The Democratic Republic of Congo and Kenya have been identified as the riskiest investment destinations in East Africa according to the Africa Risk-Reward Index 2024. The DRC has a risk score of 7.6, while Kenya’s score stands at 6.06. Factors contributing to these scores include political unrest, economic challenges, and a resurgence of violence in the DRC. Conversely, Rwanda is noted as the safest investment destination in the region. Recent credit rating downgrades for Kenya signal growing economic concerns.
According to the recently released Africa Risk-Reward Index 2024, the Democratic Republic of Congo (DRC) and Kenya have emerged as the riskiest investment destinations within East Africa. These findings are primarily attributed to the political, social, and economic threats present in both nations. As of September 30, 2024, the DRC received a risk score of 7.6 out of 10, indicating a high level of risk, while Kenya followed closely with a score of 6.06. Other countries in the region, including Uganda and Tanzania, also exhibited considerable risks with scores of 6.01 and 5.37, respectively. Conversely, Rwanda distinguished itself as the safest investment option, with a risk score of 5.11. The index, compiled by Control Risks and Oxford Economics Africa, utilizes a scoring system that evaluates both risk and reward. Both metrics are measured on a scale from 1 to 10, with 10 indicating the maximum level of risk or reward. Factors influencing the reward score encompass the medium-term economic growth forecast, size of the economy, economic framework, and demographics, with the growth outlook bearing the greatest weight as it signifies the potential for investment opportunities. The report indicates that Kenya’s reward score declined to 5.25 in September 2024 from 5.33 in the previous year, paired with a risk score increase to 6.06 from 5.8. This resulted in a noticeable drop in the overall risk-reward rating by 0.34 points. Similarly, the DRC’s reward score fell to 5.65 from 5.88, compounded by a marginal uptick in risk. A recent downgrade of Kenya’s credit rating by global rating agency S&P Global, following the withdrawal of the contentious Finance Bill 2024, further underscores the economic uncertainties facing the nation. This downgrade was part of a trend initiated by Fitch and Moody’s investor services, reflecting concerns over Kenya’s revenue projections amidst a growing debt burden. Political unrest continues to plague Kenya, marked by ongoing anti-government sentiments arising from dissatisfaction with proposed tax reforms. The government’s tax policy has been perceived as conflicting with President William Ruto’s electoral promises, given the escalating inflation and currency devaluation impacting citizens’ livelihoods. The report suggests that while significant tax increases may be softened in forthcoming budgets, Ruto’s administration is unlikely to fully retract the proposed fiscal policies. In parallel, the DRC is grappling with a resurgence of violence, particularly in its eastern regions, leading to a worsening humanitarian crisis. Thousands have been displaced from their homes, seeking refuge in overcrowded camps, where access to essential services remains critically limited. The conflict is exacerbated by the Congolese army’s ongoing battles with the M23 militia, which has steadily gained control in eastern territories since 2022.
The Africa Risk-Reward Index is a key instrument for understanding investment environments across the continent. As political and economic stability is crucial for investment decisions, the index highlights areas where investment may be deterred due to escalating risks. This index is particularly valuable for investors seeking to gauge both the potential rewards and pitfalls associated with investing in different African nations. Recent geopolitical issues, especially in Eastern Africa, have further complicated these assessments, necessitating a deeper look into domestic policies, social unrest, and regional conflicts.
The findings from the Africa Risk-Reward Index for 2024 indicate that the DRC and Kenya represent the highest investment risks in East Africa due to various socio-political and economic challenges. In contrast, Rwanda offers a relatively safer investment landscape. Additionally, recent credit downgrades for Kenya reflect growing concerns over tax policies and economic management, while the ongoing humanitarian crisis in the DRC underlines the urgent need for stability and access to resources. These factors collectively portray a precarious investment environment that may influence investment strategies in the region.
Original Source: www.theeastafrican.co.ke
