We need to improve our ease of job creation

This week the World Bank Group released the 2019 Doing Business Report. Kenya is ranked 61 in the world, an improvement from position 80 last year.

Kenya’s improvement came from increased efficiency in the registration of property, getting credit, protection of minority investors, tax collection and resolving insolvency. 

However, it is worth noting that the Doing Business Index is not the most accurate depiction of the optimality of economic and regulatory policy. Indeed, the index tends to maximise rather than optimise deregulation.

Yet economic history teaches us that maximising deregulation is often not a panacea to slow and uneven economic growth. Instead, successful policymakers are often those that seek to optimise (de)regulation.

While we should certainly acknowledge the significance of being ranked 61st in the world, what kinds of reforms do we need to accelerate economic growth for all Kenyans? Our continued reforms should not be an exercise in blindly checking boxes prescribed by the World Bank or other external actors.

Instead, we should consciously design policies that will address our businesspeople’s real concerns. What kinds of labour policy will rotect our workers’ rights and increase the rate of labor force participation?

How can we reduce the tax burden of our small and medium enterprises and support their expansion? What can we do to ensure large business grow bigger and provide stable jobs for our people?

The case for a people-focused agenda for improving the business environment is clear. It is only when we focus on real Kenyans in their real lives that we stand the chance of fully transforming our social and economic lives. Creating an enabling environment for business does not always achieve this objective.

Business may thrive under such environments, but with minimal impact on the real economy. Under such conditions, policy incentives for business may result in higher profits that either get repatriated abroad or hoarded by firms.

But a clear thinking about policy impact on Kenyan households would ensure we align business interests with the overall objective of mass job creation.

Two examples illustrate this point. First, the Kenya Revenue Authority (KRA) Commissioner recently said Sh90 billion is lost annually due to tax exceptions for corporations. A related study by the World Bank revealed that exemptions on corporate income taxes and VAT lead to losses of up to five per cent of GDP (Sh375 billion).

Our budget deficit in 2018 is about six per cent of GDP. We could fix our fiscal woes by simply plugging the many holes created in the name of creating a conducive business environment.  

Second, Ernst & Young recently issued a report on the volume of Foreign Direct Investment going to different Africa states. In the report, Kenya ranked third – behind Morocco and South Africa.

The same report also noted that while Kenya got nine per cent of FDI projects in 2017, these projects only generated four per cent of jobs created through FDI in Africa. Algeria, while absorbing a mere three per cent of FDI, created 12 per cent of FDI jobs in the region.

These examples show that it is not enough to make it easier to do business.  We must also ensure that once established, business help create jobs for our people.

It is only then that we will be able to achieve real social and economic transformation.

-The writer is an Assistant Professor at Georgetown University.