Letters

Ease regulatory burden for small enterprises

sme

Rachael Wawira displays her curios during the second edition of the SMEs Conference and Expo held at the Kenyatta International Convention Centre (KICC) on March 18, 2021. FILE PHOTO | NMG

Summary

  • There remains a gap between governments’ good intentions, to support SMEs to contribute more to a country’s economy, and understanding small business needs and their challenges.
  • For SMEs, the requirements from many agencies and the national and county governments, take up a large portion of their operational costs.
  • Experience from other countries shows that a properly anchored regulatory framework is key to not only protecting minority investors, but also creating the right environment for all players.

Small and Medium Enterprises (SMEs) develop interesting concepts. They contribute to communities’ unique identities and are the lifeline of any country’s economy through job creation and as a stepping stone to achieving shared prosperity.

For instance, the world’s largest economy, United States, attributes its fast-paced economic growth, since 1776, to a vibrant SME sector. While SMEs, due to their nature, are able to adapt to changing times, they remain the most vulnerable when the business environment becomes unfriendly.

A such, governments across the world have put in place mechanisms to spearhead the growth of small businesses and cushion them from shocks. Unfortunately, there remains a gap between governments’ good intentions, to support SMEs to contribute more to a country’s economy, and understanding small business needs and their challenges.

In Kenya, the taxes businesses are required to pay and the regulations are ever increasing.

Last week, during a Regulatory Boot Camp for manufacturing SMEs hosted by Kenya Association of Manufacturers (KAM) one thing stood out – the regulatory burden for SMEs.

Manufacturing SMEs decried the standards and regulations they need to adhere to and the cost.

For SMEs, the requirements from many agencies and the national and county governments, take up a large portion of their operational costs. At a time businesses are reeling from the impact of Covid-19, with some facing challenges in meeting their financial obligations, this is a dire situation that calls for urgent intervention.

COMPLIANCE COSTS

The manufacturing SMEs’ sentiments echo a Regulatory Audit Report launched by KAM earlier this year. From the report, regulations become troublesome when they are many, since they increase the cost of compliance.

They are difficult to administer and to comply with, especially when similar regulations are administered by more than one agency.

Although regulations seek to create a level-playing field for businesses, overreach hinders the competitiveness of local industry.

For instance, the Finance Act 2021 has introduced a 10 percent excise duty on plastics items, including carboys, bottles and flasks.

This cost will be passed down to consumers whose spending power has been crippled by the Covid pandemic.

On the other hand, it is a blow to manufacturers, who are struggling to reduce costs in a highly uncertain business environment that has increased the cost of doing business.

As such, national and county governments need to ease the regulatory burden for SMEs.

One way of doing this is involving SMEs when formulating laws, regulations and policies. By doing so, the laws, regulations and policies will be SME-centred, and in turn, support competitive industrial development.

In addition, involving SMEs shall also enable them to understand the laws, policies, regulations and standards that they need to adhere to when developing products and accessing various markets.

Experience from other countries shows that a properly anchored regulatory framework is key to not only protecting minority investors, but also creating the right environment for all players.

For instance, streamlining and harmonising licenses in countries such as Egypt and Rwanda has proven to be time and cost-saving.

From the Boot Camp, SMEs shared their thoughts on what needs to be done.

STABLE POLICY

Some of these include streamlining approval procedures and protocols between national and county government agencies, merging regulatory bodies that have almost similar or duplicative roles and implementing a one-stop shop approach to obtain permits from national and county government agencies.

A predictable and stable policy and regulatory regime for SMEs shall have positive long-term effects on the manufacturing sector by increasing investments and driving innovation.

Our regulatory regime needs to be reviewed to make it efficient to support competitive industrial development, which shall then translate into inclusive socio-economic development.

Phyllis Wakiaga, CEO of Kenya Association of Manufacturers