East Africa: Why Region Is Attracting Less and Less Foreign Investment

East Africa’s investment climate is facing a litmus test following the decline in foreign direct investment, faltering intra-regional trade and continued poor performance of listed companies, which have left shareholders with reduced or no earnings at all.

Research financed by the UK’s Department for International Development in 2016 shows that the persistence of non-tariff barriers has hindered trade flows in the region and reduced the benefits of regional integration. According to the study by the Overseas Development Institute (ODI), a UK-based independent think tank, taxes account for 40 per cent of the unresolved NTBs while Customs and trade facilitation measures account for 28 per cent.

Although though 104 NTBs have been removed since the establishment of the NTB Monitoring Mechanism in 2009, the study shows that as of June 2016, 25 continued to restrict intra-EAC trade, according to the report, dated November 2016.

Impacted by NTBsKenya and Uganda have been impacted heavily by NTBs, most of which are generated by Tanzania. Kenya follows closely.

Foreign direct investment in the EAC declined in 2015 due to the failure by the member states to promote the region as a single investment destination.A 2015 draft trade report by the EAC Secretariat shows that the level of FDI in the region dropped by 16 per cent to $7.2 billion in 2015, from $8.6 billion in 2014.

Intra-EAC trade fell by 13 per cent in three years, with the value of the trade dipping from $5.8 billion in 2013 to $5.06 billion in 2015. Between 2014 and 2015, the value of intra-EAC trade shrank by 10 per cent, from $ 5.6 billion to $5.06 billion, due to cumbersome regulatory and administrative policies that impacted on investment promotion.

According to the report, dated August 2016, EAC partner states have complicated the procedures for registering businesses and procuring business permits while differences in the implementation of tax exemptions and incentives have also failed to promote transparency in investment promotion at the regional level. Rwanda, for instance, has established special economic zones while Uganda, Tanzania and Kenya operate export processing zones.

According to a 2016 US department of State report, East African countries exhibit varying investment climates that make it difficult to attract investments.

The report says that, in the region, Kenya has a more positive investment climate that has made it attractive to international firms seeking a location for their regional or pan-African operations.

But the country’s consistent low ranking on measures against corruption, the ease of doing business and security risks from terrorism and crime pose a key challenge.”Corruption and some weaknesses in the legislative frameworks continue to undermine Kenya’s business environment,” the report says. “Allegations of irregularities in public tenders are frequent, and corruption scandals appear almost daily in local media. Foreign companies…

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