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Economy

Kenya’s weak points in laying favourable climate for business

The World Bank’s Ease of Doing Business report for 2018 released a fortnight ago showed that Kenya had made remarkable strides in smoothening conditions for commerce.

The country was ranked number 80 globally in 2017, having climbed 12 places compared to the previous year. The improvement was attributed to a raft of reforms in key areas such as starting a business.

The ranking captures approvals such as construction permits, registration of property, ease of border clearance, among several other parameters.

The 2017 ranking is the country’s highest since 2008 when it was ranked number 84. The new ranking makes Kenya as the third most competitive economy in Africa after Mauritius (25th) and Rwanda (41st).

Despite the overall improvement, the World Bank scorecard highlights weak points in Kenya’s efforts to provide a smooth environment for business. According to the scorecard the country continues to perform poorly on key indicators such as starting a business, dealing with construction permits, registration of property and trading across borders.

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For instance, it remains problematic to start a business in Kenya despite the introduction of the e-citizen online portal to help deal with strenuous filing of hard-copy documents.

In Kenya an entrepreneur undergoes at least six processes lasting for at least 25 days to start a small-to-medium sized limited liability company.

The World Bank attributes poor performance in ease of starting a business to the flat fee of Sh10,650 introduced by the government for company incorporation, as a result Kenya was ranked 117 out of 190 in starting a business.

The report further alleges that for one to get clearance faster, he or she has to bribe authorities, a practice that has become common in the country.

It takes longer time to register such a company if one is unwilling to bribe the authorities.

Construction permits

Obtaining construction permits has been identified as another weak point in Kenya despite an improvement in ranking in 2017 — a feat mainly attributed to the elimination of clearance fees by the National Environment Management Authority (Nema) and the National Construction Authority. The fee was set at 0.05 per cent of the warehouse value.

The poor rank is indicative of the many procedures and days taken to get a construction permit in Nairobi (16 procedures and 159 days).

Strenuous procedures such as obtaining a survey plan, a project report from an environmental expert, and approval of the environment impact study, among others, have been blamed for the lengthy and many procedures undertaken in the process.

Property transfer

Investors in Kenya’s property market have also registered frustrations due to the long transaction period. The World Bank said it takes up to 61 days to complete a property transfer in Kenya compared to just seven days in the neighbouring Rwanda. Consequently, Kenya’s registration of property index is the worst performing indicator among its peers.

Ranked at 125, Kenya is unable to match the regional average of 59 days to register a property. The steps, time and cost involved in registering a property have continued to become an impediment to entrepreneurs keen on investing in the country.

The government’s failure to reduce the high number of procedures required to register or transfer property has been largely blamed for the stumble in ranking from 121 a year ago to 125 currently.

Procedures such as applying for the land rent clearance certificate and payment and obtaining the rates clearance certificate from county governments have been singled out by the World Bank as disablers due to the lengthy time required to process them.

Border clearance

Clearance of cargo across national borders is identified as another weak point for Kenya. The country ranks low globally despite posting an average of 21 hours compared to the Sub Saharan average of 100 hours.

Advanced economies take at most 12.7 hours to get the same process done.

Kenya’s poor showing is linked to high importation fees and other bottlenecks such as high importation fees and the lengthy number of days required to make imports.

Kenya’s cost of import and border compliance was estimated at $833 (Sh85,800) against $686.8 (Sh70,740) for sub-Saharan Africa and $111.6 (Sh11,500) for the Organisation for Economic Co-operation and Development (OECD) countries.

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