17 Key Issues Hindering Business in Kenya

Job creation and economic growth has been a driving force to the economy of this country with the private sector taking the largest share of the country’s GDP at 84per cent between 2001 and 2003.

The country recently embarked on several major business reforms that promote a more market-friendly environment but a lot still needs to be looked at.

The positive benefits include boosts in public investment in infrastructure, increased interest from foreign investors, and low transaction cost from information technology improvements.

However, the sector faces key issues that have been an obstacle to the growth of business in the country. Informal businesses are perceived to be the biggest obstacle to business operations in the country

Several more factors continue to undermine the private sector and this may hinder the growth of the sector.

Corruption

Corruption and bad management practices eat into the nation’s’ wealth, channeling money away from public projects. Corruption also harms the chances of success for small and medium enterprises

High levels of corruption can interrupt investment, restrict trade and reduce economic growth. .

Electricity

Power supply continues to be unreliable due to the rigidity and the lack of adequate redundancy of the network. Over 60 percent of energy generated into the national grid is used in private enterprises

Access to finance

A high finance cost is a key constraint to investment and competitiveness. Government intervention -through the establishment of an Industrial Development fund -could deliver significant improvements that would stimulate domestic investment

Tax rates

The invocation of the provisions of the constitution on taxation and licensing will ensure businesses have a fair and equal chance to thrive in the country. A national framework on County Taxation and Business Licensing should be put in place to guide county governments, business licensing as well as county Revenue laws

Customs and trade regulations

Unfair trade practices continue to cause market distortions that inhibit the private sector. There is need for enhanced public-private partnerships to curb the menace of unfair trade practices for the country to realize its economic transformation agenda

Tax administration

According to Kenya Association of Manufactures some aspects of the tax regime could be revised so as to improve the competitiveness of the manufacturing sector in Kenya. For example, late VAT refunds shift the Tax burden from consumption into production. Likewise, additional fees such as the Import Declaration Fee (IDF) and the Railway Development Levy (RDL) make imports of inputs relatively expensive in Kenya.

Political stability, transport, crime rate and disorder, access to land Licensing and permits, poorly educated workers, labour regulations and courts are among the main obstacles to the business environment

Approximately 24% of firms in Kenya perceived the informal sector as the biggest obstacles to their businesses. Moreover, the improvement in firms’ experience in dealing with crime and financial services is consistent with the change in firms’ perception of the business environment. The percentage of firms choosing access to finance and crime as the biggest obstacle for their day-to-day operations declined significantly from 2007 to 2013. The same holds true for tax rates and transport.

On average, 44% and 41% of Kenyan firms use banks to finance investment and working capital, respectively. The corresponding figures in 2007 were much lower at 23% and 26%. Moreover, the percentage of Kenyan firms with a bank loan is 36%, which is on par with the global average yet higher than the average of countries in the same income group (do note that when this survey was conducted, Kenya was classified as a low income country, having since graduated to a lower middle income country).

Article by Amina Mbuthia.