Many years ago when I was in primary school, we used to play a frenetic game called “Tip”. The Player who was “it” would touch someone else while yelling “tip!” and the person so touched became “it” and would have to touch someone else to make them “it”. The game could go on for days, and it would be much to one’s chagrin if they were collected by their parents after school and the person who was “it” would wait until the last minute to tip you and run off chortling with glee as you stewed in your parents’ car all the way home waiting for the next day when you could tip someone else. However, there was repose from this mind numbingly silly game in the form of the words “Pax” which had to be accompanied by one crossing their middle finger over their index finger. When one was on “pax” one could not be tagged. The challenge, of course, was to always remember to be “on pax”. The purpose of this reminiscing is that I am bringing the exhausting “being an entrepreneur in Kenya” trilogy to an end after today. Pax! Here’s why:
Didier (not his real name) is a foreign investor in Kenya. He runs a chain of fast food restaurants and opened his first branch in 2012. Like any good foreign investor, his first port of call was Kenya Investment Authority (KenInvest) to see what benefits he could receive as he set up his first unit, which would require bringing in a lot of restaurant equipment. As you can imagine, he didn’t get much joy as the folks over at KenInvest were only interested in certain sectors of the economy such as manufacturing, oil and gas but not the restaurant industry. Crestfallen, but not beaten, he set up anyway. 14 licences later, he opened his first branch and within the first six months of opening had visitors from the Kenya Revenue Authority over for an audit of the start up that had not even finished a year of business. Not to be left behind, the Ministry of Labour chaps also came to do an audit in month seven.
As his business grew, he began to open new branches. He quickly came to discover that the much-touted Single Business Permit from Nairobi County came at a very high cost. Having to pay Kshs 300,000 (three hundred thousand in case you cannot read figures) per branch, he was duly informed that the permit ran over a calendar year from January to December. So if he opened a branch on December 29th of any year, he would still have to pay the FULL amount of Kshs 300,000/-. “Carol, to do business in Kenya, you have to know someone, and even that someone is not guaranteed to help you,” he said. He continued, “Out of the 14 licences that I need for EACH branch at least half of them run on a calendar cycle. Can you imagine the loss I make from licensing whenever I am starting a new branch?” The feedback that he has received from Nairobi County officials belongs in the Frustrated Entrepreneurs Hall of Fame: “Why do you want to deny the county revenue?” How is paying for a license every 12 months from date of issue rather than every calendar year from January to December denying revenue to this most efficient of institutions? Meanwhile, he opened his sixth branch less than two months ago. Within a week of opening he had been visited three times by Nairobi County officials who were “checking” on the standards of the business.
Didier has to date employed 150 Kenyans in his business. Kenyans who are paying Pay As You Earn income taxes as well as being productive members of society who consume goods and services thus playing their part in keeping the economic wheels of the country turning. As it is a restaurant business he has to maintain the county health standards and therefore has to send all 150 of them to get health certification twice a year at the cost of Kshs 1,000 per employee. You can do the mind boggling total math for yourself. By the time Didier was done telling me about all the costs of running a restaurant business, I concluded that he could easily shave off a significant part of his food prices if the taxes and licence fees were streamlined. You, the Kenyan, are paying for a lot of government sponsored operational inefficiencies.
“I don’t get it, Didier,” I mused, “Why do you stay and do business in Kenya?” He didn’t miss a beat. “Because there’s a huge opportunity here, I can see it.”
There is a certain short termism in the way both the central and the local governments approach revenue collection. The approach is transactional rather than strategic. The view: Let us collect what we can now = short term, rather than: Let us look ahead and see how to grow a wider tax base by creating an enabling environment for new businesses to thrive = long term. Today entrepreneurs are beaten down with a highly toxic operating environment where the compliance officers from various government institutions are used to frustrate and harass rather than to drive compliance. To paraphrase someone who wrote to me last week, “We really have to wonder about government officials who are lifetime employees. What could they possibly understand about risking everything to build a business in a hostile environment when they have always had a salary?” So my two cents worth to the team responsible for looking after the growth of entrepreneurs in this country is this: Help Moraa (the Kenyan from 2 weeks ago) and Didier (the foreign investor who is not in a strategic industry) do business in Kenya. They, and many others like them, will build solid businesses that generate revenue – part of which attaches to the government’s fiscal bottom line. The End. Pax Romana!