Kenya scores poorly in global investor confidence ranking

Delays in resolving contract disputes and protracted cross-border trade procedures have eroded Kenya’s attractiveness as an investment destination, causing it to drop 12 places in the World Bank’s global list of economic competitiveness.

The latest edition of the World Bank’s Ease of Doing Business report ranks East Africa’s largest economy as the world’s 121st most competitive country this year down from position 109 in 2012.

It also has Kenya comparing unfavourably with neighbouring Rwanda and Uganda, ranked in positions 52 and 120 respectively.

Kenya’s ranking last year was also three places lower than the 2011 position, reflecting a steady decline in the country’s competitiveness in the past three years and weakening its position in the race for foreign direct investments.

The report shows that although Kenya’s performance improved in critical areas such as payment of taxes and starting a business, poor contract enforcement, slow property registration processes and lengthy cross-border trade procedures significantly eroded its overall ranking.

“The decline in ranking means that we are either deteriorating or other countries are reforming at a faster rate,” Moses Ikiara, the managing director of Kenya Investment Authority, said.

Dr Ikiara, however, expects the projected strong economic growth and high returns in a number of sectors to be Kenya’s main attractions in the medium term.

The World Bank ranks 185 economies globally based on their performance in 11 areas of business operations, including employment rules, access to electricity and taxation.

Tanzania, one of Kenya’s major competitors for investment in East Africa, dropped to position 134 from last year’s 127.

Kenya’s poor performance was partly contributed by prolonged delays and high cost of processing documents that lowered its cross-border trade score.

(Read: Congestion at Mombasa port slows down trade in EAC bloc)

It now takes an average of 26 days to import a [goods] container compared to 24 days a year earlier — a development that pushed Kenya’s cross-border trade ranking down to 148 from 141 a year earlier.

The cost of importing a [goods] container also rose by 7.3 per cent to $2,350 (Sh199,750) from $2,190 (Sh186,150) in the same period a year earlier.

Kenyan exporters were not spared the deterioration of the business environment as the cost of shipping out a container rose by 9.7 per cent to $2,255 (Sh191,675) from $2,055 (Sh174,675) the previous year.

Industry insiders say the delays and rise in costs of international trade are linked to bureaucratic red tape and inadequate capacity at the port of Mombasa to handle fast-growing cargo volumes.

The port, which was designed to handle an equivalent of 250,000 20-foot containers per year, currently handles more than 700,000 20-foot containers per year.

Port authorities expect demand for cargo handling to reach 960,000 20-foot containers equivalent by 2015. Kenya has responded to this rising demand for cargo handling with the construction of a second container terminal at Kilindini harbour creating space for 1.2 million containers.

Construction work on the new terminal began late last year and is expected to be complete next year.

In addition, the introduction of a 24-hour work cycle at the port is seen as key to maintaining Kenya’s control of East Africa’s lucrative logistics business.

Perennial cargo delays at the port remains a big cause of frustration in land-locked countries like Uganda and Rwanda, forcing them to consider shifting some of their cargo to Tanzania’s Dar es Salaam port.

Kenya has responded to the threats with a number of measures aimed at speeding up the movement of goods. Finance minister Njeru Githae recently announced that government agencies will start conducting joint cargo inspections to reduce the time taken to clear goods entering or leaving the country.

Kenya Revenue Authority, Kenya Ports Authority and Kenya Bureau of Standards are some of the agencies involved in cargo inspection and clearance at the port.

“The agencies have not been collaborating fully in terms of joint inspections and this has made it difficult to reap the full benefits of a 24-hour operation at the port,” Mr Githae said.

Slow clearance of goods at the port increases the cost of doing business by raising storage charges besides disrupting the operations of the importing or exporting firms and exposing them to revenue losses.

(Read: Electronic cargo clearance set to start in October)

Singapore, which topped the Ease of Doing Business list, has one of the best ports in the world and handles a fifth of the global shipping containers.

The World Bank report says Kenya has lost the impetus it had gained in registration of property — a key asset widely used as a factor of production and to secure credit.

Kenya was ranked 161st in registration of property down from position 133 a year earlier, saddled by the increase in the number of registration procedures.

The arduous process of registering property has been linked to corruption and inefficient manual records at the Lands ministry.

Bankers say the lengthy registration procedures and the difficulty of title verification account for a significant proportion of the risk premium charged on property-backed loans.

Kenya has over the years announced plans to digitise the Lands records to ease the processes, reduce corruption and fast track transactions in the booming property market but no action has so far been taken.

Kenya’s competitiveness in 2012 was also significantly diluted by inability to enforce contracts — a key determinant of investor confidence.

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