Does Doing Business In Kenya have to be this hard?

The other day, I watched our president address Russian investors, trying to woo them to invest in our country. A great move in my opinion, though I couldn’t help but think that he ought to fix a few simple (and not so simple) things that make it difficult for us to do business in Kenya. In 2011, Transcentury Kenya’s first investment club gone big listed a Kshs 6.6 billion bond in Mauritius, instead of Kenya, citing among other reasons, difficulty doing business in Kenya.

My thinking is that if we fix our country, we won’t need to woo investors, they will come by themselves. Off the top of my mind, here are 6 pain points that our government could work on:

1. Taxation and tax laws: Looking at our budget, it isn’t reasonable to expect the government to lower taxes, but it could simplify tax laws, and eliminate areas of double taxation. The income tax act for example has some ambiguous areas that not only result to loss of revenue for the government, but also expose businesses to future tax liability.

Surely, it wouldn’t cost much to simplify even the language in our tax acts, highlight risk areas etc, that way, even an entrepreneur with no finance knowledge is able to understand his tax liability. With the current complicated laws, entrepreneurs who cannot afford expert tax consultants find themselves at the mercy of KRA.

Secondly, the government could pursue double taxation tax treaties with neighboring countries where Kenyan businesses have been expanding to, especially South Sudan, Tanzania, Uganda, Rwanda, Burundi, and recently Somalia. A double taxation treaty is designed to prevent firms from paying the same tax in two countries. For example, if a Kenyan business has a subsidiary in Tanzania, then it pays income tax from the subsidiary only in Tanzania or in Kenya, but not in both countries if the two countries have the treaty in place. Frankly, I am surprised we are talking about a common currency  with the East African Community, yet we haven’t been able to get double taxation treaties with our neighbors. Pipe dream?

2. Make it easier to start a business; In Kenya, it takes at least 4 weeks to get an incorporation certificate and maybe another 4 weeks to be fully licensed to start a business.  In contrast, it takes about 2 days to get a business registered in Rwanda, a country that was a mess a few decades ago. A global survey released this year by the World Bank on the ease of registering a company showed Kenya was ranked 121 out of 185 countries, and registering a company was one of the areas where we didn’t score too well. See a summarized report here.

Making it easier to register a business will increase the number of formal businesses, increase employment, and make it easier for the government to collect taxes. What would it take for us to be like Rwanda?

3. Reduce the number of licenses required to start a business: Here, I can speak from my hospitality sector experience.  To start a hotel business in Nairobi, you need at least 5 licenses (City Council business license, hotel manager’s license, public health certification, liquor license, business registration etc), not to mention various approvals.  Not only are these licenses expensive and exhausting to acquire, corrupt county officials use them as an avenue to receive bribes.

Most of these licenses are issued by various arms of  the Nairobi County Council, which means it should be possible to roll them up into one or two licenses. This will not only make it easier to do business, it reduces corruption.

4. Cost of registering collateral in Kenya: This can be summarized in one sentence: Clean up the mess in the Lands Ministry. There has been talk of digitizing records for a couple of years now, but I understand it is not in the interest of the “land big wigs” to do so. Well, it needs to be done. The latest deadline is mid-2014, let us wait and see.

5. Stabilize power supply: This is pretty obvious. Again speaking from the hospitality sector, it costs us at least Kshs 2 million to install a generator in each property, not to mention the running costs. Multiply that cost with the number of manufacturing companies and commercial buildings that have had to install generators to copy with KPLC’s inefficiencies. That’s just one aspect, the other is fuel costs and the cost of electricity itself.

Several  people have suggested privatization of power supply, but looking at the corruption levels in our country, I don’t even think that’s wise. But it is a problem the government needs to solve.

What other pain points have you experienced trying to do business in Kenya? Do you think we are expecting too much of our government? Leave a comment below, let us talk about it.

Taation