Overlapping rules bogging down businesses in Kenya

Growing and overlapping compliance costs are forcing entrepreneurs to abandon investment plans and weaken healthy competition among companies, an industry analysis suggests, dealing a blow to President William Ruto's policy to create decent jobs through increased private sector ventures.

Manufacturers have warned that increasing regulatory requirements are the biggest drivers of business costs and sometimes squeeze small firms out of the way while stifling innovation.

As a result, some entrepreneurs end up pulling out of investment projects due to delays in obtaining permits and licences, the Kenya Association of Manufacturers says in this year’s report on policy actions that the government sees necessary to grow revenue.

“The excessive red tape and compliance requirements imposed by labour laws, tax regulations, and other legal obligations result in increased expenses for businesses. These additional costs can be a burden to both large and small businesses, making it difficult for them to compete in the market,” KAM writes in the Manufacturing Priority Agenda 2024.

“Businesses in Kenya are often bogged down by time-consuming bureaucratic processes, which divert their resources and hinder their ability to focus on their core operations.”

The lobby adds: “Regulatory burden creates barriers to entry for new businesses. These barriers can discourage entrepreneurs from starting new ventures, limiting competition and impeding economic growth.”

Businesses have over the years complained of overlapping regulatory requirements at national and county levels for driving up operating costs. Some agencies perform overlapping and duplicative roles, they claim.

Generally, companies in Kenya need nearly 20 permits and licences to comply with various regulatory requirements, but this varies depending on the nature of the business.

Some of the permits businesses need to comply include those on business registration and licensing, calibration, premises' safety, environmental standards, food and beverages processing, waste management as well as water and sewerage rules.

Others are noise and vibration licenses, construction regulations, cess requirements, specialised materials certificates, controlled substance regulation as well as conservancy fees.

Some of the regulatory pain points for manufacturers include business registration and licensing where investors have to pay fees to Business Registration Service (BRS) and counties.

The firms have also cited overlapping duplicative roles performed by the Kenya Bureau of Standards (Kebs), National Environment Management Authority (Nema), and Department of Weights and Measures in approving standards, labels, and calibrations for products.

Other State agencies the firms say perform overlapping mandates are the Directorate of Occupational Safety and Health Services (DOSH), National Construction Authority, Nema, and counties in approving premise safety and health regulations.

“Counties in an attempt to raise own source revenue have imposed a heavy burden on businesses,” KAM says in its proposal for policy action. “The structure of national and county-level government institutions should be critically evaluated to eliminate overlapping and duplicative mandates. Strategic realignment and harmonisation will not only reduce bureaucratic hurdles but also foster a more efficient government structure.”

The association says investors in the food and beverages sub-sector bear the heaviest regulatory burden with annual compliance costs for some firms ranging from Sh1.2 million to Sh2.2 million, citing a study it conducted in 2020.

The findings of the survey suggest that companies in the chemical & allied segment part with an average of Sh1.09 million in annual compliance charges, paper, and paperboard (Sh1.1 million), building, construction & mining (Sh935,000), plastics & rubber (Sh900,000), and Automotive (Sh870,000).

Investors in timber, wood & furniture pay the least annual regulatory fees at an average of Sh275,000 followed by metal & allied (Sh442,000), leather & footwear (Sh762,000), agro-processing & milling (Sh800,000), and pharmaceuticals (Sh850,000), according to the manufacturing sector’s lobby.

Trade and Investments Cabinet Secretary Rebecca Miano, in a bid to ease the regulatory burden on investors, last week launched a “one-stop” centre to streamline regulatory processes and address the challenges faced by businesses. The Karibu Business Support Centre (KBSC), located at the NSSF Building, aims at “providing businesses with detailed information and seamless interaction with government agencies on investment, industry and trade matters,” the CS said.

"Whether you're a visionary entrepreneur with groundbreaking ideas or a seasoned industrialist seeking to expand operations, the KBSC stands ready to simplify and expedite your business journey," Ms Miano said. “It represents a collaborative platform for entrepreneurs to thrive, innovate, and contribute to our nation's progress."

The concerns raised by the manufacturers have come on the back of business leaders citing administrative burden and compliance costs as the greatest threat to the growth of revenues for companies.

Surveys done by consultancy firms PricewaterhouseCoopers (PwC) and KPMG on chief executive offivers suggested that regulatory requirements have toppled emerging or disruptive technology as the biggest risk keeping corporate leaders awake at night.

“It [regulatory risk] is a never-ending issue for businesses in Africa in general and is creating some level of uncertainty,” said Mr Peter Ngahu, regional partner for PwC in a recent interview.

“The uncertainty around regulation and the volatility around it in terms of what the government is going to do tomorrow and how ‘do I prepare for next year from a regulatory standpoint,” has always been on top of mind of the CEOs in this region.”

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