Reduced cost of doing business will spur growth

By , February 5, 2020

 I was recently in a networking forum where a participant asked how we can fix our economy. The question is dominant on the minds of many business owners in Kenya. 

Revitalising our economy need not be a complicated task. It is quite easily achievable if we prioritise lowering the cost of doing business and driving competitiveness of local industries.

For instance, Vietnam, one of the rising economic markets in the world, was considered among the poorest economies following a 20-year-old war that ended in 1975.

Ranked position 67th in the 2019 World Bank Global Competitive Index, the country continues to improve the most globally.

Analysts from Brookings Institution and the World Bank attribute the rise of Vietnam economy to trade liberalisation, domestic reforms—such as deregulation and lower cost of doing business aimed at complementing trade liberalisation—and  investments in human capital and infrastructure.

While Kenya continues to make headway in trade liberalisation and human capital development, high cost of doing business remains a huge challenge for businesses. 

How then do we manage this?

First, we need a streamlined regulatory environment that encourages investments into the manufacturing sector, in turn, creating new jobs.

The sector continues to face numerous regulations and over-taxation, hurting our competitiveness.

Manufacturing SMEs tend to face bigger challenges in terms of compliance, especially in an unpredictable regulatory environment.

Hence, well-structured regulatory frameworks and tax policies will spur industrial growth and innovation.

This also has an impact on the purchasing power of consumers due to increased sustainable jobs, which in turn increases demand for goods and services. It also encourages industries to leverage export markets.

Second is a prompt payment-driven economy. Late payments by the government (occurring when the supply of goods and services to the government go unpaid or delays in tax refunds arise) and the private sector have contributed to cash flow constraints.

Delayed payments create a vicious cycle that sets off a chain reaction, causing delays and instability in the economy.

To address this, Kenya needs an all-encompassing solution to promote prompt payment. 

Prompt payment is critical to business performance and operations since it ensures necessary cash flows and smooth operations.

Third is combating corruption, which has proved an obstacle to economic and social development.

Not only does it threaten sustainable development, but also increases the cost of doing business and limits global competitiveness. 

Increased cost of business attributed to fraudulent practices and malfeasance result in investors moving to markets that have stronger governance structures.

They are attracted to the strong establishment of structures that oversee the execution of seamless and predictable policies and regulations.

Transparency and adherence to the rule of law is most critical in addressing this vice.

Fourth is establishing suitable value addition policies and mechanisms. Agriculture and industry have a symbiotic relationship.

The agricultural sector provides raw materials such as tea, coffee, milk, fresh fruits, hides and skins, which the industrial sector incorporates in its processes, and in turn, supports the growth of the former sector.

Agro-based manufacturing will open up the country to immense opportunities such as organic products, fair trade, sustainable and niche products such as purple tea.

However, the government needs to develop policies and mechanisms to optimise the market environment that favours the interests of all sector players. At a basic level, it should guarantee their sustainable income.

It also entails establishing economic linkages between consumer preferences and value addition practices.

With only two years to attain the aspirations of the Big Four agenda, this year presents us with a huge opportunity to address the competitiveness of local industries.

Progressive changes towards a competitive industry will see us reinvigorate our economy, create wealth and jobs for all in the country. —The writer is the CEO, Kenya Association of Manufacturers. ceo@kam.co.ke

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