Lessons from Ease of Doing Business rating

The release of the World Bank’s Ease of Doing Business report for the year 2018 saw Kenya move up 19 places to position 61 out of a total of 190 economies.

On the day that the report was being released, I was part of a panel discussion on its implications to the country. Quite a number of Kenyans expressed pessimism with the ranking, arguing that it did not represent the reality on the ground.

While criticism is a tool for improvement, it is important to put such critique into context. In the case of the rankings on the Ease of Doing Business Index, the reality is that Kenya has improved. This is something that must be celebrated. It is important to point out that until four years ago, Kenya’s position was in the bottom half of the rankings.

Then, the rankings were used to demonstrate the challenges that the country was facing in its business environment. With the changed fortunes, complaints still exist. This is not objective criticism. Objectivity requires that we laud efforts made. This can then form a basis for suggesting ways of improvement.

The Ease of Doing Business Index provides feedback on assessment of the regulatory environment for business worldwide. The focus is consequently on laws and procedures.

As one engages with the assessment results it is important to keep this in mind. If one takes the 11 metrices that were being measured one will quickly notice the focus on procedures and laws, with cost also being considered. The question that one should ask is whether on those indicators Kenya has improved or not. A few examples will help paint the picture.

The first area of focus in the report relates to starting a business, where the procedure time and cost of establishing a limited liability company is the basis for judgement and comparison amongst the 190 economies.

For long, Kenyans complained of the long and cumbersome process of registration. The company’s registry operations and records were manual. Stories were common of files disappearing unless one engaged in corrupt practices by bribing officers in the Registry.

In such circumstances, Kenya could only score poorly on this score. Recent reforms have meant that application for registration is nowadays undertaken online, up to the approval and receipt of a registration certificate.

This has cut down on the time and costs involved and limited opportunity for rent-seeking. It is consequently accurate to state that there has been improvement in the regulatory environment for starting a business. This is not to say that in the year under review many companies were registered.

The second example is that of registration of property rights. The country’s Constitution provides protection for property rights. The indicator though is concerned more not with the protection but with the ease of registering property rights and the quality of the land administration system.

Despite the constitutional promise of land reforms, the country still has a long way to go in ensuring that it is easy to register property in Kenya.

The planned imitative to introduce technology to aid the registration process would be a huge boost to improving the ease of registration. Until this happens, the country will continue to score lowly on this indicator.

One of the more controversial areas in the assessment is the measurement on getting credit. From its name one would expect that this measures how easy it was to access credit and whether business actually accessed credit. Kenya performed based on this score, being number 8 globally on it. In a context where the economy has been struggling, concerns have been raised about the perverse effect of the interest cap law partly due to the conniving by banks to defeat its purpose, one wonders how the report can say Kenya was amongst the global leaders on this score.

On closer scrutiny it emerges that all that the indicator measures are two issues. First it deals with the sharing of credit information and secondly the extent to which the legal framework promotes a unified transaction system. It does not measure whether there was improvement in the quantity of businesses that accessed credit.