Kenya lags East Africa peers on ease of doing business

Kenya is losing ground as a favourite market for investors in the East African Community (EAC) as a latest ranking put the Democratic Republic of Congo, the bloc’s newest member, with a better score on ease of doing business.

Rwanda had the best score among the seven EAC partner states as detailed in the report compiled by businesses operating in the region.

Rwanda, Democratic Republic of Congo, Uganda, Tanzania, and Burundi all performed better than Kenya in the report that surveyed the region’s ease of doing business.

Kenya only outperformed South Sudan by 0.07 points.

The report by the East African Business Council (EABC), an advocacy body for private sector associations and corporates in the region, published this month cites access to foreign currency among the current challenges affecting ease of doing business in the region.

“These challenges include trade finance, specifically the availability of foreign currency, affordability of interest rates, and access to loans or credit.

“Another significant challenge is government operations, particularly related to receiving payments from the government for supplied goods and services, securing government tenders, and obtaining tax refunds, tax appeals, rulings, and customs valuation,” the report states.

Rwanda had a score of 2.08 which translated to ‘easy’. The score had a range of one to five: where one meant very easy and five very hard.

Of the seven EAC countries, South Sudan was the only market ranked as hard with a score of 3.5.

Kenya had a rank of 3.43 which translated to moderate same as Tanzania’s 3.32, Burundi’s 3.18, Uganda’s 3.05, and Democratic Republic of Congo’s 2.75.

The report also reflects on the 2019 World Bank report where Kenya was outperformed by Rwanda which was ranked 29 compared to Kenya 61. 

Kenya had then outperformed Uganda, Burundi, South Sudan and Tanzania.

The report used eight indicators to determine this score, namely: cross-border payment, trading across the border, access to finance, access to infrastructure, removal of trade restrictions, government operations, regulations for starting and operating a business and ease of paying taxes.

“Paying taxes was ranked as moderate 2.58, while trade finance was ranked as the hardest with a rank of 3.62 in ease of doing business,” reads the report titled Report on the ease of doing business in the East African Community 2023.

The survey targeted 252 selected companies that trade in goods and services in the region.

Responses to the survey, concerning the eight indicators, were collected between June 13 and July 21, 2023.

Tanzania had the most respondents (64 companies), Burundi (53), Kenya (51), Rwanda (26), Uganda (21) and South Sudan (three).

There were also 10 respondents from other countries like Belgium, Denmark, Ethiopia, India, Sri Lanka, Mozambique and Nigeria.

Tax challenges

On ease of paying taxes as an indicator, the report ranked this as moderate with obtaining tax refunds and upfront payments being hard with a score of 3.67.

Other tax-related challenges included: tax appeal, tax rulings, access to information on taxes, custom valuations, tax assessments, obtaining refunds and complying with tax requirements.

The companies surveyed stated lengthy customs approval processes leading to delays in the release of cargo, arbitrary decisions by customs officials, delays in approval of tax payments and corruption among the tax-related challenges.

There was also prolonged refund process and reconciliation of ledgers, denial of self-assessment by traders, and revenue motive by revenue authorities which contravenes with trade facilitation role.

On trade finance, where access to capital falls, the companies’ perception was moderate (3.46).

“Against proposed indicators, companies specifically reported that it was moderate to access credit or loans (3.32) and availability of foreign currencies USD (3.46) in the region,” the report says. “However, Companies perceive the ease of doing business in relation to the affordability of interest rates in the region as hard (3.61).”

One of the recommendations from EABC is that the EAC Secretariat and the lobby should build on existing business digital platforms to promote business interaction, showcase, and share opportunities.

“The platforms should be used to enhance access to real-time trade information including government tenders, and foreign exchange to facilitate payments and provide all relevant information about starting a business,” the report says.

“More emphasis should be placed on designing strategic interventions to address the availability of foreign currencies.”

This should also extend to affordability of interest rates, access to credit, receiving payments from the government for goods and services supplied, securing government tenders, obtaining tax refunds, accessing tax appeals, rulings and easing custom valuation, elimination of trade restrictions and resolving tariff barriers and non-tariff barriers.

“Therefore, on the overall companies perceive the ease of doing business in the EAC as moderate (3.09),” the report says.

The report also commends numerous reforms instituted by governments in the region to entice businesses among them business-friendly laws and commitment to resolving trade barriers.

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