ADAN: Reformed business environment critical to investments

For the last decade, some sub-Saharan African countries have seen an increase in inward foreign direct investment.

According to the East African Community Trade and Investment Report, FDIs into the region increased to Sh1.15 trillion in 2019 from Sh570 billion in 2018, with all EAC member countries posting impressive inflows over time (2019).

Since 2014, Kenya has been one of the top FDI beneficiaries in the region. China, South Africa, the United States and the United Kingdom have all established themselves as major sources of foreign direct investment in Kenya. Despite the importance of other macroeconomic variables in determining where to invest, the ease with which a country conducts business is crucial.

This awareness has resulted in a tidal change in the business climate in sub-Saharan Africa, as governments review their legal and regulatory business environments.

Kenya's journey began roughly six years ago, with President Uhuru Kenyatta's industrial transformation plan aligned with the World Bank's Doing Business global survey. It set out to become a top 50 nation in the Ease of Doing Business by 2022, and implemented reforms in at least 10 reforms areas to date.

These include starting a business; dealing with construction permits, getting electricity, registering property, getting credit; protecting investors; paying taxes, trading across borders, enforcing contracts, resolving insolvency and procurement, with remarkable progress

In the World Bank's Doing Business study released in 2019, Kenya was placed 56th out of 190 countries, improving three years in a run, from 136th place in 2014 to third place in business reforms (2015, 2016 and 2017), making it Africa's most improved country.

Among other legal improvements, the most transformative was the enactment of the New Companies Act 2015 and subsequent amendments in the Companies Amendment Act 2016. This milestone was consistent with modern business needs, departing from the previous regulations, which were based on the 1948 UK Act.

Among various historic governance reforms, it increased the requirements for related-party transaction disclosure, review, and approval by the board of directors. Notably, Kenya was ranked first in Protecting Minority Investors reforms indicator in 2020, up from 98th place in 2014.

Kenya also made considerable reforms in the insolvency resolution system to encourage new investments by ensuring that creditors are treated equally in reorganisation procedures and are more involved in the insolvencies process.

Significantly, Kenya has also made progress in contract enforcements, reducing the time and cost of resolving commercial disputes – as evidenced by major milestones such as the development of a more robust, coordinated Alternative Dispute Resolution framework for Kenya – through the Judiciary and the Nairobi Centre for International Arbitration, as well as the roll-out of the Small Claims Courts.

Trading Across Borders is another important FDI indicator. Kenya's primary reforms as of 2020 centred around the creation of the Integrated Customs Management System, the National Electronic Single Window, and the harmonisation of services provided by partner government departments.

These have tackled the arduous logistical processes of exporting and importing commodities, as well as the time and prices (excluding tariffs). Inefficiencies in documentary and border compliance, as well as internal transportation, have been cleaned up thanks to the digitisation and harmonisation of these operations.

Regardless of these milestones, the question of whether FDI has any impact on the Kenyan economy, small and medium businesses, and quality of life remains unresolved. It must be stated that the link between FDI attraction and economic growth is inconclusive, especially in nations that are mainly liberal and diverse. An increase in FDI, on the other hand, has a beneficial influence on employment creation.

An improved business environment will, in general, institutionalise productivity in our enterprise sector and spark a much-needed industrial rebirth.

Cabinet Secretary for East African Affairs and Northern Corridor Development in Kenya, and is in charge of the country's business climate reform agenda