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Kenya’s endemic corruption scaring investors

statpack, a SME in nairobi's indutrial area

KENYA’s hopes of becoming an economic power-house will always remain a pipe dream as long as heavy taxation compounded by systematic corruption continue unabated, leading manufacturers have said in Nairobi.

Kenya Association of Manufacturer (KAM) chairman Vimal Shah says some investors are scared of putting their money locally instead opting to look for alternative destinations because of the discouraging state of affairs in private and public sectors.

Prominent entrepreneur Manu Chandaria, joined Shah in the red tape debate saying high costs and kick backs demanded by bureaucrats have adversely affected the growth of Small and Medium Enterprises (SMEs).

Corruption and high cost of operations

The cost of doing business in Kenya is escalating as opposed to the situation in other countries like Uganda, Rwanda, Malawi and Tanzania,” said Chandaria on the sidelines of an anti-corruption themed conference convened by the local business community under the auspices of the United Nations Development Programme.
“Corruption and high operating costs have made doing business in the country very costly and unprofitable. Kenya remains the destination of choice for many investors, that is clear, but nobody wants to put their money here.

“Many investors are not comfortable and this will only change when we have long running political stability and reduce the costs of doing business,” complained Chandaria.

Political stand-off on corruption

The negative sentiments contradict recent postulations by the governor of Central Bank of Kenya Njuguna Ndung’u who remained optimistic about positive growth despite the hostile political and social environments.
On February 18, Ndung’u said the current political stand-off over how to deal with corruption will not affect economic growth. He explained that while political environment is shaped by short term decisions, production was based on long term planning.

“The predictions have not changed. The political climate is political climate. The economic focus has not changed because people do not essentially change their production processes,” posited the governor
He, however, said an economic update was being worked out by the ministry of Planning. “The ministry is working through several scenarios. One of the things about this growth focus is done by Kenya Institute of Policy Research Analysis, and we are waiting for their scenarios,” stated Ndung’u.

Shah said SMEs were critical to the country’s growth, but their ability to conduct business profitably remained a challenge as operations were stifled by high costs alongside many unnecessary regulations.

The Central Organization of Trade Unions (COTU) has persistently raised the alarm about the effects of corruption and taxation. Francis Atwoli the Secretary General of the umbrella body, has been steadfast saying skilled and unskilled workers have lost jobs due to collapse of companies and industries unable to survive in the current inconducive milieu.

Expanding to remain competitive

Because of high operation costs, manufacturing companies, Chandaria claimed, had been forced to expand in order to remain competitive.

“Mabati Rolling Mills and Bidco have for instance been forced to expand so as to make higher volumes of sales which is the only way to remain competitive. The recent trend where big companies are making huge profits should not be confused with a good business environment as these profits are eaten up by huge operating costs,” he stated.

He is the proprietor of Mabati Rolling Mills and has stakes in several other local companies. The government in a bid to cushion against rampant unemployment launched the Vijana Na Kazi (Youth and Work) initiative last year. But the programme soon went into oblivion after being was marred with corruption when relevant officials pockets millions meant to pay youth engaged in casual employment activities.

Multiple licencing bycouncils

The country-wide initiative was to target about 500,000 youth annually. They were not help in road construction, garbage collection, unclogging of sewer lines, planting of trees and cleaning of roads and streets, among other ventures.

“The local authorities remain the biggest hurdle to conducting business for the small-scale traders. The multiple licensing by councils couple by high costs of power and labour are major challenges to small scale investors. We need to remove all these hurdles and make our systems more efficient if we are to make the business environment any better,”said Shah.