Youths set up a road block in Naivasha during last year’s post-election violence. Political environment largely affects the business environment and consequently the final country risk grade. Photo/REUTERS
Posted Friday, December 11 2009 at 00:00
Marxist Lenin once quipped that “Politics always obediently follows economics”.
The politics in most African nations have never been so alluring and Kenya is no exception.
Few African countries can brag of well entrenched democratic regimes and most are often led by kleptocratic dictatorships.
This is has continuously been negatively affecting business environment as well as attracting foreign investors who are fed with news about our failed systems and widespread corruption.
Ripple effects
Failure to address these issues has ripple effects and ultimately affects international country risk ratings.
Country risk refers to the risk of investing in a country, dependent on changes in the business environment that may adversely affect operating profits or the value of assets in a specific country.
Undoubtedly, political environment largely affects the business environment and consequently the final country risk grade.
The country risk rating as at November 18, 2009 on Kenya by the authoritative Economic Intelligence Unit is horrendous.
Kenya’s overall rating was grade D which simply means a very uncertain political and economic outlook.
A business environment with many troublesome weaknesses can have a significant impact on corporate payment behaviour.
Corporate default probability is high.
A close look at the components advising the rating gives the scorecard; Security risk C, political stability risk D, government effectiveness risk E, legal and regulatory risk D, macroeconomic risk C, foreign trade and payments risk C, financial risk C, tax policy risk C, labour market risk D and infrastructure risk E.
The country ratings system allows a company to assess the average corporate payment default risk, for example repayment of credit in a given country.
It also indicates to what extent a company’s financial commitments may be affected by local business and economic/political environment within a given country.
Source:businessdailyafrica.com/
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