Mega corporate scandals erode Kenya’s global competitiveness

• East Africa’s largest economy is now the world’s 106th most competitive economy out of 144 countries surveyed down from position 102 it held last year, according to the World Economic Forum (WEF).
• Companies that have been on the corporate governance spotlight this year include Centum, which was recently penalised for not issuing a profit warning before announcing a 48.4 per cent drop in its full-year profit.

Recent scandals involving Nairobi Securities Exchange (NSE)-listed companies have dented investor confidence in Kenya, pulling down the country’s standing in this year’s list of global competitiveness.   

Also read: Police retain top rank on E. Africa corruption index

East Africa’s largest economy is now the world’s 106th most competitive economy out of 144 countries surveyed down from position 102 it held last year, according to the World Economic Forum (WEF).

The Global Competitiveness Report 2012-2013 says Kenya’s ranking plummeted as a result of poor scores in key areas such as ethical behaviour of firms, strength of investor protection, integrity of auditing and reporting standards and the protection of minority shareholders.

High prevalence of communicable diseases and its impact on life expectancy, which stands at less than 57 years, and on the productivity of the workforce has also diluted Kenya’s ranking.

It has not helped that the country’s security situation has deteriorated since last year’s kidnapping of foreigners by Somalia’s Al-Shabaab militants and the subsequent entry of Kenya’s forces into the neighbouring state.

Paul Kamau, a senior research fellow at the University of Nairobi’s Institute for Development Studies, who led the team that conducted the Kenyan survey, told the Business Daily that recent boardroom wars and the resulting negative publicity had adversely affected investor perception of the country.  

“There were a number of boardroom wars going on during the survey period. Such wrangles sometimes scare away foreign investors who may feel that this is not the best place to put their money,” said Dr Kamau.

The boardroom wars that were partly triggered by poor corporate governance, alleged corruption and mismanagement of investor funds have raised questions as to how well minority investors are protected in Kenya.

According to the report, Kenya’s score on ethical behaviour of firms declined, leaving the country in position 102 from last year’s 99.

A similar decline was reported in the auditing and reporting standards score where the country dropped to position 81 from 66.

Dr Kamau said that the drop in auditing and reporting standards’ ranking is linked to the sample of firms that were included in this year’s survey.

“In my view our standards compare well with the global standards,” he said, adding that the ranking will vary depending on the type of firms surveyed.

Kenya’s ranking on the protection of minority investors dropped to 87 from last year’s 78 in line with the overall ranking of investor protection which dropped to 80 from 78.

Kenya, however, scored high marks on the effectiveness of corporate boards improving its ranking to 79 from 94 last year.