Hard questions remain as Kenya moves up global business ranking

Kenya scored a series of victories in the latest World Bank (WB) ease of doing business report but hard questions remain on the ranking.

The country improved on matters such as registering property, protecting minority investors and simplifying filing tax returns even as questions on corruption prevalence refused to be swept under rug.
The Doing Business 2019: Training for Reform report that surveyed 190 economies ranks Kenya among top 10 biggest improvers, having jumped from previous year’s position 80 to 61.

“During this past year, Kenya has once again showcased itself as one of the global leaders in adopting international best practices in business regulation,” said Felipe Jaramillo, WB Kenya Country Director.

In Africa, Kenya, with a score of 70.31 comes fourth after Mauritius (20), Rwanda (29) and Morocco at position 60. It beats giant economies on the continent such as South Africa and Nigeria, which came in at 82 and 146 respectively.

The biggest improvement was in protection of minority investors where it moved from position 62 to 11. Further, the report says Kenya has cut the time required for a business to register property from 61 to 49 days thanks to introduction of an online system to pay fees.

Companies now require about 179.5 hours per year to file tax returns, down from 185.5 days in the previous year.

The recent reforms earned the country a spot among global top improvers in WB report, a distinction it has earned four times in the past 11 years. From position 136 in 2014, the current ranking means Kenya has climbed 75 places in four years.

Such series of gains saw President Uhuru Kenyatta urge the press to be patriotic enough in celebrating the milestones of the country by reporting “true facts”.

“This actually means Kenya is changing. Whereas we expect more, we must appreciate what has been done. Unfortunately, sometimes it is very frustrating when all you can do is hear about complains, especially from the Fourth Estate,” he said.

But masking this good run is corruption and the laxity of cascading laws onto the ground — something the WB does not measure in their 11-metrics that ranks countries. And the President, despite his call for patriotism, had to recognise it.

“We have to fight this corruption. It has been a menacing issue. I am happy and proud with reforms we have been able to undertake in our investigative agencies” he said.

“If people are going to know we are serious about fighting corruption, it is going to be based on the number of people who are going to be locked up and the assets we are going to recover.”

Despite the vice being widespread and causing a drag on the economy, the WB ranking gives a disclaimer that it does not factor in corruption. Instead the 11 metrics only concentrate on measuring the regulation and red tape, relevant to the life cycle of domestic small to medium-size firms.

“It is equally important to note that Doing Business focuses on formal sector and does not measure corruption even though there is some correlation between doing business and corruption,” the WB issued the disclaimer on Wednesday.

This means that apart from not paying attention to what corruption may do to businesses, the report also does not factor in the environment for informal businesses. Yet for Kenyan context, informal economy is significant.

“In Kenya, informal employment is a staggering 77.9 per cent of the total, one of the highest rates on the African continent. Almost six million businesses in Kenya’s informal sector are unlicensed,” says WB in Word Development report also released last week.

Defending the reason why WB does not measure corruption in its index, Mr Jaramillo said: “Corruption tends to be based on perception and perceptions tend to be subjective.”

This means the index does not incorporate views of six million businesses where 77.9 per cent of Kenyans work. According to Kenya National Bureau of Statistics, 2.2 million micro, small and medium enterprises had closed shop in five years to 2016.

It cited increased operating costs, declining income and losses incurred from the business as the reason for the closures.

Yet, with depressed credit market that has gripped the market since 2016, Kenya moved from position 29 to eight in ‘getting credit,’ capturing the fact that informal economy was not factored in.

For formal businesses, taxes also remain a concern as government struggle to net in more tax payers. On Thursday, President Uhuru used Nairobi County to paint a picture of a country where many businesses do not pay tax and therefore causing unfair competition to others.

“Nairobi is currently being supported by 150,000 rate payers and land rate payers. But the truth of the matter is that Nairobi is a county that is of now in excess of 1.5 million properties and property owners.”