Hurdle too high for new traders

By Luke Anami and Morton Saulo

For the last three years, a lot has been done to reform the business regulatory system. However, analysts say the impact is still limited. On the spotlight are local authorities that regulate business operations.

According to the report, Doing Business in Kenya 2010, licensing is often inappropriately used as a mechanism for raising revenue, rather than as a means to regulate entry and activities in areas where business may have security, health or safety implications.

Call for reforms

In the report, of the 11 councils sampled, The City Council of Nairobi was singled out as one of the places in need of reforms.

The report by the World Bank and the International Finance Corporation says starting a business in Nairobi is a lengthy and cumbersome exercise.

"Not only does one have to worry about location, capital and markets, they also have to deal with a maze of administrative procedures before they can legally operate," says the report.

Starting a business anywhere in the country would require 12 procedures; some of these include registration, permit application, opening a bank account and memorandum of articles. In the 11 sampled local authorities, it takes an average of 67 days, and costs about Sh10,500.

Getting a permit to start a business in Nairobi requires 34 days.

Running the business is also expensive as compared to other areas in the country. Licence levies, Nema fees and tax among other charges, cost more.

It takes about 100 days however to comply with all the licensing requirements, increasing the cost of compliance with licensing requirement.

When benchmarked against 183 economies, Kenya is ranked at 135, making it one of the countries unsuitable to start a business.

Nairobi Town Clerk Philip Kisia says agrees there bottlenecks when it comes to licensing but says City Hall will hire a consultancy firm to streamline some of its operations.

Main challenges

"City Hall is in the process of inviting proposals from interested consultants who meet the requirements for the development of a finance management and ICT strategy," Kisia said in an interview with The Standard on Sunday.

He says the council is faced with challenges that hinder delivery of services and governance.

"The challenges emanate from the internal and external environment and range from legal, policy, institutional and structure issues," the town clerk says.

Unlike the annual budget process, which centralises key decisions on Government spending, there is no similar system in place to guide decisions and processes imposing regulatory costs on businesses and citizens.

Title searches and registration at the Ministry of Lands is still done manually, causing delays that have discouraged many potential investors.

"Computerisation would digitalise files and these would no longer have to be physically handled," says the report.

"We must reduce the heavy burden imposed on businesses by the multiplicity of licensing and administrative barriers," Ms Betty Maina, the CEO of the Kenya Manufacturers Association, says.

She said the processes should be devolved to regional levels to cut bureaucracy that is costly and time wasting.

The private sector, which has been on the forefront in calling for the abolition of some of the licences and procedures, has urged the Government to hasten reforms.

Proposals

The Local Government Minister and Deputy Prime Minister Musalia Mudavadi said his ministry is not entirely to blame for the slow pace of reforms in the local authorities, as there are other local players.

More than 60 Government agencies and all the 175 local authorities are authorised to issue new licences without any systematic assessment of the licences’ impact on businesses and the country’s competitiveness.

While the Licensing Laws (Repeals and amendments) Act 206 eliminated the requirement to obtain a trading licence, all new companies must still obtain a business permit.

This, traders say, increases running costs.