Bottlenecks in business licensing

By Luke Anami

The high number of licenses and lack of information on their nature in the Kenyan market is seriously hampering the growth of the informal sector.

The web of laws, regulations and administrative procedures have stifled both private and informal sectors said Ms Betty Maina, the CEO of the Kenya Association of Manufacturers (KAM).

As a result, excessive regulation has led to lower investment and innovation, corruption, reduced income generation and employment growth, the effects of the global and financial crises notwithstanding.

"Business licenses have for a long time been recognised as major constraints on Kenya’s investment climate," Maina said.

A small business enterpreneur fits a customer with neckless. There is clamour to reduce time it takes to licence such enterprises. Photo: Maxwell Agwanda/Standard

"The country’s private sector has borne the burden of the onerous business licenses, which have adversely affected economic growth and the country’s competitiveness.

The recent Government’s move to simplify business licenses introduces new opportunities for Kenya’s young entrepreneurs could not have come at a better time. However, access to and awareness of such legislations as well as other legal business requirements and information has remained largely confined to elitist business leaders.

Rural entrepreneurs in provinces, districts and other towns may not have access to such investment information, which they could take advantage of.

A report by the KAM on the impact of licenses on doing business and Kenya’s competitiveness shows that a tight licensing regime could stifle industrial growth.

Burdensome Licensing

The report titled "Licensing reforms in Kenya 2008" looks into detail at the licensing reforms that were undertaken by the Government giving recommendations for further reforms.

In recognition of the enormous challenge that burdensome licenses pose to business activities in the country, the Government established the Working Committee on Regulatory Reforms in 2005. Its mandate was to review all business licenses in Kenya and make proposals on a medium term regulatory reform strategy.

The committee reviewed 1,325 licenses. It recommended the elimination of 424 licenses, while 607 licenses were simplified. Further recommendations converted some of the licenses into notifications while 294 licenses were retained.

Local Authorities

However, the remaining licenses continue to pose a threat to informal sector and the growth of SME’s, due to the Government’s inability to pass on the timely and necessary information to such groups.

This is particularly true for small-scale entrepreneurs, who, not being well informed of the necessary legal business requirements they should adhere to with respect to their enterprises, may often feel they are harassed by local authorities. While the Government has laid emphasis on promoting international investment at the expense of local driven investments, opportunities for growth continue to get lost.

Further more, many local entrepreneurs prefer to run their businesses in an informal way, which hampers their potential for growth, expansion and innovation. This also prevents them from taking advantage of the incentives provided by the government for formal investment businesses.

"Most of these people resort to undertaking businesses informally, resulting in loss of revenue by the Government, impacting negatively on the provision of public services," Maina said. —[email protected]