Small businesses in Kenya battle to survive under weight of extortion, levies

NAIROBI: Immediately you step onto a busy street in Nairobi’s Eastlands area, frenzied activity and loud music hits you.

A seemingly endless stream of small shops try to grab your attention with an assortment of music, catcalls and sales.

The pubs, kiosks, grocery stores, studios, salons, barbershops, dispensaries, hotels, butcheries and pharmacies create one bustling sweep of commercial energy.

But take a closer look, and the image of a cash-rich trade centre turns out to be a mirage.

Peter Njagi looks out wearily from the metal grills of his wines and spirits shop in Pipeline estate, unable to mask his frustration.

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Stiff competition

His shelves are sparse. Mr Njagi also faces stiff competition for buyers from the numerous other wine shops around his.

“This is my second year in this business and I am sure I will have closed down before the year ends if things do not change. The many levies I have to pay and the blatant extortion from police and city council officials are eating into my earnings,” Njagi told Business Beat last week.

According to him, stiff regulations in the alcohol industry have created room for county officials to extort money from businesses.

Apart from a Sh50,000 liquor licence that he is required to pay for annually, he also needs a medical certificate that costs Sh1,000, a health certificate at Sh10,000, a liquor sales premises levy of Sh6,000, a fire certificate at Sh4,500, a business permit at Sh10,000, music copyright licence at Sh6,900, and outdoor advertising at Sh6,000.

When setting up in Pipeline estate, which is estimated to have at least 100,000 residents, Njagi thought the market would be enough to sustain his business. But as quickly as money gets into his business, he said, it leaves to pay levies and line the pockets of corrupt city officials.

For him, the news that Kenya’s ranking in the ease of doing business improved 28 places last year to position 108 out of 189 countries means little. He has not felt the impact of the change.

In announcing the new rankings, the World Bank noted Government efforts to bring its services under one roof through Huduma centres, and improvements in connecting business to electricity, which reduced to 110 days from 145 days in 2014.

The country also improved to position 28 in the ease of accessing credit from being 116th.

At this year’s Ease of Doing Business Conference hosted by the Treasury, the overriding theme was on how to do away with tiresome levies and leverage on ICT to attract investors.

Dreaded visits

But little attention was paid to finding solutions for small businesses like Njagi’s.

Just next to his wines and spirits shop is a small butchery. James Obiri, the owner, is also disillusioned with his business. He cites the numerous levies he has to pay to the Nairobi City County (NCC) as one of the reasons his business is struggling. Another is the extortion he faces from the county’s officials.

Even if everything is in order, Mr Obiri said, the officials will find a reason to demand cash.

“Here at Embakasi we have a chief’s camp and four police stations surrounding us. Each of the stations and the chief’s camp send a group of officers, called ‘squads’, in a day. I have to part with Sh500 for each squad even when all my licences are in order. So in a day, I pay Sh2,500, which is unsustainable,” said Njagi.

Obiri added: “We dread visits from county askaris because no matter how perfect your licences are, these people will identify a mistake and they will penalise you dearly. You have to part with a bribe weekly to stay in business,” he said.

“I had two employees, but I had to let them go and bring my wife in to help me since I couldn’t afford to pay them.”

Bars and butcheries require stiffer regulations given the sensitivity of their businesses as regards public health, but the wave of extortion has not spared barbershops or electronics shops.

Outdoor advertising

Kevin Maina runs a barbershop and sells DVD movies. A haircut at his shop costs Sh50, while he rents out a DVD at Sh40. Mr Maina makes about Sh500 in profit on a good day. However, he does not expect to stay open much longer.

“I have a diploma in mechanical engineering, but I was not able to get a job. This barbershop is all I have. However, business has been quite tough. I have paid Sh2,500 for a permit, but NCC officials have been saying I owe them for outdoor advertising,” Maina said.

He was told the posters he has on the walls inside his shop that display haircut styles, as well as the posters advertising his DVDs count as outdoor advertising and have to be paid for. He was told it would cost Sh6,000.

“I didn’t have the money, so every time I see them now, I hide to save my business,” he said.

Mark and Babu ran an electronics shop on the third floor of one of the buildings in Nairobi’s central business district. They, too, have learnt to close their doors when word reaches them that county officials are in the area.

“We have tried to comply with everything the county requires of us as a business. The first time NCC officials came, we stayed open because we thought we were safe,” said Mike.

However, after their licences were inspected, they were told they were supposed to have a fire extinguisher in their premises, as well as pay for outdoor advertising as the building had the name and location of the shop displayed outside.

“We called the building’s management and they said they already pay outdoor advertising fees for displaying the shop names. They also have a fire certificate and have put fire extinguishers on every floor, in fact, we have one right outside the door to our shop,” Mike said.

The NCC officials, however, were not satisfied with this response and threatened to arrest Mike and his partner, and confiscate their goods.

“We could not risk losing our stock or getting arrested, so we paid them to leave. Now when we hear kanju is around, we close shop like everybody else.”

Last year, the World Economic Forum blamed corruption and burdensome taxes for Kenya’s lack of competitiveness.

The country was ranked 99th out of 140 economies in the 2015-16 Global Competitiveness Index, down from position 90 in 2014. Corruption was cited as the most problematic factor in doing business, with weak institutions in Government contributing to pulling Kenya’s score down.

Following an exposé that aired on KTN in April detailing the corrupt dealings of some NCC employees, the county suspended five officials, said it would restructure the inspectorate department and issue identification badges to prevent criminals posing as its staff.

Next week: The options available to business owners who are being extorted by public officials.

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