Tuesday, March 15, 2005

By the "Stroke of a Pen" so many more Kenyans would have
jobs, succeed in
local and global business, and have access to cheaper goods
and services from
around the globe, live fuller lives, with more economic
freedom


By Tom Mogusu

Kenya Institute for Public Policy Research Analysis (Kippra) and the World Bank have warned that Kenya is losing out on Foreign Direct Investment due endemic corruption and bureaucracy.
The two organisations say the Government has failed to attract local or international investors due to barriers created by civil servants.
The laws enacted have also failed to stimulate economic growth.
"Public administrators are by their very nature bureaucratic," the Kippra-World Bank report says.
"This bureaucracy if not checked can turn into lengthy processes, which can inhibit investment and growth.
An instructive case that is often cited to demonstrate red-tape in Kenya is the process of registering new investments," the report says.
The Kippra research was carried out under the umbrella project supported by Britain’s Department for International Development (DfID).
It estimates that to register a business in Kenya, twelve steps are required, but which cost US$223.41 (Sh17,872.00), excluding "hidden" costs.
Although Kenya compares favourably to Uganda and Tanzania in terms of procedures, it falls far short of other African countries such as Zambia and South Africa and many developed countries.
The report warns that corruption is a significant problem in Kenya.
The survey found out that over 50 per cent of Kenyan firms and a considerably higher proportion of foreign firms operating in the country consider the economic and regulatory framework as unstable and highly uncertain.
"An almost similar proportion of firms consider macro-economic instability as a major constraint in Kenya," says the report that was released last week.
It emphasises the fact that policy instability and uncertainty arising from political and economic conditions limit investments because of the extra risk premium required.
Much of the uncertainty that has adversely affected the business environment had to do with Kenya’s stop-go policies and the associated poor donor relations.
"Political instability has also adversely affected the business climate," says the report.
The corrupt practices of business people, politicians or Government bureaucrats are costly because there are real prices to be paid for the economic inefficiencies and the misallocation of scarce resources, which arise from corruption," the Kippra report says.
It goes on to argue that corruption stifles the entrepreneurial spirit, undermines local and international confidence and scares off investment.
The findings say firms that receive Government contracts in Kenya pay on average 7.5 per cent of the total contract value as kickbacks.
Sector averages vary from 4 per cent in the machinery sub-sector, to 11.5 per cent in the paper, printing and publishing sector.
In 2002, the report says that manufacturing firms in Kenya spent more than 4 per cent of their total sales on bribery.
On average, firms paid Sh221 million in 2002 as unofficial payment in respect of utilities such as water, electricity and telephone.
The sectors were most affected however, were textiles, garment and leather. Unofficial payments in respect of licenses were lower than those of utilities, and ranged from Sh272 for bakeries to Sh35,000 for textile, garments and leather firms," the Kippra reveals the report.
In terms of location, the research found out that firms in Nairobi bear the brunt of corruption as they make the highest amount of unofficial payments on most account.
The level of corruption varies with the size of the firms, with the small and medium-sized firms paying the highest percentage of annual revenue and value of Government contracts.
Kenyan companies are also concerned with the level of taxes and the manner in which taxes are administered. Over 50 per cent of the firms surveyed under the Kippra/World Bank survey indicated that tax administration is a major concern.
An analysis of tax administration in Kenya by the Foreign Investment Advisory Services (FIAS) in 2004 also revealed a number of constraints with tax administration in Kenya.
This included delays in VAT refunds and the existence of corruption, although the general perception is that it has declined over the years.
Obsession by the Kenya Revenue Authority with maximising collections with little regard for the interest or circumstances of the taxpayer is another factor frustrating businesses in the country.


Uhuru Ni Haki

1 comment:

Akinyi J. Arunga said...

Kenya's company law rated poor
By James Anyanzwa
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The government was yesterday urged to simplify the process of establish a business in Kenya.

A workshop that drew the participation of the the World Bank and the British Department for International Development (DFID) was yesterday told that Kenya's company law regime is flawed and needed to be reformed in order to reduce the costs of doing business.

Clare Manuel, a consultant for the Foreign Investments Advisory Service (FIAS) of the World Bank Group described the Kenyan business environment as "very expensive" to investors. She said Kenya was performing poorly on this front compared to less expensive investment destinations such as Zambia and South Africa.

Manuel blamed the bureaucratic red tapes involved in company formation procedures for the costly business regime.

"The current company law in Kenya is only suitable for the nineteenth century public companies," Manuel said.

"Key reforms are needed which include abolition of ultra vires rule, abolition of memorandum of understanding and articles of association and institution of simplified procedures for small private companies."

She also called for reform in capital maintenance rules by enhancing protection for minority shareholders and abolishing nominal capital and par value shares.