Ease of Doing Business in Kenya -#CytonnReport

Ease of Doing Business is an aggregate ranking method for countries, based on indicators that measure and benchmark regulations applying to domestic Small and Medium -sized Enterprises businesses throughout their life cycle.

The ranking is done by the World Bank, and tracks changes in the following 10 life cycle stages of a business: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The results for each economy are then compared with those of 189 other economies and over time.

In 2015/2016, 137 economies implemented a total of 283 reforms across different areas with starting a business being the most common reform area followed by paying taxes. Kenya was among 10 economies highlighted this year for making the biggest improvements in their business regulations recording an improvement of 16 places to rank position 92 out of 190, which is a build-up from last year’s improvement of 28 places to position 108 from 136 in 2015.

Cytonn Investments highlighted five key areas in their weekly report where Kenya has made significant improvement and actions that need to be taken to further improve Kenya’s overall rank going forward and they include the following:

1. Starting a business: With 7 procedures and 22 days to set up, Kenya’s ranking greatly improved from position 150 in 2016 to 116 in 2017. Positive reforms during the period were  removal of the stamp duty fees required for the nominal capital, memorandum of association and articles of association and, elimination of requirements to sign the declaration of compliance before a commissioner of oath. However, despite the above, the introduction of a flat fee of Kshs 10,000 for company incorporation has made starting businesses more expensive.
2. Getting electricity: There has been a reduction in the number of days and interactions needed to obtain an electricity connection to 97 days and 3 interactions, leading to Kenya’s improved rank from position 127 to 106. This was enabled by the introduction of a geographic information system, allowing the price quotes to be provided to customers without conducting a site visit.
3. Registering property: Kenya’s rank has slightly improved from position 122 to 121 on the back of increased transparency at the land registry. It takes an average of 21 days to register property in the country using data from 11 towns. In Mombasa, it takes an average of 41 days while in Isiolo it averages 73 days.
4. Protecting minority investors: Kenya’s ranking improved from position 112 to 87 owing to strengthened minority investor protections through; introducing greater requirements for disclosure of related-party transactions by the board of directors, making it easier to sue directors in cases of prejudicial related-party transactions, and allowing the rescission of related-party transactions that are shown to harm the company.
5. Resolving insolvency: Kenya was ranked position 92, an improvement of 48 positions from position 140 in the 2016 report, supported by increased ease of resolving insolvency which was made possible by introducing a re-organization procedure, facilitating continuation of the debtor’s business during insolvency proceedings, and introducing regulations for insolvency practitioners.

Kenya adopted a new Insolvency Act in line with the insolvency framework of the United Kingdom. The new law introduced a form of reorganization that allows insolvent companies to continue to operate while negotiating a settlement with creditors

According to the report, despite the general improvement in rank, Kenya also declined in a few business life cycle stages, that offer room for improvement and provide basis for formulation of positive reforms going forward. These areas include:

• Getting credit: Kenya’s rank declined to 32 from 29 in 2016. This is due to the low credit bureau coverage, which currently stands at 25.8% of the adult population and low access to credit information which is a critical element for private sector-led growth. Availability of information to lenders translates into increased access to finance and cheaper loans.
• Paying taxes:The metric assesses cost of complying with tax obligations up to the filing of tax returns, payment of taxes due and post filing processes such as claiming a VAT refund, undergoing a tax audit or appealing a tax assessment. Kenya was ranked 125 from 122 in 2016 on this metric. To file taxes in Kenya, it takes an average 145 hours per year and 25 number of payments. We expect the recent a