The confidence of German companies in East Africa has shrunk significantly, a development that could have a negative impact on foreign direct investments.
A survey by the Delegation of German Industry and Commerce for Eastern Africa shows the business expectations of German companies over the next 12 months has declined, with Tanzania having the lowest score of 25 per cent, driven by risks ranging from trade barriers, preference for local companies, legal uncertainties, skills shortage and low demand.
The Autumn 2019 World Business Outlook Survey shows that Rwanda has the highest score of 69 per cent although companies operating in the country are grappling with challenges like skills shortage and low demand.
Kenya has a score of 62 per cent, with German companies raising concerns over the country’s economic framework conditions and low demand while Uganda has a score of 43 per cent with financing being the major risk.
Notably, Ethiopia is an attractive destination with a score of 75 per cent despite risks like economic framework conditions, financing, trade barriers and preference for local companies.
The waning optimism could result in German companies, which are traditionally risk-averse, shying away from investing in the region.
Thomas Wimmer, deputy ambassador and head of economic affairs at the German Embassy in Nairobi said that despite the declining optimism, there is a strong desire by German companies to remain active and even scale up their operations in Kenya.
“The Kenyan market has demonstrated a great propensity for trade relations. We continue to witness an eagerness to find and establish strong links locally and abroad from this market,” he said.
The decline in confidence could see East Africa miss out on the $1.1 billion Development Investment Fund for Africa established by the German government to ease the entrance of German businesses into Africa. Of the amount, $440.2 million under the AfricaConnect initiative will provide loans to German businesses looking to expand to African markets.