Kenya is ranked first as best performing and most powerful economy in East Africa, but this pole position may not last into the not so distant future if Kenya continues to sleep on the steering wheel.
Signs that Kenya’s economy could be overtaken include the fact that multinationals have started avoiding it as an investment destination of choice. In recent years, a number of multinationals in the oil, manufacturing and consumer industry have decamped, citing costly power, poor infrastructure, bureaucratic bottlenecks and official corruption in a long list of drawbacks.
A muddled and uneasy coalition political arrangement has ensured that the present administration is unable or lacks the courage to carry out radical political, social or economic reforms. For instance, while importation of second-hand clothes threatens the local cotton industry, partisan business interests is lobbying for more tax cuts on these clothes, throwing the local textile industry into a tail spin.
It is not only in the cotton industry where this Government has displayed lack of commitment to protect and support growth of the local economy. It makes sense to protect the textile industry, create jobs here and offer backward and forward linkages with other sectors of the economy.
It makes no sense to encourage farmers to resume growing cotton only for Treasury to lower import duty on used clothing. Should we produce our own garments or import them and export jobs to other markets. A sneak preview of the country’s public transport system reveals an industry held hostage by cartels and criminal groups yet the Government refuses to invest in public transport. The cost of doing business in Kenya remains high due to a number of bottlenecks such as expensive power, poor infrastructural facilities and layers of bureaucratic red tape. A recent World Bank report reveals that licensing costs account for approximately 1.1 per cent of Kenya’s GDP, which is very expensive. As matters stand, regulation in Kenya has been used to impose unreasonable costs on business. Most rules governing business are mostly not transparent, inaccessible, ineffective and not efficient.
The Doing Business in Kenya 2012 report by the World Bank has details that should shock policy makers, bureaucrats, political leaders and the business community.
For instance, Kenya’s performance in doing business has declined among the 183 countries examined, to 109 this year, down from 72 in 2008. Kenya is also ranked 166 in paying taxes, 141 in trading across the borders, 133 in registering property and 132 in starting business. This is a very poor performance that all decision makers should spend sleepless nights trying to fix. It does not make sense for a foreign investor to take 40 days doing the required paperwork while the same process takes two days in Rwanda, a less sophisticated economy.
Setting up a one-stop-shop for investors so that all issues of licensing and tax are handled at a centralised point to eliminate expensive kickbacks remains a pipedream. Partisan state involvement has stalled the privatisation program with numerous inefficient and moribund parastatals soaking up tax payers’ cash, just to remain afloat. Privatisation of state owned sugar firms is still on drawing boards.
A delay in selling off Kenya Wine Agencies Limited (KWAL), National Bank of Kenya and Development Bank remains sore thumbs on the feet of Treasury.
We have examples where state enterprises have been a success, including China. Thus, a lean, less bureaucratic and commercially–minded public sector can deliver. We can restructure and revamp these state firms instead of selling off the family jewels, cheaply and at a great loss