“While it remains highly unlikely to default on its debt, growing interest payments and international banks’ shrinking appetite to provide further loans will result in lower public spending, which has been a key driver for economic growth in recent years,” Heal said/FILE
NAIROBI, Kenya, Dec 18 – Challenges will persist in 2018 for businesses operating in Kenya and the wider East Africa region.
Analysts at global risk consultancy firm Control Risk predict that the high debt levels in Kenya and the unpredictable policymaking in Tanzania are among the key risks for businesses operating in the region.
Daniel Heal a partner at the firm says a pending repayment of the first portion of a Eurobond will be a trigger for the government to refocus attention on controlling public borrowing and spending before debt becomes unmanageable.
“Kenya has a strong appetite for external borrowing and has remained politically intransigent about its downsides. While it remains highly unlikely to default on its debt, growing interest payments and international banks’ shrinking appetite to provide further loans will result in lower public spending, which has been a key driver for economic growth in recent years,” Heal said.
Additionally, investors will have concerns about the sustainability of borrowing over the long term. Hence, the firm predicts that governments across the region will have to make significant improvements in public financial management, reduce public spending and demonstrate prudent oversight mechanisms to avoid negatively impacting the wider economy in the medium term.
Heal however added there is bound to be renewed investor confidence due to the return of political stability in Kenya, as well as renewed interest in major infrastructure projects both in the country and across the region.
Other issues that will pose challenges in the region include regional political cooperation increases vulnerabilities for investors and tensions between Kenya’s national and county governments may generate new political risks.
Additionally, regulatory risks in Tanzania and security and operational risks as a result of political pressures in Ethiopia and Uganda will also be a challenge.
As far as tensions between Kenya’s national and county governments is concerned, Control Risk says that the government will need to consolidate stability and focus on building effective working relationships with county governments to keep political risks at bay.
“The government will also need to focus on stimulating the private sector by reassessing the interest rate cap, encouraging more private sector involvement in infrastructure projects and continuing to reduce bureaucratic hurdles,” the firm says.
