Kenya economy to weather storm if unrest ends

By George Obulutsa and Helen Nyambura-Mwaura

NAIROBI (Reuters) - Kenyan President Mwai Kibaki's re-election means continuity for the country, but the economy could suffer if unrest resulting from the disputed election is protracted, analysts say.

President Mwai Kibaki was swiftly inaugurated on Sunday an hour after the Electoral Commission of Kenya (ECK) declared him winner of a poll that the opposition said was fraudulently conducted and that sparked violent riots.

"Given the controversy that accompanied the announcement of results by the Electoral Commission of Kenya, and the outbreak of unrest, a relief rally by markets is unlikely," said Razia Khan, an Africa economist with Standard Chartered Bank.

"Near term, if the unrest does not subside, the shilling is likely to come under pressure," she added of the local currency.

Kenya's economy turned around after Kibaki took power in 2002 when growth was just 0.6 percent and has kept an upward trend since. It is expected to expand about 7 percent this year.

Analysts however think that going forward, the 76-year-old economist and former finance minister would have difficulty governing the country or passing legislation.

The main opposition Orange Democratic Party, whose presidential contender Raila Odinga says he should have been president instead of Kibaki, will have about half of the legislators in parliament.

"A Kibaki win will ensure policy continuity but the administration will face tremendous political headwinds in parliament," said Philippe de Pontet, an analyst with U.S.-based Eurasia Group.

Economists credit Kibaki's government with allowing private enterprise the freedom to flourish.

But they say growth could have been even better if the government had tackled corruption, speeded infrastructure improvements and fought crime, which foreign investors often cite as a deterrent.

"Kibaki will now focus on (creating) a legacy," said one economic analyst, who did not want to be named. "But it will be difficult for him to govern because of how many MPs he will actually bring and have to work with."

UNREST

Most shops and pubs remained closed in major cities three days after Thursday's vote, which was marred by widespread riots and looting over fraud allegations and chaotic counting.

Some of the worst violence has been in a Nairobi shantytown that Odinga represents in parliament and in the opposition heartland city of Kisumu. But analysts say it could spread to the rest of the country where his party is strongest.

Kenya's business community said on Sunday the country was losing 2 billion shillings ($31.45 million) worth of taxes daily due to the unrest.