Jeff Otieno
24 June 2008
Nairobi — The cost of doing business in Kenya is still high despite marginal improvements made in the last four years.
According to a study conducted by the World Bank, managers of various companies and organisations consider the country one of the most expensive destinations for investment.
The managers interviewed in the Investment Climate research cited high taxation, corruption, difficulties in accessing credit, poor infrastructure and high energy as the push factors for the high cost of business. The study which was conducted last year before the controversial General Election, surveyed 650 firms and interviewed managers in the production and service sectors. High tax rates topped the list of concerns with almost 60 per cent of managers interviewed citing it as a financial burden. "This perception is more pronounced among small and large firms, domestically owned firms, or those located outside Nairobi," says the survey. The Bank's Senior Economist, Mr Giuseppe Larossi, said even though Kenya had reduced corporate tax rates, indicators of fiscal pressure suggested that the tax burden was higher than in most countries.
"As a matter of fact Kenyan firms are required to pay half (50.9 per cent) of their corporate income in taxes," said Mr Larossi. Although the amount was lower than taxes paid in China and India, it was much higher than in other African countries. Inaccessibility of finance was cited by micro and small firms, which complained of marginalisation by major lenders in the financial sector. Despite the fact that only 36 per cent of the medium and large enterprises cited it as a difficulty, a massive 76 per cent of micro-enterprises mainly in the manufacturing sector still rated access to and cost of finance as a major obstacle. Although ranking on corruption has improved over the last four years, Kenyan firms still place the vice among the most important constraints to business. Nearly a third of the firms survey ranked corruption among the top three constraints to their business. "Nearly 70 per cent of firms that reported corruption as a binding constraint ranked it as a top constraint," says the study. Internationally, Kenya and Senegal are the two countries where the perception of corruption is highest.
Though conceding that a lot needs to be done, Finance Minister, Amos Kimunya, said the government had made efforts in improving the business environment. Mr Kimunya said the government had eliminated 315 licenses and simplified 379 to simplify the investment process.
He said the government had also established a business regulatory unit in the Ministry of Finance to vet all new licenses.
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