Political uncertainty hurting Kenya’s business advantage

The prolonged electioneering period is not helping Kenya’s competitiveness, a new report shows.

Even though the World Economic Forum (WEF) Global Competitive Report 2017-2018 shows that the country climbed five places to position 91, its second highest ranking in the past decade, a number of investors have delayed decisions prior and post the General Election citing jitters.

It says competitiveness is stalling across sub-Saharan Africa resulting in increased volatility and uncertainty in the business environment.

The government is projecting economic growth at 5.5 per cent due to drought and political noise among other factors.

STRENGTHS

Among Kenya’s strengths in global competitiveness is a very efficient labour market which was ranked 27th by WEF, strong innovation at number 37, and respectable financial market development at position 55.

Kenya’s macro-economic environment was ranked 120, becoming a big drag on its overall score.

“Global competitiveness will be more and more defined by the innovative capacity of a country. Talents will become increasingly more important than capital and, therefore, the world is moving from the age of capitalism into the age of talentism.

Countries preparing for the fourth industrial revolution and simultaneously strengthening their political, economic and social systems will be the winners in the competitive race of the future,” said Klaus Schwab, founder and executive chairman World Economic Forum.

TOP ECONOMIES

The top three economies in the region are Mauritius (45), Rwanda (58) and South Africa (61).

Only Ethiopia, Senegal, Tanzania and Uganda have managed to improve performance consecutively for five years since 2010.

The report measured factors that are crucial to future productivity and prosperity, drawing on 10 years of data.

The report offered unique insight into how the global economy has adjusted since the 2008 financial crisis, as well as how prepared it is to adapt to the disruptions of the fourth industrial revolution.

VOLATILITY

“After four years of improvement, performance in the institutions pillars has worsened this year – particularly in South Africa, Lesotho and Zambia, while elections in Rwanda, Kenya, Liberia and the Democratic Republic of Congo (DRC) have increased volatility and uncertainty in the African business environment,” said the WEF report.

It said these negative trends have been partly compensated by improvements in infrastructure, health, technological readiness and business sophistication, although Africa remains below the global average in these areas.

There is however significant variation across countries.

“Mauritius is again the most competitive country in Africa, at 45 in the overall Global Competitive Index (GCI), with its main rivals falling back: South Africa drops 14 places to 61 and Rwanda drops seven places to 58.

IMPROVED COUNTRIES

The most improved African countries year-on-year are Madagascar (121, up seven), Gambia (117, up six), Kenya (91, up five), and Senegal (106, up six), thanks either to an improved macroeconomic environment (Madagascar and Senegal) or to the efficiency of goods, labour, and financial markets (Gambia and to a lesser extent Kenya),” said WEF.

The report noted that restoring macroeconomic stability and institutional trust are short-term priorities to reignite competitiveness and growth in Africa.

In the long run, continued investment in infrastructure, human capital and technological adoption will be needed to reduce productivity gaps.

The report is an annual assessment of the factors driving countries’ productivity and prosperity. For the ninth consecutive year, GCI ranked Switzerland as the world’s most competitive economy, narrowly ahead of the United States (US) and Singapore.

Other G20 economies in the top 10 are Germany (5), the United Kingdom (8) and Japan (9).

China is the highest ranking among the Brazil, Russia, India, China and South Africa (BRICS) group of large emerging markets, moving up one rank to 27.

GREATEST CONCERN

Drawing on data going back 10 years, the report highlighted in particular three areas of greatest concern.

These include the financial system, where levels of “soundness” have yet to recover from the shock of 2007 and in some parts of the world are declining further.

This is especially of concern given the important role the financial system will need to play in facilitating investment in innovation related to fourth industrial revolution.

Another key finding is that competitiveness is enhanced, not weakened, by combining degrees of flexibility within the labour force with adequate protection of workers’ rights. It said that with vast numbers of jobs set to be disrupted as a result of automation and robotisation, creating conditions that can withstand economic shock and support workers through transition periods will be vital.

The GCI data also suggested that the reason innovation often fails to ignite productivity is due to an imbalance between investments in technology and efforts to promote its adoption throughout the wider economy.

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