Beware the downside of devolution in Kenya

If devolution is a double-edged sword, from where I sit I can only see the liabilities; the benefits are starting to look like a pipe dream. We have devolved everything undesirable, from corruption to over inflated egos and the individualism that goes with it. I do not mean to disparage devolution.

On the contrary, I have high hopes for the parity it is meant to bring to our economic uniformity as a country. And how can I not? As the gap between the haves and the have-nots continues to grow, it is foolhardy to think that high gates will be enough to keep us safe when our neighbours are languishing in abject poverty on the other side of the even higher fence.

However, in our wretched short-termism, we appear to have completely missed the point of devolving governance. Instead, we are hell-bent on finding the fastest way to line our pockets at the expense of long term development.

A week or so ago, I ventured into the industrial section of Ruaraka and was an unhappy witness to just how myopic governance in our business environment has become.

The number of companies that have set up there is impressive, and it is a true testament to the resilience of Kenyan enterprise. Given that a significant number of them are in the manufacturing sector, my mind immediately went to the mass exodus that has ailed the country’s manufacturing sector over the last eight or so years. From Cadbury’s (now rebranded Mondelez), Colgate Palmolive, Reckitt Benckiser, Proctor and Gamble and even Eveready, the sheer impact of firms that relocated the highest employing arm of their operations should concern us.

And while you may surmise that these are mostly multinationals, it would serve us well to keep in mind that the most important bottom line for any for-profit organisation is profitability. It is therefore only a matter of time before it makes such little financial sense to have an in-country presence that relocation to a cheaper location takes precedence over sentiment.

One of the companies I visited was Kenafric Industries. But I had a deeper reason for wanting to hear the story of the 25-year-old organisation. Many times in this column I have bemoaned the short-sightedness with which we run our micro and small enterprises.

And this breaks my heart because I know that if we had the right policies, opportunities, tenacity and patience we would build industries that become a force to reckon with. But I also know that it is all too easy to blame everyone else for our ‘smallness’ instead of taking personal responsibility and doing something about it.

This is what fuelled my conversation with one of the founding directors of Kenafric Industries. The discussion was particularly timely given that he (Mayur Shah) had won in the master category of the recently concluded Ernst and Young Entrepreneur of the Year awards for Eastern Africa.

I have, over the last one year visited various manufacturing plants and every time I am amazed at the kind of technology and efficiency that is employed. For concepts like Kaizen and continuous improvement that most of us have only previously read about, seeing them in action and translating into results on the plant floor tends to be a surreal experience.

But sadly, this is where the good news ends.

As we spoke about the pain points of Kenya’s manufacturing sector, it became increasingly clear that there is disconnect between policy setting and how that affects the long-term competitiveness of the economy. Much like the predecessors who relocated due to the high cost of energy and infrastructure, current firms are also grappling with the significant negative effects of devolution. Take licensing for example.

I have heard business owners lamenting over how expensive it is becoming for their businesses to trade or maintain distribution lines across counties. Suddenly, business licenses are needed in every county where vehicles have designated drop off points, even if a physical presence does not exist.

County governments are coming up with often disingenuous and exorbitant means of collecting taxes and in the process making business even more difficult for entrepreneurs. What they do not realise is that over the long term this will create attrition and therefore a lower tax collection base.

The regrettable part about this is that harmonisation of policies to make doing business less painful for enterprises does not factor into the conversation, and both the national and county governments seem aloof to the hardships being faced by firms.

It is becoming increasingly evident that beyond creating decentralised revenue collection hubs, no thought went into identifying how to make devolution mutually beneficial for all parties involved.

If this coordination is not the role of all the parastatal bodies involved in trade, then I don’t know what is. And just in case they haven’t heard, Uganda and Ethiopia, lower skill levels notwithstanding, are fast becoming viable competition as an alternative destination for manufacturing. Mark my words, if things continue on this trajectory, it will only be a matter of time before we face even more mass exits.