Entrepreneurs have to comply with a number of laws during set up and also in the course of operations thus increasing the cost of compliance.
In some cases, this has been cited as the reason some of the young startups are driven out of business.
While laws are important in regulating businesses, too many laws can kill the entrepreneurship spirit, and this has a negative effect on society.
When businesses shut down, the rate of joblessness also increases.
Kenyan entrepreneurs have many laws to comply with, both at county and national level.
The law does not make a distinction between young businesses and established ventures. Here are some of the negative impacts of high compliance cost.
The first is financial strain. Too many laws may put a significant strain on the resources of young businesses.
Entrepreneurs operate on very tight budgets, and most are already cash strained. Compliance costs add to the challenges they face.
A high compliance cost strains the business and ultimately stifles innovation and creativity.
The second negative impact is resource diversion. Compliance takes a lot of time and energy. This time and energy would have been used to build the business.
Too much compliance means that time and energy is instead diverted towards compliance.
I recall a case where an entrepreneur had to wait many months to get a licence from one of the regulators in his sector.
There was so much back and forth between him and the regulator. He therefore sought the services of a lawyer to try and assist him get the licence out.
He became discouraged upon learning the legal fees. The end result is he gave up on his noble idea and began another business altogether.
The time and energy spent on some aspects of compliance is very draining.
Thirdly, the cost of compliance can hamper competition on a global scale.
In Kenya there are very many laws that entrepreneurs have to contend with both at county and national level.
The big elephant in the room is a tax regime that is uncertain and difficult to understand. These types of laws stifle entrepreneurship and innovation.
While there is a need to regulate the business environment, regulators ought to strike a balance between over regulation and the need to provide an enabling legal environment for businesses to thrive and grow.
A hostile legal environment is counterproductive It not only stifles entrepreneurship but strains the already existing businesses.
A hostile legal environment has very serious negative impacts on society. It leads to business closures which in turn will lead to joblessness and social ills.
Regulators ought to be proactive in creating a good legal environment for entrepreneurs.
Kenya can borrow a leaf from countries that have healthy legal environments so as to spur entrepreneurship and innovation.
One of the things that the regulators can do in creating a good legal environment, is by streamlining the licensing and approvals processes for entrepreneurs.