This article was published in the Kenyan local newspaper, DAILY NATION, Tuesday April 13. 2010, “PUBLIC AGENDA” section under the title, "Local authorities big hurdle to investment: Many licences and raids a major drain on business people".
Businesses in Kenya are required to have different licences, permits and other regulatory documents. Failure to have these can lead to arrest, often conducted on a Friday by council inspectors.
There are 175 local authorities in Kenya. It is estimated that half the local authorities arrest an average of 30 people every weekend. Furthermore, businesspeople lose income when they close business, pay fines or engage lawyers. This leads to an estimated loss of revenue of Sh24,000 to Sh40,000 per business. This translates to 125,000 business people per year arrested at a cost of approximately KSh3-5 billion [$ 37-63million].
What does this mean in terms of development? The World Bank's Energy Sector Recovery Project loan to Kenya totals $160 million. It helps increase the number of Kenyan households with access to the electricity grid, improve electricity distribution and reduce power outages. The average amount of the loan over five-year period is $32 million per year. Imagine what development initiatives Kenya could undertake with $37-63 million (Sh3-5 billion )every year over five years.
Kenya has made progress in the past few years on licensing reforms. In 2007, the government with the help of the Investment Climate Advisory Services of the World Bank Group and funding from DflD, embarked on a guillotine process. It entailed the systematic recording of all the licences and what they serve. The number of licences was found to exceed 1,300.
A process led by a team comprising both the private sector and government began streamlining, simplifying or eliminating (the guillotine) one-third of all licences. However, it is also estimated that 100 were introduced over the same period. The government has put in place a taskforce, the Business Regulatory Reform Unit, that meets regularly to oversee progress in this area.
A licence should only be required if it address issues of health, environmental or safety; not purely to raise revenue.
To improve the investment climate, businesspeople need to know what is required of them. An ongoing process is to record the licences that are required in an electronic registry (e-Registry). All local authorities could eventually post their requirements to this centralised database. Micro and small businesses often bear the brunt of compliance issues, yet they create most of the employment in Kenya.
Innovation using mobile technology to track the frequency of a given event could also be used to track the number of visits by council askaris. On their end, local authorities can use the information to better plan the deployment of staff or the technology to alert businesses of expiring licences. This would give businesses ample opportunity to comply before the inspectors move in.
There would be a higher compliance by businesses if they are sure of the requirements for operating, which means more revenues. The Prime Minister, at one of the Quarterly Roundtable meetings with the private sector, publicly declared that the Friday arrests should be stopped.
The World Bank Group's Kenya Investment Climate Team (KICP) is working with the government on a reform programme at the local authority level. It follows the September 2009 of the Doing Business in Kenya 2010 report which studied business regulation from the perspective of a small to midsize domestic firm.
While the best performing local authority overall was Narok, different authorities performed best in different categories and some did better than their international counterparts in some categories.
Local authorities have immense powers to either attract business. In other developing countries, such as the Philippines, mayors of different localities compete internationally to bring investment to their municipalities.
Kenya can get to that level and the current focus on improving the investment climate in the local authorities is a step in the right direction. While Kenya may have lost its prominence in some of the global assessments, it is important to remember that in 2008, Kenya was lauded as one of the top 10 reformers in the global Doing Business study that ranks the main city in each of 183 countries using 10 criteria.