High debt levels likely to halt businesses in 2018 – Report

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High debt levels in the country is among the top risks likely to affect businesses operating in the country come 2018, a new report shows.

The annual report- political and security risk forecast RiskMap also covers the East African countries.

“However, in Kenya, a pending repayment of the first portion of a Eurobond worth $774.8million (Sh80.19 billion) in 2018 should be a triger for the government to refocus attention on controlling public borrowing and spending before debt becomes unmanageable,” the report noted.

It goes further to state that Kenya has a strong appetite for external borrowing and has remained politically intransigent about its downsides.

According the engineers of the report-Control Risk, as Kenya 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.

The report comes months after the country emerged a protracted presidential election process and seeing a return to political stability.

Going south, unpredictable policymaking in Tanzania is likely to be a major challenge for businesses operating in the country.

Here are top 5 risks likely to face businesses in 2018 as identified by Control risks

1. Lingering debt crisis raises potential reputational risk:

Countries in the region with a more diversified economic base such as Kenya and Ethiopia will keep sovereign risks at bay over the next year, and are unlikely to face a debt crisis in 2018. However, investors will have concerns about the sustainability of borrowing over the long term.
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.

2. Regional political cooperation increases vulnerabilities for investors:

The infrastructure boom in East Africa is set to continue in 2018. However, cross-border projects will depend on closer and more effective political cooperation between regional governments, raising political risk vulnerabilities. Increasing focus on local content will present a range of reputation risks for investors around third-party management, and land and community issues will require early and committed engagement from investors to avoid any major operational impact.

3. Tensions between Kenya’s national and county governments may generate new political risks:

The country’s return to political stability in 2018 will begin to unlock investment demand. However, the government will need to consolidate stability and focus on building effective working relationships with county governments to keep political risks at bay. It 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.

4. Regulatory risks in Tanzania:

Unpredictable policymaking in Tanzania will continue to present major regulatory risks for international and regional investors. President John Magufuli’s grip on power is tightening, and his authoritarian style and erratic approach to legislation will further damage investor confidence. He will continue to use nationalistic legislation in the extractives industry as a way of increasing government revenue and addressing fiscal restraints, presenting a range of regulatory and political risks for investors in the short-to-medium term.

5. Security and operational risks as a result of political pressures in Ethiopia and Uganda:

In Uganda, speculation over President Yoweri Museveni’s succession plans is likely to persist, despite the likely passage of a constitutional amendment removing the age limit for presidential candidates. While these are unlikely to significantly harm businesses in the country, factionalism in the ruling National Resistance Movement (NRM) will complicate policymaking and lead to bureaucratic delays for businesses. In Ethiopia, the government is likely to face further protests unless it seeks to broaden the political space and make some leadership changes. This will pose security risks for businesses in the regions of Amhara and Oromia, and in the border area between the latter and Somali regional state.


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