A case for a trade deregulation agenda

Members of Parliament take the oath of office at the National Assembly

Parliament needs to initiate a serious ‘economic deregulation’ agenda. This will remove or reduce trade restrictions and improve business operations and competition. 

Photo credit: File | Nation Media Group

Assume you are an investor who wishes to establish a hotel with 50 guestrooms in Kenya.

The hotel will employ 30 persons including managers, accountants, cleaners, security and chefs.

You would need to buy land, so the Ministry of Lands is your first contact. You must pray its Ardhi Sasa platform is working. Your architectural and structural plans must be approved by the county and other national entities. National Environment Management Authority must issue you with an impact assessment report.

The county government must issue you with a Single Business Permit, an Occupational Health and Safety Regulations certificate, a staff health certificate, a liquor licensing certificate, a fire inspection certificate, a food hygiene permit, public health certificate, an effluent discharge certificate, food handlers permit.

The county water company has to issue a kitchen licence. The Attorney-General must issue you with a certificate of registration for your company or your business name. The Kenya Revenue Authority will have to issue you with Value Added Tax and Personal Identification Number certificates.

Then there is a licence from the Tourism Regulatory Authority and the Tourism Fund Catering Levy by the Tourism Fund. Do not forget the training levy by the National Industrial Training Authority. In case you wish to drill a borehole, a water resource licence must be granted by the Water Resources Authority.

If there will be some betting in your hotel, you need a betting and lottery licence. For any music played in your establishment, be prepared to pay and obtain some licences from several conflicting bodies, including the Music Copyright Society of Kenya and the Kenya Association of Music Producers.

These entities will not care if indeed you are actually playing local music or not — they will simply count the number of seats on your premises and do a unilateral assessment. Tourism licences will be charged as a percentage of your gross income (two per cent of your gross sales).

Some counties will charge a bed and adventure levy. The Ministry of Labour will check various compliances and issue some licences.

Kenya Power inspectors will be visiting your premises often and issuing some discretionary notices. The area OCS will be making rounds into your premises and requiring to be ‘befriended’ on a regular basis. 

Despite the above, your largest revenue stream is rooms, which now face competition from Airbnb, which is unregulated and renders complete confidentiality and privacy to the guests. 

The above ‘over-regulation’ is legal, as it is Parliament and the county assemblies that have enacted various provisions of law that have created the basis for the levying of those myriad charges.

Second, this ‘over-regulation’ applies to all industries, including manufacturing and the financial sector. A manufacturer who creates thousands of jobs and provides important synergies (like markets for farmers’ produce like milk or fruits) needs similar —if not more —licences. 

‘Unregulated’ sectors 

Third, this ‘over-regulation’ seems blind to disruptive and emerging sectors. In other words, the government is busy regulating the traditional sector without noticing the entry of agile and modern ‘unregulated’ sectors. These traditional industries are like a boxer whose hands are tied behind in a ring with a young Mike Tyson. 

Take the media. The formal media is regulated but social media is knocking it off slowly. Then there is manufacturing. The national government, at the international level, is making commitments and executing free trade conventions. The net effect of these free trade conventions is to open up the Kenyan market to foreign competition from countries that have light regulations.

For example, Kenya is a member of the East Africa Community. Ugandan milk retails at half the price of local milk on average. In the financial sector, the banks are heavily regulated. Digital loans have light regulation and soon they might torpedo bank loans. This ‘over-regulation’ also extends to service sectors.

For instance, Parliament passed the Engineering Registration Act, which established the Engineering Board of Kenya. On average, it takes eight years for a young graduate to become a full engineer. 

Another example is listing on the Nairobi stock exchange or even establishing a brokerage firm in Kenya — it is such a laborious process. For a young jobless doctor, what licences must he obtain before opening a clinic?

Fourth, Parliament always gives some social justification when establishing these levies and licences. For example, the need to protect the environment is the rationale behind the requirement for developers to obtain Nema licences. But practically, Nema or its agents rarely render physical inspection to ascertain the protection of the environment as envisaged by the law before granting licences. Tourism training will not impact hotel owners despite being levied. Rarely will counties render public health inspection despite the charges.

The net effect is that formal industries collapse or Kenya gets an unfriendly business environment that repels investors and kills jobs. Probably such concerns led to the closure of the Hilton Hotel in Nairobi.

Parliament needs to initiate a serious ‘economic deregulation’ agenda. This will remove or reduce trade restrictions and improve business operations and competition. 

The telecommunications industry is an example of how deregulation can affect consumers. Deregulation of the telecom industry began in the 2000s. The industry was previously dominated by the government.

Deregulation allowed new companies to enter the market and compete against the incumbents. This led to improvement in the quality of service and lower consumer prices. Deregulation should not mean any regulation at all. It is a neat balance between public concerns and freeing sectors to be competitive.

Deregulation can also take the form of 'consolidation of licences' and using simplified digital means to issue these licences. Such a campaign has to be initiated by the executive as a policy but, ultimately, it is Parliament that will help Kenya. A single omnibus miscellaneous amendment statute targeting many legislations simultaneously can do the job. Over to you, my friend Kimani Ichung’wa, acting in concert with Treasury.

Dr Kang’ata, PhD, is the Governor of Murang’a County; [email protected]