By Phyllis Wakiaga – CEO of Kenya Association of Manufacturers
Small and Medium Enterprises (SMEs) are creators and innovators, generating new ideas, and developing the most interesting concepts. They contribute to communities’ unique identities and are the lifeline of any country’s economy, through job creation and as a stepping stone to achieving shared prosperity.
For instance, the world’s largest economy, United States of America (USA), attributes its fast-paced economic growth, since 1776, to a vibrant SME sector. Whilst SMEs, due to their nature, are able to adapt to changing times, they remain the most vulnerable when the business environment becomes unfriendly.
A such, governments across the world have put in place mechanisms, to spearhead the growth of small businesses and cushion them from shocks. Unfortunately, there remains a gap between Governments’ good intentions, to support SMEs to contribute more to a country’s economy, and understanding small business’ needs and the challenges facing them.
Here in Kenya, the amount of taxes businesses are required to pay, and the regulations that need to be adhered to, is ever increasing.
Last week, during a Regulatory Boot Camp, for manufacturing SMEs hosted by Kenya Association of Manufacturers (KAM) one thing stood out – the regulatory burden for SMEs in Kenya is quite heavy.
Manufacturing SMEs decried the numerous standards and regulations that they need to adhere to, and their ensuing cost. Additionally, the various taxes, licenses, cess, fees and permits that need to be paid.
For SMEs, the requirements from numerous agencies and the national and county governments, take up a large portion of their operational costs. At a time when businesses are still reeling from the impact of the pandemic, with some facing challenges in meeting their financial obligations, this is a dire situation that calls for urgent intervention.
The Manufacturing SMEs’ sentiments echo a Regulatory Audit Report launched by KAM earlier this year. From the report, regulations become troublesome when they are numerous, since they increase the cost of compliance. They are difficult to administer and to comply with, especially when similar regulations are administered by more than one agency.
Although regulations seek to create a level-playing field for businesses, regulatory overreach hinders the competitiveness of local industry.
For instance, Government, through the Finance Act 2021, has introduced a 10% excise duty on plastics items, including carboys, bottles and flasks. This cost will be passed down to consumers, whose spending power has been crippled by the ongoing pandemic. On the other hand, it is a blow to manufacturers, who are struggling to reduce costs, in a highly uncertain business environment, which has increased the cost of doing business.
As such, national and county governments need to ease the regulatory burden for SMEs. One way of doing this, is involving SMEs, when formulating laws, regulations and policies. By doing so, the laws, regulations and policies will be SME-centered, and in turn, support competitive industrial development. In addition, involving SMEs shall also enable them to understand the laws, policies, regulations and standards that they need to adhere to, when developing products and accessing various markets.
Experience from other countries has shown that a properly anchored regulatory framework is key in not only protecting minority investors, but also creating an enabling environment for all players. For instance, streamlining and harmonizing licenses in countries such as Egypt and Rwanda has proven to be time and cost-saving.
From the Boot Camp, SMEs shared their thoughts on what needs to be done, to streamline the overreaching regulatory regime. Some of these include streamlining approval procedures and protocols between national and county government agencies, merging regulatory bodies that have almost similar or duplicative roles and implementing a one-stop shop approach to obtain permits from national and county government agencies.
A predictable and stable policy and regulatory regime for SMEs shall have positive long-term effects on the manufacturing sector, by increasing investments and driving innovation.
Our regulatory regime needs to be reviewed, to make it efficient to support competitive industrial development, which shall then translate to inclusive socio-economic development.