Kenya’s investment allure dips further in EAC region

Kenya has been ranked as the second most difficult country for businesses after South Sudan, according to the Ease of Doing Business in the East Africa Community (EAC) report by the East African Business

Council, highlighting concerns about the nation’s business.
The report shows that Kenya received a moderately low index score of 3.43, placing it at the sixth position out of the seven partner states surveyed. South Sudan, with a slightly higher index score of 3.5, was ranked seventh.

This ranking points to challenges and obstacles that businesses face in Kenya, potentially deterring investment opportunities and impacting the country’s economic growth.
It also underscores the need for further reforms and improvements in the business environment to attract more investment and foster entrepreneurship.

Slip from top two

The report, which surveyed a total of 252 select companies in EAC between June 13 and July 21, 2023, places Rwanda as the best in terms of ease of doing business in the region, with a score of 2.08. It was followed by the Democratic Republic of Congo (DRC) with a score of 2.75.

This means Kenya, the region’s biggest economy, has slipped from the top two positions it held back in 2019 to the bloc’s new member, DRC, which joined in March 2022 and has since become an attractive destination for most companies, including Kenyan banks.

DRC’s entry had facilitated the removal or reduction of import taxes and offered the bloc an alternative trade route on the Atlantic side, other than the Indian Ocean seaports shared by Kenya and Tanzania.

“Based on the analysis of the responses, companies from Trade in Goods and Trade in Service ranked the ease of doing business within their countries, notably Rwanda as Easy (Rank 2.08), DRC as Moderate (Rank 2.75), Uganda as Moderate (Rank 3.05), Burundi as Moderate (Rank 3.18), Tanzania as Moderate (Rank 3.32), and Kenya as Moderate (Rank 3.43),” reads the report in part.

Trade finance a major challenge

Although the report has not attributed the scores per country, businesses identified trade finance as a major challenge to the operation of business in the region, mainly the availability of forex (Fx) required for international trade.

Kenya has been facing an acute foreign exchange shortage until last July when the official reserves improved on loan inflows from multilateral lenders, but the levels are still expected to remain under pressure in the remainder of the year.

“These challenges include trade finance, specifically the availability of foreign currency, affordability of interest rates, and access to loans/credit,” the report stated.

Another significant challenge is government operations, particularly related to receiving payments from the government for supplied goods and services, securing government tenders, and obtaining tax refunds, tax appeals, rulings, and customs valuation.

Most of the taxes are, for instance, not harmonized across the region, thereby likely to lead to a high cost of doing business as the implementation of financial year 2023/24 budgets continues.

Additionally, the removal of trade restrictions, including the elimination of trade barriers and the resolution of tariff and non-tariff barriers, and trading across borders pose challenges, according to the Business Council.

The slow verification of cargo by the border agencies has increased the cost of doing business and reduced the competitiveness of products made or bought in East Africa, the most integrated and fastest-growing regional economic bloc in Africa.