Foreign investors cite corruption as major roadblock to the region markets

Wednesday February 27 2019

2019 forecast of political and security risk for sub-Saharan Africa.

2019 forecast of political and security risk for sub-Saharan Africa. PHOTO | RISKMAP 

NJIRAINI MUCHIRA
By NJIRAINI MUCHIRA
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Efforts by East Africa Community member countries to attract foreign investors are being hampered by corruption, insecurity, unfavourable regulatory environment and a slow regional integration process.

Although some countries in the region have improved significantly on the ease of doing business ranking, foreign investors seeking opportunities in the region remain apprehensive due to the existence of factors that bring about uncertainties.

Because of these, many companies, particularly in capital intensive sectors like mining, oil and gas, manufacturing and building and construction are being forced to adopt a cautious approach when it comes to investing in the region.

Corruption, in particular, is a major concern because investors often want to know if they must pay bribes to get licences and do business.

Countries in East Africa have repeatedly been ranked among the most corrupt by Transparency International, with Kenya ranking at position 143 out of 180 countries in the 2017 index.

Tanzania was at position 103, Uganda 151, Burundi 157 and South Sudan 179. Only Rwanda has managed to contain corruption at position 48.

Other challenges

Insecurity, including terrorist attacks in Kenya, conflicts in South Sudan and fears of unrest during election cycles, is also a major concern for foreign investors, some of whom have been forced to shelve plans of coming to the region.

“Corruption is a major issue across East Africa and investors often ask whether it is manageable,” said Daniel Heal, Control Risks senior partner, East Africa.

The good news for Kenya, which has been victim of numerous terrorist attacks, is that while they distract people and forces government to divert resources to fight the terrorists, they have minimal impacts on economic growth.

The problems facing investors are compounded by unfavourable policies and regulations, some of which compel foreign companies to bring on board local shareholding and list on stockmarket to operate in the region.

Investors’ concerns are evident given the fact that foreign direct investment into region declined by three per cent to $7.6 billion last year according to a survey by US-based advisory firm AT Kearney.

Despite concerns over the EAC’s investment environment, the fact that the region is among the fastest growing averaging six per cent is a source of optimism going into the future.

According to Control Risks, which has just released its RiskMap2019, Kenya and other African countries can leverage financing for infrastructure development from multiple partners as the economic rivalry between the United States and China intensifies.

RiskMap2019 is a publication forecasting political and security risk for business leaders and policy makers across the globe.

“So far, the US-China rivalry has played out less visibly in Africa than on other continents. Support for China or the US has not emerged as a defining issue in African politics with most countries keen to pursue closer ties and seek financing from both sides rather than falling neatly into one camp. In 2019, we might see this changing,” said Mr Heal.

He added that this year, the US will seek to rival China in development finance in the continent, leading into a more concerted US commercial strategy.

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