| dc.description.abstract | The Government of Kenya (GoK) has recognised a need to remove or reduce
unnecessary regulatory barriers affecting Small and Micro Enterprises (SMEs)
since there are a number of restrictive regulations that affect their operation. In an
effort to address the restrictive environment, the GoK with the support of the
3ritish government's Department for International Development (DFID) set up
he De-regulation Section (OS) within the Ministry of Planning and National
)evelopment. The OS is one of the DFID projects being researched, evaluated
:II1dmonitored by the University of Nairobi, Institute for Development Studies
~IDS) Research, Monitoring and Evaluation (REM E) Project.
The DS aims at the removal of superfluous and unnecessarily restrictive
regulations which inhibit economic activity. The OS has been examining laws and
regulations that impact on the growth and development of SMEs. Their work
revealed that the licensing laws and by-laws which were set up to control, prohibit
or regulate various business activities are the single greatest deterrent to entry into
and growth of business in the private sector in Kenya.
The benchmark study of the Trade Licensing and Registration of Business
Names Acts conducted by IDS, REME Project aimed at understanding the policy
and regulatory framework within which SMEs operate. The study sought to
establish compliance rates and the costs of compliance and non-compliance. The
research also sought to know the perception of both policy makers and the general
public on the activities of SMEs. Samples (for analysis) were drawn from six
towns: Nairobi, Nakuru, Kakamega, Siaya, Nyeri and Kajiado. The six were
purposively selected for the benchmark survey on de-regulation. 1Jle selection
was guided largely by considerations of the nature of the regulatory environment
rather than a need for geographical representation. The sample covered a total of
300 entrepreneurs and 54 suppliers, consumers and people staying near SMEs.
The majority (73.7%) of enterprises were sole proprietorships, and most
entrepreneurs started doing business in 1980. There was no difference in when
men and women started doing business. Enterprises were mostly trading in the
sectors of manufacturing (20.7%), commerce and trade (21.3%), hotel and
restaurants (10.3%), repairs (11.7%), food and food processing (11.0%). Others
included construction and building (8.7%), transport (8.0%) and fish trade (8.3%).
Most (32.0%) of the enterprises covered in the survey were operating within the
central husiness districts (CBDs) of urban areas. This was followed by roadside!
highway (17.0%), open air markets (16.7%) and residential shopping centres
( 15.3%).
The study determined the extent to which small-scale entrepreneurs arc in
IDS Occasional Paper No. 64
compliance with government regulations. Trade licensing and registration of
business names received most attention, but the investigation also included
questions about other regulations. Despite the Ifact that the Registration of
Business Names Act (Cap 499, Laws of Kenya) is very clear about who is
required to re~ister, the study found that there was confusion about registration.
When asked if their business was registered, 123 entrepreneurs (42.0%) out of
3~replied in the affirmative. Only 73 of these, however, rave the Attorney-
General's Chambers as the body' with whom they had registered. The others
named agencies such as the Ministry of Social Services, Ministry of Health and
Fisheries Department. Such registrations have nothing to do with business r:-\me,
yet the fact. that (he enterprises lumped all together is an indication of the
confusion surrounding the term registration.
The Trade Licensing Act (Cap 497, Laws of Kenya) requires that all business
activities be licensed. Of the 300 firms in the enterprise srrvey, 89 were engaged
in trading activities requiring a licence. Of these, 73-(82.0%) reported having the
required licence, 15 (16.9%) said they had, no licence and one respondent (I.l%)
did not reply to the question. Those with licences seem to keep them up-to-date.
Nearly all {95.3%) of those who have licences said that they were current. Those
without licences tend to be traders without fixed premises, operating in open air
markets and along the roadside.
The sample data were used in conjunction with data from Kenya'snational
baseline studies of small and micro-enterprises (Parker 1994, Daniels et at 1995)
to estimate the number of enterprises in compliance in the country as a whole. The
estimates are a direct extrapolation from the sample percentages. Over 480,000
businesses are in compliance with the Registration of Business Names Act, and
OV~T 350,000 are in compliance with the Trade Licensing Act.
Most firms in the sample (68.3%) are in compliance with the requirements of
.the Registration of Business Names Act. Of the 205 complying firms, 73 were
actually registered. For those not required to register, the only cost of compliance
is that of obtaining information on the act. Registered businesses, however, have
additional costs: the direct cost of registration, travel time and the cost of
displaying the registration certificate.
The survey examined three broad types of costs of non-compliance. The first
are the money costs of preventing the authorities from taking punitive action as a
result of the enterprise's failure to comply. The most common item in this
category is the payment of "public relations" money to the enforcement officers.
The second group includes the financial consequences of punitive action actually
taken by the authorities. The authorities are known to close businesses, evict firms
from their premises, demolish premises and confiscate goods. Such actions have
direct costs. Finally, both preventive measures and dealing with the consequences
of the punitive action take time, a costly commodity in the business world.
Businesses out of compliance with the Registration of Business Names Act
pay an estimated KSh 273 million in public relations (bribe) money to protect
themselves from punitive action. Firms whose names are unregistered also surfer
from evictions, arrests, demolitions and confiscation of goods. These costs are
estimated at KSh 356 million annually. Finally, firms whose names are not
registered spend time valued at KSh 128 million dealing with the consequences of
their non-compliance. The total cost for the estimated 224,000 out-of-compliance
firms is estimated to be KSh 757 million. Unlicensed trading Firms pay an
estimated KSh 23 million in public relations money to prevent the authorities
from taking punitive action against them. Firms without trade licences also incur
costs when they are evicted or arrested and when their premises are demolished or
their goods confiscated. These costs are estimated to amount to KSh 141 million
annually. The most costly part of non-compliance with trade licensing is not the
direct payments but the lost time. The estimated 77,000 entrepreneurs who do not
comply with the Trade Licensing Act lose an estimated KSh 236 million annually
as a result of the time needed to cope with actual or threatened punitive action.
The study assessed the perceptions of the public and policy makers on the
importance and benefits of regulation and de-regulated environment for SMEs
and the government's ability and commitment to de-regulation. The members of
the public-suppliers, consumers and those staying near SMEs-felt that they
faced a number of problems in running their operations. These problems included
lack of business development facilities, inadequate infrastructure, poor location
and access to services, inadequate shelter, insecurity, lack of markets, pollution,
health risks, noise and unfair competition from large,licensed businesses. Despite
the positive aspects of employment opportunities and income generation from
SMEs, the public had mixed reactions about the importance and benefits of
regulations, with the majority pointing out that regulations encouraged corruption
and only large businesses should be subjected to registration and licensing.
Evidence from discussions with members of the public and with government
officials supports the general need for making the regulatory framework simpler
and more fair. The main concern was in the area of public health, where members
of the public wanted strict and well-enforced regulations to ensure that they are
not exposed to health hazards.
Discussions with policy makers revealed that they were aware of the local
government circular about the need for de-regulation. They acknowledged the fact
that procedures of licensing are tedious and cumbersome and that de-regulation is
necessary. Some councils had begun re-organising departments involved in
licensing in preparation for the de-regulation programme requirement of a oneslop-
shop office for handling all matters of licensing. Policy makers at the
Ministry of Trade indicated that the implementation of the one-stop-shop policy
would create unemployment for the rrlany officers who had been dealing with
issuing licences.
The benchmark study found a high level of compliance with both the Trade
Licensing Act and the Registration of Business Names Act. The study found that
enterprises could benefit substantially from streamlining the regulation process.
Time was found to be the largest single cost of complying with the Registration of
Business Names Act. This is because all registration is done in Nairobi, forcing
business owners located elsewhere to take considerable travel time. De-centralising
the registration process would substantially reduce the costs to the enterprises
without interfering with government revenue. Thestudy found that non-compliance
is also costly, especially to 'enterprises suffering from punitive measures
taken by the Central Government or Local Authorities. It is not surprising,
therefore, that many businesses choose to make "public relations" payments to
avoid these costs.
Evidence supports the need for continued effort to reduce the regulatory
burden. The study noted that de-regulation as a concept is recent in Kenya, and
many members of the public are still not aware of it. Furthermore, members of the
public have lost faith in government performance and are therefore not sure that
the de-regulation programme will be put in place. There is need for information
and awareness campaigns. | en |
