Recent moves by a number of emerging African economies to cut interest rates and improve the investment climate resulted in gains for their stock markets. However, there are tangible signs that all is not well beneath this glossy surface, as incessant labor strikes start to cripple businesses in South Africa, Kenya and Nigeria. A new competitiveness report by the World Economic Forum says these problems have reduced the competitiveness for those countries and are also starting to have a negative impact on investor confidence.
According to the forum’s “Global Competitiveness Report 2012–2013,” Kenya fell to 106 in its ranking, down four places from its 102 spot in the previous report. The drop is attributed to a poor performance in the key categories of ethical behavior of firms, strength of investor protection, integrity of auditing and reporting standards, and protection of minority shareholders. The report, which was released on Sept. 6, is based on 14,059 interviews in 144 countries conducted between January and June 2012 and an opinion poll of more than 14,000 executives. Out of the 144 countries surveyed, South Africa, the continent’s biggest economy, fell two notches to number 52 from a year ago, while Egypt’s rank eased to number 107 from 94. Ghana moved up to 103 from 114, Botswana edged up one notch to 79 and Rwanda climbed to 63 from 70, all three boosted by labor market efficiency and available institutions to support investment.
In the Caribbean, Jamaica moved up to 97 from 107 last year because of labor and market efficiency. Twin-island Trinidad and Tobago slipped to 84 from 81, and Barbados moved down to 44 this year from 42 a year ago because of various market inefficiencies and a contraction in the market, the report says.
It did not help that security has deteriorated in some of the African countries because of social and political unrest and a heightened terrorism risk. Paul Kamau, a senior research fellow at the University of Nairobi’s Institute for Development Studies and leader of the team that conducted the WEF’s Kenya survey, contends that boardroom wars and negative publicity adversely affected investor perception of the country. The boardroom wars were, for the most part, triggered by poor corporate governance, corruption and mismanagement of investor funds, all of which raised questions as to how well minority investors are protected in these countries.