A 2019 study by Ipsos on behalf of the Kenya Alliance of Resident Associations (KARA) revealed the challenges of doing business in the counties. Key among these are increased taxes and levies, poor infrastructure and corruption.
Thirty-six percent of the people interviewed said corruption was rife in the counties while 6 percent cited poor infrastructure as a major challenge. Fifty-seven percent complained of too many taxes and levies.
Eighty percent said taxes had gone up since the introduction of devolution, an indication that the devolved units have increased the cost of doing business in the country.
A similar survey by the World Bank in 2016 on the ease of doing business in the counties also revealed that delay in accessing crucial public services was hurting businesses.
The World Bank study focused on the ease of starting a business, securing construction permits, registering property and enforcing contracts. It found that on average, it takes 20 days to start a business; 142 days to get a construction permit; 73 days to register property; and up to 455 days to resolve a commercial dispute.
However, there has been progress in terms of improving the business climate. Accessing government services has been made easier with the introduction of the Huduma service hubs and e-government platforms. This has reduced bureaucracy, delays and cost of such services.
It now takes about two weeks to register a company on the e-citizen platform while one can easily verify whether a title deed is genuine online.
Such reforms have seen Kenya climb steadily in the World Bank Ease of Doing Business Index, ranked 56 out of 190 countries in 2019. However, such gains should be cascaded to the counties as that is where most of the business and economic activity takes place.
There are six areas where counties need to improve in order to make it easier for businesses to operate.
First, counties should ensure a predictable investment environment. Notably, the tax and regulatory regime should be consistent. Imposing levies, fees and taxes abruptly is disruptive to businesses. This requires regular consultation with business owners and most important, public participation in county decision making processes.
Second, county governments should simplify processes. Complex and inefficient procedures only serve to increase the cost of doing business.
Having one-stop services cuts bureaucracy and duplication of services. This translates into convenience and saves the public time and money.
Third, counties should provide technical and financial support where possible. Government agencies have a lot of expertise in areas like planning, environmental impact assessment, construction, to mention a few. This should be availed to private sector even if at a small fee.
Also, many feasibility studies have been conducted by various public institutions. There is no reason for the same to be replicated by investors seeking to set up in the counties.
Fourth, the devolved units should also ensure adequate and reliable energy, transport, water, sanitation and communications infrastructure. Most of these functions fall under counties as provided for in the Constitution. Therefore, priority should be given to improving infrastructure to facilitate trade and economic development.
Fifth, counties should consider partnering with industries in protecting the environment. This should not be left to companies alone as it is expensive. Imposing punitive fees for environmental damage due to industrial activities is not enough. Counties should invest in efficient waste management systems.
Sixth, county administrations should provide incentives for investors especially in manufacturing and agro-processing as this not only creates jobs but also contributes to value addition. For example, they can provide land for establishing industrial parks and other amenities. Tax incentives will encourage establishment and expansion of industries.
The foregoing measures would significantly improve the business environment as we re-open the economy. Many businesses are struggling. Others have scaled down operations or shut altogether due to the pandemic.
The economic stimulus package by the national government therefore needs to be matched at the county level with measures aimed at supporting business recovery as we continue to fight the pandemic.
Needless to say, counties need to boost their health infrastructure to manage the anticipated surge in coronavirus infections in the country.
The national government has introduced a minimum turnover tax which means businesses will still have to pay even if they make losses. This is the wrong timing given the economic disruption of Covid-19.
Also, the government should review the Value Added Tax on plant and machinery as this will increase cost of doing business and discourage investment in manufacturing.
In conclusion, increased taxes and levies can only be justified by a commensurate improvement in the overall business environment and enhanced service delivery by counties.
Perhaps, we should have a moratorium on taxes and levies by counties until the economy returns to normal.
Malde is Commercial Director at Pwani Oil