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Kenya: Business outlook

September 29, 2006
Kenya: Business outlook. Check it out:
(EIU Viewswire Via Thomson Dialog NewsEdge) COUNTRY VIEW

FROM THE ECONOMIST INTELLIGENCE UNIT

Business environment rankings(a)Value of index(b)Global rank(c)Regional rank(d)2001-052006-102001-052006-102001-052006-10Overall position4.154.7278771414Political environment2.62.981811616Political stability2.93.381791616Political effectiveness2.32.680801515Macroeconomic environment6.65.863781214Market opportunities2.94.182791717Policy towards private enterprise & competition3.04.575691312Policy towards foreign investment5.15.566691113Foreign trade & exchange controls4.25.573731011Taxes4.75.670611310Financing5.15.55665910The labour market5.05.169721011Infrastructure2.42.779791515(a) See Guide to the business rankings model at the end of this report. (b) Out of 10. (c) Out of 82 countries. (d) Out of 17 countries: Algeria, Bahrain, Egypt, Iran, Israel, Jordan, Kuwait, Libya, Morocco, Qatar, Saudi Arabia, Tunisia, UAE, Angola, Kenya, Nigeria and South Africa.Kenya will remain an unattractive investment destination in 2006-10



The Economist Intelligence Units business environment rankings show that Kenya was among the worlds least attractive investment locations in the historical period (2001-05) and that it will remain so in the forecast period (2006-10). Kenyas operating environment has long been a challenge for investors because of weak institutions, rampant corruption, poor infrastructure, political instability, serious economic structural imbalances, and persistent cycles of boom and bust. Kenya ranks poorly on political environment, reflecting the inability of the current president, Mwai Kibaki, to unite the coalition that brought him to power in 2002. The prospect of further social unrest and increasing political uncertainty will tend to dominate political debate, particularly in the short term, distracting from the major policy challenges in other areas. This risks slowing the pace of economic reform.

Kenya ranks poorly, particularly for economic openness, policy towards foreign investment, the quality of its financial markets, its infrastructure and the labour market. As for taxes, the high corporate tax regime is not expected to change, and will remain burdensome, in the medium term.

The current government and its successor after the 2007 election are expected to remain committed to gradual economic liberalisation and step-by-step integration within the global trading and financial system. The lead-up to the election may see a rise in economic nationalism, with Kenya rejecting donor funding that has numerous conditions attached and being cautious in selling strategic assets to foreign investors, but a more balanced perspective is likely to return after the poll. However, despite the governments pursuit of donor-supported reforms, severe structural problems will continue to weigh on the business sector and the overall economy. These will be compounded by high business costs, stemming from poor infrastructure, a heavy regulatory burden, high interest rates, a shortage of skilled labour and the impact of HIV/AIDS. Mismanagement, a weak judiciary and rampant corruption will also remain major constraints to stronger growth. The governments battle against corruption is still cited by the private sector as the major obstacle to doing business in Kenya. Businesses are also expected to continue to suffer from the high cost of electricity and to face frequent power cuts. These cause disruption to output (and loss of revenue), and add to production costs (as companies are forced to install generators). The largely rain-fed agricultural sector, which accounts for about 27% of GDP, also poses a significant structural risk. Other growth inhibitors will continue to include the poor state of the road network and congestion at ports. Although investment in infrastructure and other key sectors is expected to accelerate, these substantial structural faults will take a number of years to correct.

Copyright 2006 Economist Intelligence Unit


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