The decision by Kenya's KCB Bank to scale down its operations in South Sudan following the flare up of hostilities in July has brought into focus the challenges that regional multinationals face in their quest to operate around the region.

“In view of the deteriorating security situation in South Sudan, KCB Bank South Sudan has taken steps to reduce its bank operations accordingly,” said Samuel Makome, KCB Group chief operating officer.

The decision came just months after employees of the subsidiary went on strike demanding better pay.

Other Kenyan companies operating in South Sudan, including Equity Bank and Co-operative Bank, were hit by major losses following the devaluation of the country’s currency last December.

READ: Kenyan companies count losses from South Sudan war

At least 20 Kenyan companies have subsidiaries around the region. Besides the three banks listed above, there are Commercial Bank of Africa, Britam Holdings, Bidco Oil Refineries, Brookside Dairy, Kenya Airways, Nation Media Group, Royal Media Services, Nakumatt Holdings, ARM Cement, East Africa Portland Cement, Mabati Rolling Mills, Beta Healthcare, and Elgon Kenya, among others.

The business landscape in East Africa, with the exemption of South Sudan, has improved, with better governance, responsive regulatory measures and a stronger infrastructural environment.

With a population of 150 million and economic growth averaging 5.2 per cent annually, the region is conducive for business.

“With the region boasting of much greater political stability and peace in most of the member countries, the positive growth trajectory predicted over the medium term is an indicator that the EAC has a good chance of reaching a developmental tipping point, making it the most attractive investment destination on the African continent,” said Joshua Oigara, KCB Group CEO.

Companies operating regionally are already reaping the fruits of cross-border operations.

KCB, which is the region’s largest bank with an asset base of $5.7 billion, posted $190.3 million in full year profitability for the year ended March 2016. According to the bank’s financial report for the year, regional subsidiaries accounted for 18 per cent of the balance sheet with South Sudan contributing seven per cent, Uganda four per cent, Tanzania three per cent, Rwanda three per cent and Burundi one per cent.

Equity Bank, which posted $237 million in profit for the full year ended December 2015, recorded an improved performance from its subsidiaries in Uganda, Tanzania, South Sudan, Rwanda and the Democratic Republic of Congo, which contributed 23 per cent of total assets, 23 per cent of total deposits, 17 per cent of the loan book and six per cent of the group’s profits.

“We want our subsidiaries to contribute at least 30 per cent of the assets and hopefully contribute 15 per cent of profits,” said Equity CEO James Mwangi during an investor briefing.

While Kenya banks are growing their regional operations, manufacturers, particularly cement makers, are having a difficult time. 

ARM has plunged into loss making because of increased competition from local manufacturers and new entrants like Dangote Cement, as well as an influx of imports.

The company, which posted a $28 million full year loss in 2015, is banking on a $140 million equity investment by UK development finance institution CDC to revive its fortunes.

“We chose CDC as an investor and partner to help us achieve a shared vision of creating the leading lowest-cost East African cement business,” said Pradeep Paunrana, managing director of ARM.

READ: Dangote’s low cement prices upset East African firms

Although multinationals are taking advantage of integration gains like free movement of labour, capital and goods, secure investment and security to expand, some challenges remain. These include the high costs of doing business, particularly with skewed infrastructure development, conflicting tax policies and labour laws that favour locals. Varied tax policies have remained a major concern, with businesses pushing for full harmonisation in line with the EAC Treaty and the Common Market Protocol.

So far, only Customs duties have been harmonised by setting a common external tariff.