Doing business in Kenya still too difficult

Oct 15, 2006 Life & Society, Sunday Nation

Which is the best country in the world in which to do business? You may be surprised to learn that it is not the world’s largest business-centred economy, the United States. No, top ranking in the World Bank’s recently released report, ‘Doing Business 2007’ actually went to Singapore. New Zealand was the runner-up; the USA third.

The rear, as is traditional, was African: 8 out of the bottom 10 countries were in Sub-Saharan Africa. Where was Kenya? 83rd out of 175 countries. Some cause for celebration, then: we are actually in the top half of the world order in something. We even have some illustrious neighbours in this ranking: Italy (82nd); UAE (77th); and China (93rd). Our cartographical neighbours are some way behind: Uganda (107th) and Tanzania (142nd).

But the news is not all good. We actually slipped three places since last year. And in Sub-Saharan Africa we are only 6th: the continent’s best business destinations are South Africa, Mauritius, Namibia and Botswana – all of whom make it to the global top 50. If we serious about our business credentials, we have to ask: what are those countries able to do that we aren’t? And why aren’t we up there with them? Setting our sights any lower would be unacceptable.

Before we do that, we must understand the World Bank’s methodology. What is being measured here? The Bank focuses on 10 major dimensions in terms of the ease of doing business in any country: starting a business; dealing with licenses; employing workers; registering property; getting credit; protecting investors; paying taxes; trading across borders; enforcing contracts; and finally, closing a business.

What does Kenya do well? In dealing with licenses – where in terms of procedures, time and costs, we are much better than the region and not bad by world standards; and in getting credit, where we are doing well in terms of the legal framework and the information available. These are the areas where some intelligent thinking has led to reform in recent years.

What do we do badly? We are way back in trading across borders, paying taxes, starting and closing a business, and registering property. These are the areas in which a businessperson gets lost in a bureaucratic jungle: too many procedures; too many taxes; too much time wasted. Our import and export procedures are world-class in their awfulness – we are at 145th in the world on that measure. The cost of importing the average container is 3 times the OECD average. Property registrations take twice as long as they do in most other places.

Should you be in the unfortunate position of closing your business, your troubles have only just begun: prepare for your descent into the inner circles of hell. Expect to spend the next 4.5 years (on average) sorting out your affairs; and to lose 22% of any residual value in the process. If you’re a creditor of a closed business, give up: claimants recover less than 15 cents per dollar (the OECD average is 74).

Now let’s take a closer look at Botswana, a country we should readily compare ourselves with. It fares rather badly in terms of protecting investors and dealing with licenses, but in a number of areas Botswana operates at world-class levels. Registering a property for business, for example, takes just 30 days, which is lower than the OECD average (compared to Kenya’s 73); Closing a business takes 1.3 years (again better than the OECD average), and creditors recover 65 cents on the dollar. The cost importing a container is half what it is in Kenya.

Botswana is just an example of a country showing the right intent. Mauritius is even more ambitious, with a stated intention of breaking into the world top 10 by 2009. Georgia has gone from a ranking of 112 in 2004 to 37 now. Why does this matter? Because anyone who is anyone will tell you that in the modern world economy you compete or you die. You make the right moves or you cease moving. We are fortunate indeed to have a vibrant entrepreneurial spirit in this country. But for that good fortune to translate into competitive advantage, we have to clear all the road blocks from the path to business-led prosperity.

Why is being a Georgia or a Mauritius beyond our reach? It is not. But there are two immense obstacles to clear first. One affects the mind, the other threatens life and limb. Consider the mental problem first. For too long, successive governments have laboured under a fundamental misapprehension: that business is a cow to be milked for the short term rather than nurtured for the future. Politicians and bureaucrats all line up to take their turn at the trough – taxing, extorting and harassing Kenyan business into torpor or early demise. We stifle enterprise, twist the arm of innovation and grab the throat of creativity. We strangle the very thing that is the salvation of this economy.

The second problem is even more familiar, and it is something that the World Bank’s study (bizarrely) does not even capture (if it did, we would no doubt go tumbling in the rankings). I refer to the security of person and property. In Kenya, the issue of whether we regulate business well or not gets overwhelmed by a problem that affects every businessperson from the modest mechanic to the majestic mogul: that of your very life being in undue danger.

We have seen it all: tycoons being kidnapped or shot dead; cabinet ministers being car-jacked with impunity; diplomats subjected to horrific attacks. What does all of that do to the ease of doing business? Ask any leading executive: it makes people very, very uneasy. It affects most people’s mental balance, and makes them dwell on the negative. It stifles investment and stunts initiative. When you are fearful, you can hardly be mindful or hopeful.

We can remove all the red tape we like: our business sector will still be a fraction of what it could be – if this one massive issue could be addressed. Sadly, we think security is a matter for the police and the politicians. It is actually an extremely complex issue that could benefit from a multi-disciplinary approach, from the country’s best brains being employed to tackle it. Interestingly, we have recently taken this approach in football, of all things, by appointing a high-calibre management board comprising leading executives to guide our national team.

Despite being a football enthusiast, I could not care less whether Harambee Stars never qualify for a tournament for the next 100 years. I think we have more pressing things to worry about – not least the national calamity that is insecurity. That is where the real challenge facing business and the economy lies, and that is the arena of our most depressing failures. Without addressing the horrible loss of life and mental and physical scarring produced by rampant crime, we are addressing nothing at all. So Singapore, which was a nonentity when Kenya became independent, can rest easy in holding on to its crown.