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February 17, 2019

Deliberate reforms entice more investors

World Bank headquarters
World Bank headquarters

Last week's World Bank Ease of Doing Business report shows it is much easier to start a business in Kenya than it was a year ago. The report sheds light on how easy or difficult it is for a local enterpreneur to open and run a small to medium business, while at the same time complying with relevant regulations. Another aspect that was ranked high is the ease of closing a business. These two areas – ease of entry and exit – are some of the key measures of the competitiveness of a business environment. The easier these two processes are, the more competitive the business environment. Overall, the Kenyan business environment is now ranked 92 from the previous ranking of 113 out of 190 economies.

Other areas of major improvement are the protection of minority interests and ease of getting electricity. Marginal improvements were made in dealing with contruction permits, registering property and trading across borders. However, the ease of doing business deteriorated in three aspects of paying taxes, getting credit and enforcement of contracts. In summary, in the six areas that were considered in the survey, improvements were recorded in six of them.

The survey also considered business environment in 11 counties. The counties were rated in four criteria including, ease of starting a business, registering property, getting construction permits and enforcing contracts. Eldoret (Uasin Gishu) was ranked the easiest county to start a business in, Kisumu the easiest in dealing with construction permits, Busia the easiest in enforcing contracts, and Nairobi the easiest in registration of property.

Among the peers within lower middle income economies, the country was ranked 16 among 52 countries driven mainly by high rankings in ease of getting credit and resolving insolvency. Geographically, it was ranked fifth among 47 countries in sub-Saharan Africa with notable high rankings in ease of getting credit and electricity where it was ranked 3rd.

Of course, more can be done to improve the local business environment, but an improvement in ranking also shows effectiveness of reforms. The more deliberate the reforms, the more the effectiveness. Ranking in some areas is still very low, and in particular in dealing with construction permits which is ranked 152, paying taxes 125, and registering property 121. These three areas are rated as the highest obstacles in the business environment and have the lowest ranking, with minimal changes from the previous year. The report identified some five areas of reform in the past one year, which was the highest number in three years as some of the key drivers of the improved ranking. More reforms are, however, needed to make the business environment more facilitative and spur tangible economic progress.   

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