Politics, graft: The making of a risky investment region

EAC headquarters in Arusha, Tanzania. FILE PHOTO | NMG

Summary

• All the eastern African countries have recorded a less attractive investment climate and a rise in risks in the past year.
• The 2020 Africa Risk and Reward Index, released by consultancy firm Control Risks on September 15, says that Ethiopia, Kenya, Rwanda, Sudan, Tanzania and Uganda have seen their scores go down.

By FRED OLUOCH

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All the eastern African countries have recorded a less attractive investment climate and a rise in risks in the past year.

The 2020 Africa Risk and Reward Index, released by consultancy firm Control Risks on September 15, says that Ethiopia, Kenya, Rwanda, Sudan, Tanzania and Uganda have seen their scores go down because of economic and political risks, which were exacerbated by the outbreak of Covid-19 early in the year.

The Index captures the evolution of the investment environment and risk landscape in major African markets, and provides a snapshot of opportunities and risks for investors.

Vincent Rouget, the lead analyst at Control Risks, said that most countries in Africa are on the decline because of Covid-19, and scores have dropped across the board: For the first since 1994, the continent is expected to go into a recession.

“African GDP will likely contract by between six and 10 per cent this year, but it is not out of line with other parts of the world. The distinctive impact of Covid-19 on Africa comes from the continent’s limited ability to support a long-term response,” said Mr Rouget.

This year’s index surveyed 26 countries in Africa in regards to political stability, credit rates, and the investment environment, and was co-authored by the NKC African Economics research firm based in South Africa.

Patricia Rodriguez, the Control Risks analyst at the Nairobi office said that prior to the advent of Covid-19, there was optimism about the reward scores for East Africa, as countries within the region continued to record the highest levels of economic growth in sub-Saharan Africa.

“Issues such as growing political tensions ahead of elections in Ethiopia, difficulties in tackling corruption in Kenya, and a challenging regulatory environment for foreign investors in Tanzania were among the main factors contributing to these countries’ risk scores,” said Ms Rodriguez.

However, the Index notes that Covid-19 has inspired digitalisation of African economies that have seen a total investment of $2 billion in Kenya, Nigeria, South Africa, Egypt, Ghana and Mauritius.

Bukola Bolarinwa, the Africa analyst at Control Risks, said that mobile money addressed transfers during the lockdown.