COST OF BUSINESS

Increasing charges will stifle trade

Nairobi’s proposals are set to increase the cost of living as well as cost of doing business.

In Summary
  • We should recognise that this is a year of survival, it is business unusual.
  • Our focus as a country now should be rebuilding our economy, to ensure competitiveness and resilience.
Crate of tomatoes on sale
EXPENSIVE: Crate of tomatoes on sale
Image: FILE

Devolution heralded a new era for the country. As a result, many areas opened up, leading to increased trade, job creation and wealth. These benefits have, however, come at a cost to many businesses.

Understandably, since counties could not entirely depend on budgetary allocation from the national government, they had to create channels through which they could raise their own revenue. Enter county fees, levies and charges. Each county government set its own charges, some of which hindered the ease of doing business, through increased costs and overall unpredictability.

Recently, Nairobi made proposals that are set to increase the cost of living as well as the cost of doing business. The Nairobi City County Finance Bill, 2020 proposes a raft of charges, to enable the county government to reach its revenue targets for the financial year ending June 2021.

The proposals include charging offloading fee for agricultural produce, including tomatoes, flowers, macadamia nuts, French beans and avocado. Properties have not been left behind, with proposals to impose charges on transporting construction materials. The costs vary, for various materials, depending on their weight.

Additional charges have also been put forward for the storage and sale of liquified petroleum gas, business premises including cafes, bars, chemists and shops based on size; and hazardous and non-hazardous waste management, for both homes and businesses which varies according to the amount.

Before the coronavirus broke out, businesses were struggling under the weight of increased cost of operation brought on by various permits and licences. The new proposals are set to cause additional strain to an already grim situation.

Take an example of the tomato, from farm to factory. The major tomato-growing areas are Kirinyaga, Kajiado, Taita Taveta, Laikipia and Bungoma, accounting for 51 percent of total production in terms of value (Sh7 billion) and 41 percent of production in terms of volumes.

With majority of factories located in Nairobi, this means that a farmer from, say, Kirinyaga, shall pay county fees from the source, right up to when it reaches the factory. This, coupled with the high cost of production - that is, high cost of inputs, traditional growing techniques, broker fees, high transport costs – makes our products more expensive.

We recognise both national and county governments need to raise revenue to provide services. However, the country is facing a pandemic, which has severely affected the economy. Businesses have been hit hard, they face severe cashflow problems and struggle to meet their day-to-day financial obligations.

Eventually, farmers are forced to increase the price of their produce, without necessarily adding value to it, hence making our products less competitive in the local and regional markets. This is the same case for manufacturers involved in value addition.

We recognise both national and county governments need to raise revenue to provide services. However, the country is facing a pandemic, which has severely affected the economy. Businesses have been hit hard, they face severe cashflow problems and struggle to meet their day-to-day financial obligations.

Imposing additional costs on them shall only rub salt on an open wound. This might even force them to completely shut down and go out of business, leading to loss of jobs, and sources of revenue for government.

In his State of the Nation address earlier this month, the President announced that government is considering a countrywide waiver of single business permits for all new businesses as it seeks to ease the cost of doing business. If properly implemented, this shall, albeit a little, improve the ease of doing business in the country.

County governments should work towards implementing the Unified Single Business Permit, to streamline their revenue collection streams and make it less cumbersome for businesses to pay the fees. Additionally, they should have a one-stop online platform that shall encompass all regulatory permits required to operate a business, by both levels of government.

Currently, businesses are struggling under the weight of paying for the different business permits and the cumbersome processes involved. The cost of obtaining each and every one of them remains high and the processes are painfully bureaucratic, which hinders businesses from expanding.

We should recognise that this is a year of survival, it is business unusual. Our focus as a country now should be rebuilding our economy, to ensure competitiveness and resilience. This will ensure if we are faced with shocks such as a pandemic in future, we do not see as much damage as we have due to the coronavirus.