Kimathi is believed to be the
key cog in al Qaeda's regional propaganda machine.
-- Further threats of an attack on Nairobi. Regional
intelligence agencies said the Islamist cell which hit Kampala
had also planned to attack Nairobi.
Any nation deemed to be propping up Somalia's transitional
government risks being considered fair game by the hardline
Islamists. Many Somali members of parliament spend large chunks
of their time in Kenya, which is also home to a large Somali
diaspora in the Nairobi suburb of Eastleigh.
-- Cross-border attacks in the northeast of Kenya by Somali
militants just the other side of the frontier.
-- Referendum in South Sudan in January. Kenya is already
home to many Sudanese refugees from decades of conflict. Any
instability around the vote could push more refugees into the
poor north of Kenya, which is also struggling to house hundreds
of thousands of Somali refugees.
(Editing by David Clarke and Giles Elgood)