Over-regulation of businesses frustrates SMEs

Phyllis Wakiaga

Phyllis Wakiaga, CEO, Kenya Association of Manufacturers and Tirus Mwithiga, NCBA Group Retail Banking Director after signing a partnership that will support 300 SMEs in the manufacturing sector.

Photo credit: File | Nation Media Group

What you need to know:

  • Regulations when effectively implemented create an enabling environment for businesses to thrive.
  • However, when they are cumbersome, the ripple effect is a constrained business environment.

Last year, a Twitter user who sells water in her neighbourhood sought to venture into packaging the product, basically bottled water. She, however, discovered that to do so, she will need to meet numerous requirements in form of licenses, permits and fees. 

This is frustrating for business owners, especially small and medium enterprises (SMEs). It discourages start-ups, and for those up and running, gobbles up a large share of operating fees, thus driving up the cost of doing business. 

Naturally, regulations are a prerequisite for any nation or institution. When effectively implemented, they create an enabling environment for competitiveness by enforcing fair business practices, driving equal opportunity and inclusive participation of all in the economy.

However, when they are cumbersome, the ripple effect is a constrained business environment. It deters investments and leads to the duplication of roles of various regulatory agencies. The high costs and taxes disincentivise investors.

This is because an environment that constantly makes it difficult for businesses to operate results in investors seeking alternative, more suitable, predictable and secure markets to establish or relocate their businesses. 

Whereas Kenya has made tremendous efforts to address regulatory concerns as demonstrated in the Ease of Doing Business reports since 2014, a lot still needs to be done to promote industry’s competitiveness and productivity. 

The 2020 Competitive Industrial Performance (CIP) Index ranks Kenya’s industrial competitiveness at position 115 out of 152 countries. On the other hand, the World Bank Ease of Doing Business Report 2020 ranks Kenya at position 56.

Regulatory requirements

On starting a business, Kenya is ranked number 129. From the report, business registration takes an astounding seven steps. These time-consuming steps involve various agencies, with some having a cost implication. 

A regulatory audit conducted by Kenya Association of Manufacturers found that business permits, licenses and environmental audits account for majority of fees and levies charged to manufacturers. Other major fees and levies include standards, distribution licenses and safety audits. 

A further analysis of regulatory requirements uncovered that various enforcing bodies’ roles overlap. For instance, business registration and licensing are sought from the Business Registration Service, respective county government(s) and specific agencies. Standards and measures as well as calibration are done by Kebs and the Department of Weights and Measures. 

These overlapping roles are cumbersome to adhere to, consume a lot of time and increase the cost of doing business. The report makes recommendations on how we can make it efficient to support competitive industrial development. Consequently, this will translate to increased employment, inclusivity and efficient use of resources by industry and all citizens. 

This includes streamlining regulatory bodies that have almost similar or duplicative roles and fast-tracking the enactment of the Government Owned Entities Bill, implementing a one-stop-shop approach to obtain permits from national and county government agencies and fast-tracking the completion of the County Licensing (Uniform Procedures) Bill, 2019 to harmonise county licensing processes. County governments also need to formulate a tariffs and pricing policy to guide the imposition of fees.

It is important that both national and county governments prioritise the involvement of manufacturers, and the business community in its entirety, while formulating laws, regulations and policies to ensure realistic charges, levies and user fees. By doing so, the laws, regulations and policies will be industry-centered, and in turn, support competitive industrial development. 

Our sustainability and self-reliance as a nation is only guaranteed through our capacity to be a competitive economy on a global scale. 

Ms Wakiaga is chief executive, KAM. [email protected]

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