Let’s improve our business environment

Doing business in Kenya has hardly improved according to a World Bank (WB) report released last week, which highlights the perils for small and medium-sized companies. The 2015 WB ranking of countries on the basis of how easy it is to do business in them, ranked us 136th among the 189 countries evaluated.

This is an insignificant improvement from our previous year’s 137th position and well below Rwanda, ranked 46th globally and which is considered the easiest place to do business in Africa. The Doing Business (DB) report assesses how easy or difficult the regulatory and legislative environment makes it to do business in a country. This year’s rankings on the ease of doing business are the average of an economy’s percentile rankings on 10 topics; starting a business, dealing with construction permits, getting electricity, registering property, paying taxes, trading across borders, getting credit, enforcing contracts, protecting investors and resolving insolvency.

Kenya dropped or remained stagnant on all of these indicators, except on the administrative burden of paying taxes and resolving insolvency, which improved by 44 and four positions respectively. We ranked 143rd when it came to registering a business, 151st in getting electricity and 153rd in trading across borders.

We dropped 60 places in dealing with construction permits to position 95 from the previous 35 in the 2014 report, mainly due to an increase in building permit fees. According to this year’s report, it takes 30 days and 10 procedures to register a company in Kenya, compared to half a day and one procedure in New Zealand. It takes 6.5 days and eight steps to do the same in Rwanda.

When it came to getting credit, Kenya fell five places to 116th, a category where Rwanda is ranked 4th globally. This is not surprising because one of the major impediments when it comes to access to credit is enforceability of contracts. In terms of enforcing contracts, an indicator measuring the efficiency of the judicial system in resolving commercial disputes, we performed poorly as we were ranked 137th. Countries where it is quick and easy to enforce contracts are usually more attractive to investors than places with lethargic legal systems such as ours.

Although a number of concerns have been raised in the past about the methodology used in the compilation of the WB’s report, it nevertheless is a valuable tool as the issues it addresses are important and generally should inform reforms. Furthermore, the WB report remains a leading tool by investors to judge the business environments, especially of developing countries.

That is why several countries such as Rwanda have used it as a guide to design their reform programmes. Rwanda has been using it as a reference for almost a decade now. Using this approach, it has continuously improved its ranking from its initial 150 to its current 46th position.

Whereas the latest ranking does not take into account the latest slew of measures taken by the Jubilee administration to make Kenya a business-friendly destination, the country would still need to do more. The high potential of our market, driven by an emerging middle class, cost competitiveness and a huge pool of talent, should make us one of the most attractive investment destinations in Africa. Yet, according to the annual DB reports, we constantly get ranked poorly in the overall ease of doing business.

Our policymakers need to understand, first of all, why we are performing the way we are. They need to go into the details and understand the issues leading to the poor ranking of our business and investor environment and address the gaps one by one. The current ranking is relative to other countries and depends on the pace at which we take on these reforms.

Going forward, we would not just have to improve on these parameters of doing business but also improve faster than other countries in order to improve our overall ranking. But if we are to emerge as the best and easiest place to do business on the continent, we require a conscious effort by our political leadership. The administration needs to tackle this issue at the highest level by ensuring Cabinet oversees the systematic implementation of reforms required to make the country more competitive and improve its ease of doing business ranking.

The country’s CEO should personally take charge and monitor progress of how the reform gaps are addressed. That is what President Kagame does. The President must make the creation of a better investment climate and a more business-friendly environment a top priority. It is easy to speechify about the need to improve our competitiveness, but his administration must take actionable steps to encourage entrepreneurship and investment.

The perception of Kenya as an emerging land of opportunities could fade unless our top leaders pay better heed to our Doing Business rankings. We shouldn’t be ranked 91 places behind Rwanda. It is not good enough!