The exasperation of the lawyer who has long been active in her family’s retail business was evident: “How I wish,” she asserted during this diagnostic, “that someone would simply give me a list of what I am expected to do, including how long it takes and how much it costs, so that our business can comply with the law.”
This unmet desire for clarity, simplicity, and consistency exists throughout Kenya’s private sector. MSMEs in particular complain that, aside from their annual procurement of a Single Business Permit – a process that, especially for new businesses, can prove cumbersome and slow, with certain local authorities proving more competent than others – they lack reliable direction about how they can avoid an unpleasant experience or unexpected fine from a representative of a national or local authority. They further assert that their treatment by most government representatives is typically poor: minor, unintentional bookkeeping errors can be treated with the same heavy hand as deliberate obfuscations, one manufacturer reported, and assistance in complying with the law is rarely forthcoming. Abusive, “rent-seeking” conduct on the part of government actors is also rampant, dramatically driving up the cost of doing business.
Existing efforts to provide clarity, though well intentioned, have proven generally unhelpful in practice. For example, a “step by step” guide to business formation created by the Kenya Investment Authority lacks the detail that businesses require (and the website where it is posted is unreliable). An “e-registry” of business licenses spearheaded by the Business Regulation Reform Unit in the Ministry of Treasury is years away from full implementation. Certain “off-the-shelf” commercial products directed at new businesses in Kenya provide general business advice, but contain almost no specific information about the licensing process. Perhaps the best practical resource for businesses seeking specific guidance about their licensing obligations is a January 2006 “Handbook for Local Investors” developed by the UN Development Programme (UNDP),
[1] but which, to be useful now, needs updating, expansion, and wider distribution. Regardless, no publication can capture the arbitrariness and uneven quality of regulatory enforcement in Kenya, especially by the local authorities who appear to depend personally on the many fees they are empowered to seek from the private sector.
This chapter addresses the general environment for licensing and regulating businesses in Kenya and finds that implementing institutions and social dynamics pertaining to this area are generally weak. It examines the special concerns of MSMEs – businesses that do not have the resources to attract preferential treatment from the government and that suffer disproportionately from unpredictable, unwieldy regulation. This chapter also looks at certain issues faced by the construction industry, which is the area specifically addressed by the World Bank’s examination of licenses in Doing Business.
[2]The chapter concludes that government-sponsored regulatory reform efforts should be vigorously pursued and supported, but that to achieve short-term, meaningful results, the private sector must play a greater role in promoting and assisting with change.
[1] UNDP (Mary Mbithi and Jamuhuri Mainga), Doing Business in Kenya, Procedures and Regulations, Opportunities, Sources of Finance and Incentives – A handbook for local investors (January 2006) (hereinafter UNDP licensing handbook).
[2] In its most recent Doing Business survey, the World Bank changed the designation of the category “Dealing with Licenses” to “Dealing with Construction Permits,” a title that more accurately reflects the scope of its survey. As noted in this report’s Introduction, the Doing Business areas are the starting point for this diagnostic’s close examination of various key areas impacting economic development in Kenya.
