Inadequate access to financing is still the biggest barrier to doing business in Nigeria and other African countries, a report has stated.
The report titled: “Where to Invest in Africa in 2018,” by Rand Merchant Bank (RMB) obtained by THISDAY, noted that the repatriation of hard currency from African markets had been a significant drawback — especially over the last two years.
According to RMB, although exchange controls and pricing remain key causes for concern, since 2014, the issue of liquidity has been the biggest hurdle to business.
It further noted that in most African countries, lack of consistent dollar inflows had led to foreign exchange restrictions.
“These have been designed to shield the currency of the country in question, but at the same time, have made it increasingly difficult for investors and business owners to repatriate capital or pay for imports.
“In some instances, hard currencies are being used exclusively for the facilitation of priority transactions.
“Although we expect liquidity challenges to be addressed in the coming years, the pace of this easing will be slow — especially considering their association with a sluggish recovery in commodity prices,” it added.
It argued that the risk profiles of most African countries have deteriorated significantly — especially in 2015-2016.
This deterioration, according to the report had been driven mostly by weakening debt metrics.
“To state the obvious, risks, which range from economic to political ones, will either encourage or discourage funding opportunities for businesses wanting to enter African markets. “What is important to note is the role that credit ratings play here: the ratings show the evaluated credit risk of a prospective debtor (whether an individual, company, or government) as well as that entity’s predicted ability to pay back the debt and include a forecast for the likelihood of the debtor defaulting,” it stated.
In addition, the report also stated that corruption remains rife in many African governments — as well as in several private sectors across the continent.
It argued that the political will to stamp out corruption remains weak for real headway to be made over the next five years.
Transparency International’s (TI) annual Corruption Perceptions Index report had shown that the relationship between corruption and inequality feeds populism.
The TI report had stated: “When traditional politicians fail to tackle corruption, people grow cynical. Increasingly, people are turning to populist leaders who promise to break the cycle of corruption and privilege. Yet this is likely to exacerbate — rather than resolve — the tensions that fed the populist surge in the first place.”
To this end, the RMB report argued that the insights from TI were most relevant to Africa.
In fact, it stressed that out of the 20 most corrupt countries in the world, 12 are African nations. Somalia, South Sudan and Libya are the three most corrupt countries in Africa, with Botswana, Cabo Verde and Rwanda being the least.
“Although corruption levels remain high across Africa, most countries on the continent have managed to reduce levels since the 2000s.
“Looking over the past year, Lesotho’s corruption levels weakened the most, followed by the Central African Republic, Djibouti, Ghana, Mauritania, Mozambique and South Sudan.
“The biggest improvers on the corruption front were Burkina Faso, Cabo Verde, and São Tomé and Príncipe,”it added.
In addition, it noted that tax rates have emerged as the third-most problematic factor for investors doing business on the continent.
According to the report, the issue of high tax rates in the continent is closely linked to the low growth cycle.
“Many governments are looking for new sources of financing to balance public spending and, as such, see the hiking of taxes as a possible solution.
“We believe that underdeveloped infrastructure, in third spot for the last few years, is most likely to move back into the top three places, once governments ease the tax burdens.
“In essence, the quality of Africa’s operating environment remains less conducive to business than the operating environments of other parts of the world.
“The poor progress made by African countries on much-needed structural reforms – all while the continent’s economic growth rates were high — presents as a missed opportunity, and has placed Africa on an even weaker footing than before,” it added.