The State Department’s Investment Climate Disturbance

The State Department released its annual compendium of FDI climate statements in 175 countries based on 2015 economic office embassy data and reviews, which mostly found improvement and stability in the six regions covered despite 20- 30 percent deterioration ratios in Africa, the Near East and South Asia. Opaque regulation, corruption and poor property rights and infrastructure were major negatives, while business registration, tax incentive and resource access procedures progressed.  The US Trade Representative uses the findings in negotiations, and the reference is cited with the World Bank’s granular “Doing Business” ranking to promote government policy and practical adjustments. The individual entries are typically 20 pages with an almost equal number of sections. Chapters and details have been added in recent years on intellectual property rights, data storage, and state-run enterprises and sovereign wealth funds. Portfolio investment and financial markets are minor categories and outside the exercise’s original purpose, but private sector readers now seek expansion. Simplifying and streamlining the startup process is a key Washington and global objective, emphasized in the UN Sustainable Development Goals for informal economy reduction. It is particularly of interest to small and mid-size firms that my need special consideration which the publication attempts to track. State-owned companies have mushroomed the past decade in the developing world, and the statements focus on preferential funding, raw material and procurement treatment as well as corporate governance standards and environment and social responsibility. With sovereign wealth funds, their domestic/foreign and active/passive investor roles are explored, and labor is also an important component with hiring and rights condition in the spotlight.

Kenya was presented as a sample good performer with “strong” monetary policy enabling lower   inflation in the 5-8 percent range and exchange rate volatility than in neighbors. UNCTAD reports it as a popular hub for oil and gas and manufacturing. New company and insolvency acts were passed in 2015, but the Transparency International ranking is 140 out of 170 with “almost daily” corruption scandals. Terrorism an insecurity remain obstacles after the Westgate Mall attack, but US firms are active in many sectors and the Millennium Challenge Corporation places the country above the median on half its economic, social and governance indicators. However foreign control is limited in sensitive industries like insurance and telecoms, and the level is capped at 60 percent for Nairobi Stock Exchange listings. Privatization is active through PPP arrangements, and capital repatriation and remittances are unrestricted outside reporting requirements. The capital markets are East Africa’s most sophisticated and retail bonds can be bought on a mobile money platform, although long-term government and corporate issuance is undeveloped. Regional regulators are working on integration initiatives and Citibank is among the foreign banks represented. The $400 million in US FDI should be on notice against   political and tribal violence heading into 2017 elections, the report cautions. The MSCI frontier gauge was flat through mid-year on another spate of violence between the ruling and main opposition party likely to endanger predicted 5-6 percent growth. The State Department has a travel warning there to accompany the upbeat climate statement with fund managers also jostled by the rejigged juxtaposition.