Ideas & Debate

Why proposed start-ups law is bad for entrepreneurship

sakaja

Nairobi Senator Johnson Sakaja addressing the press outside Parliament buildings on April 8, 2020. PHOTO | SILA KIPLAGAT | NMG

Summary

  • The Kenyan Bill, at least on paper, seeks to encourage growth and create a favourable environment for innovation.
  • Despite sharing similar objectives when compared to their counterparts, it fails to tick the boxes in support of the innovation and entrepreneurial spirit.
  • The Bill requires start-ups and incubators to first register under the usual and bureaucratic means as limited companies, partnerships or NGOs, and then apply for registration under a Registrar of Start-ups.

The Start-up Bill, 2020, sponsored by Senator Sakaja, has been published. The Bill bears similarities to laws in Tunisia and Senegal that offer better fiscal incentives for start-ups, including the scrapping of registration fees on intellectual property rights, the introduction of start-up scholarships and funds and ease of registration and dissolution where the start-up fails to get a product-market fit.

The Kenyan Bill, at least on paper, seeks to encourage growth and create a favourable environment for innovation. Despite sharing similar objectives when compared to their counterparts, it fails to tick the boxes in support of the innovation and entrepreneurial spirit.

Where does the Kenyan start-up Bill fall short?

DOUBLE REGISTRATION

The Bill requires start-ups and incubators to first register under the usual and bureaucratic means as limited companies, partnerships or NGOs, and then apply for registration under a Registrar of Start-ups. At this point, a start-up would have already provided their business location, KRA, NSSF, and NHIF PINs, among other details for registration on the Business Registration Service portal. Therefore, this Bill does not ease business processes for start-ups.

It is not a money Bill and it does nothing to take away the taxation, licensing fees and processing challenges start-ups currently face.

A Start-up Bill should be a money Bill passed by the National Assembly and not the Senate. Devolving the innovation ecosystem structural problems and focusing on counties as an enabler of tech growth while the national government is responsible for 85 percent of national revenues and any fiscal interventions is self-defeating. The least county governments can do is to improve the innovation ecosystem by waiving licensing fees for small businesses and infrastructure costs for access to Internet at the county level.

INCUBATION HUBS

The Bill provides for the registration and certification of incubators and the need for them to have physical locations, going further to prescribe the relationship between incubators and start-ups.

The focus on incubators and not start-ups places an unnecessary burden on incubators who for the most part are private sector-led. Covid-19 has shown a shift in the running of incubation hubs into virtual-led spaces. Hubs such as Nailab have opted to move their operations online during the pandemic. Many start-ups exist without being part of incubation hubs. The past 10 years have shown that, although beneficial in some instances, not all start-ups need incubation to thrive. The need to have start-ups tied to incubator programmes places an unnecessary burden on the growth of the ecosystem as a whole. Start-ups must be the focus of this Bill as set out in its objectives.

DISSOLUTION AND WINDING UP

Once you register, the Bill does not prescribe a way of deregistering the start-up and leaves this to future regulations by the Cabinet Secretary. Start-ups should be easy to form and easy to dissolve when the business model fails.

INTELLECTUAL PROPERTY

The Bill tasks the Kenya National Innovation Agency, established under the Science, Technology and Innovation Act, with training start-ups on intellectual property

The private sector and organisations such as the Lawyers Hub are already doing this without a Bill.

This begs the question, did the drafters of the proposed law conduct research as to what the ecosystem’s current needs are?’ Instead, the Bill needs to address the scrapping of IP statutory fees, a legal fund created for the services on IP, and support for international IP protection.

TAXATION ON TALENT

Although the Bill indicates talent and capital attraction as one of its objectives, it does little to provide this. Start-ups will still face the same Pay As You Earn taxes and import duty as other mature companies.

GOVERNMENT-LED INCUBATION HUBS

Imagine your favourite county, running an incubation hub with some money from the World Bank. Good luck accessing these resources. We can learn from Tunisia and not take a top-down approach but a sector-led approach where we involve the real start-ups on the ground. One way would be to hold policy hackathons where great ideas are born in a consultative system.

THE WAY FORWARD

As of now, there is doubt as to whether a proposed law is the way to go or simply amending existing laws around taxation, employment, intellectual property and others to create a friendlier environment for entrepreneurship.

One thing remains for certain, legislation for start-ups should favour growth and be centred around their needs as the stakeholders around which the ecosystem revolves.

It should also be noted, like our counterparts in Tunisia, that such legislation should have emanated from the National Assembly because fiscal incentives are most important to start-ups and the Senate cannot debate upon a money Bill.

The drafters of this proposed law must go back to the drawing board, with start-ups and other ecosystem players having a seat at the table and ask, what does an enabling environment look like to you? Only then can we bring this back for discussion.

Ms Bonyo is the CEO and founder of Lawyers Hub