Nairobi Series: The Challenges of Starting a Business in Nairobi

“You need at least 12 licenses to start a hotel in Kenya,” reads an excerpt from a tweet that triggered Kenya’s business community recently.

Starting a business is a very demanding undertaking. However, starting one in Kenya is even more challenging as countless entrepreneurs went on to attest following the quoted tweet.

Some of the licenses that you’d need to start a hotel business in Kenya were highlighted as County Government License, National Government License, Music Copyright License, Signage License, NEMA License, Ministry of Health License, Covid-19 Licence from MoH, Business Permit, Liquor Permit, Tourism Catering, Fire Inspection, and a Tourism Regulatory Authority permit.

It is these ‘barriers’ among others that have occasioned the collapses of countless enterprises before the end of their first year.

The business community has been pushing the government to try and merge some of these licenses and permits to curb redundancies and ease the process of doing business in Kenya.

The World Bank published the Doing Business 2020 Report, which examines the regulations that encourage and constrain business activity in a country.

11 areas of the life of a business were covered in the report namely:

• Starting a business, 
• Trading across borders, 
• Enforcing contracts, 
• Resolving insolvency, 
• Labor market regulation, 
• Dealing with construction permits, 
• Getting electricity, 
• Registering property, 
• Getting credit, 
• Protecting minority investors, and 
• Paying taxes.
  

Kenya is ranked 56 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings.

Kenya's ranking improved by 5 positions to #56 in the 2020 report with a score of 73.2, up from #61 in the 2019 report.

Recent statistics also show that Nairobi only comes second to Lagos (across Africa) as a leading city for start-ups.

Government Action

Speaking during the launch of the World Bank Report, Deputy President William Ruto went on to announce that the national government would push to make the business environment even more conducive for entrepreneurs.

"We are certain Kenya has to adopt a robust regulatory framework and improve the business environment much further. This will help attract investors, " reads an excerpt from his speech.

The ease with which businesses -especially Small and Medium-sized Enterprises (SMEs), or can be registered affects the number of entrepreneurs who go on to start businesses, resulting in more jobs and government revenue.

SMEs are vital engines of growth in most economies. According to research, micro-businesses and SMEs account for 95 percent of firms in most countries, create jobs, contribute to GDP, aid industrial development, meet local demand for services, innovate, and provide inputs and services to large firms.

According to the IMF, economic growth in Africa has been largely spurred by infrastructure investment efforts and strong private consumption.

Reforms to Enhance Business Environment in Kenya

Several recent legislative enactments have changed Kenya’s business landscape. They were introduced with the aim of encouraging further investment and streamlining business processes in the country. 

They include the Companies Act, the Insolvency Act, the Special Economic Zones Act, the Business Registration Service Act, the Companies and Insolvency Legislation (Consequential Amendments) Act 2015, and the Finance Act Amendments 2015.

The new laws made it possible for one person to set up a company whereas in the past it was a requirement to have two people to register a company. The new laws also removed the condition that small companies should have a company secretary just like big firms, as well as removing the requirement that private firms should have an annual general meeting each year.

"Laws alone cannot make a difference. What matters is how they are implemented. Each one of us has a role to play for Kenya to become a first-world economy," President Uhuru stated after assenting the Bill.

Streamlining and automating the business registration process was one of the reforms aimed at improving and promoting the ease of doing business in Kenya.

This has aided in lowering the cost of doing business by implementing simplified processes to improve access to services.

Speaking in September 2021, Cabinet Secretary for East African Community and Regional Development, Adan Mohamed,  told journalists in Nairobi that the investment climate would be enhanced through redesigning service delivery processes to eliminate the compliance burden.

The process of incorporation has also been eased to a large extent. There are fewer documentation requirements under the new act. In addition, the abolition of the requirement for an objects clause in the process of incorporation was significant. This means that companies can engage in a wide variety of business activities without having to provide for any and every conceivable object in their incorporation documents.

The new act recognized the growing young Kenyan population and hence lowered the minimum age for directorship from 21 to 18 years of age. There is also no need to 

engage professionals in the incorporation process as one can pursue incorporation individually, leading to a significant reduction of costs associated with startups.

Competition Upcountry - A New Dawn

According to a report by the Kenya Association of Manufacturers (KAM), the towns of Nakuru and Nyandarua are giving Nairobi a run for its money when it comes to providing an enabling environment for doing business.

In the report, Nakuru County was ranked third with a score of 35.14 percent in terms of improving the business environment for SMEs, trailing only Nairobi (65.33 percent) and Nyandarua (40.48 percent).

Nakuru County, which now boasts of Nakuru City, has been hailed for instituting policy, legislative and regulatory level reforms, and market-level interventions including, infrastructure and services, access to finance, and labor force.

As the devolved system of government evolves, more and more Kenyans are expected to try out these emerging markets upcountry where the business environment is conducive as compared to the saturated market of Nairobi.