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EAC’s political stability tops region’s business leaders’ concerns for 2012
Dr James Mwangi. Equity Bank MD. Mr Mwangi says financial institutions across the East African region will only make more profits in 2012 if the interest rates will come down because borrowers are shying away from the increased rates and paying back twice the loan, therefore increasing defaulter numbers. Photo/FILE
Posted Sunday, January 15 2012 at 13:59
Business leaders’ confidence in the EAC economies in 2012 has taken a negative turn on the back of fears over Kenya’s political climate ahead of the general election while high inflation and interests rates are expected to hurt consumer demand.
At least 15 CEOs from Uganda, Kenya, Rwanda and Tanzania polled by The EastAfrican predicted harsh economic times in 2012. Such a dim outlook is expected to force business executives to keep a tight grip on expenditure to manage costs.
The business environment is expected to be further compromised by high inflation, currency fluctuations and rising interest rates, which could hurt lending to businesses and households.
Business leaders in Uganda and Rwanda are worried about how Kenya handles its looming election and the campaigns prior the polls.
They fear any violence and a general rise in political risks could hurt businesses and economies in the region as they rely on Kenya for imports of raw materials and essential commodities.
In 2008, violence in Kenya disrupted supply chains around the region, causing shortages of fuel and other commodities in Uganda, Rwanda and Burundi.
Last year saw regional economies struggle to stay afloat, with Kenya’s growth slowing down in the last two quarters. Stockmarkets have followed suit with the Ugandan and Kenyan indices losing while Tanzania and Rwanda have had a marginal gain.
In Tanzania, the biggest worry is the recent decision by the government to slap licence fees on businesses in municipalities.
Dar es Salaam business executives are also worried about political instability in light of pressure for a new constitution, which is expected to heighten this year.
While Uganda’s economy is expected to grow at 6.5 per cent in 2012, disagreements around the oil contracts and sharing of the spoils are expected to dominate the economic and political arena.
Researchers at Dyer and Blair and business executives in Kigali reckon Rwanda will record the greatest economic growth in the region owing to improvements in business environment. But the key downside risk here is the underlying tensions in Rwanda.
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SENI ADETU EABL Group Managing Director
2012 portends better opportunities for expansion into regional markets but we are not out of the woods yet with Kenya’s election related anxiety looming.
If the regional economies do not fully recover from the slump witnessed in the last half then definitely there shall be increased pressures on businesses to cut costs and rationalise their operations.
The ultimate test for businesses will be pegged on their agility and the ability to quickly adjust to the macro-economic challenges witnessed in 2011, some of which posed a crunch for many businesses.
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