Bureaucracy cuts down Kenya’s trade ratings

Cutting red tape in public tenders and easing the business licensing regime are some of the proposed measures to address the waning appeal of Kenya to foreign investors.

This follows the release of a World Bank report which says that Kenya now lags behind Rwanda in terms of investor-friendliness.

“We created a system in which suspicion of corruption surrounds every government project. We have made investors feel we don’t do things the right way. And so we put in place this very cumbersome procurement system that has again served to discourage FDI,” said Gerishon Ikiara, a former trade and transport PS and now an international economics lecturer at the University of Nairobi.

He explained that countries such as India and Singapore had been more open to FDI which has in turn propelled their economies to fast growth. In the eastern African region, he said that Rwanda has created an open system for investors by improving the business environment tremendously.

“We need a change of attitude both from the media and the public so that we don’t allege corruption even when it is not there because this delays projects,” he said.

Analysts have noted that, for example, the northern corridor project sponsored by the World Bank took three years before it could start because of the bureaucracy and procurement process involved.

On the basis of an index developed by the institution and published in a report titled Investing Across Sectors 2010, the most restricted sectors are insurance, transport, media and telecommunications.

The most open sectors to FDI are mining, agriculture and forestry, light manufacturing, banking, construction, tourism, retail, health-care and waste management.

In terms of the WB index, Kenya scores 88.6 on average across sectors, against a Sub-Saharan Africa (SSA) average score of 90.2 and 89.4 score globally.

In Kenya, the most restricted sector is insurance with a score of 66.7, followed by telecommunications and transport both at 70.

The report says: “Among the countries in Sub-Saharan Africa covered by the Investing Across Sectors indicators, Kenya restricts foreign ownership in more sectors than most other economies.”

It noted that capital participation in telecommunications is limited to a maximum of 70 per cent though “the law provides foreign investors with a grace period of three years to build up the required domestic capital contribution of 30 per cent.”

In the transportation sector, there are ownership restrictions in railway freight, port and airport operation, in which foreign investment is allowed only up to 50 per cent, it said.

But it stressed that unlike in most other countries covered by the indicators, domestic as well as international passenger air transportation is fully open to foreign capital participation.

“The tourism sector, one of the country’s most prosperous industries, is fully open to foreign companies as well, as are other manufacturing and primary sectors,” it said.