The essence of regulations is to create the right environment for people and businesses to be productive and thrive. There are, arguably, three major ways in which regulation is supposed to be beneficial; the first is to protect consumers, the second is to create and grow markets and the third is to enable competition. These things will only be upheld if the regulations developed are progressive, transparent and fit-for-purpose.
Regulations, ideally, should give breathing room for businesses to innovate and prosper. But when the result of regulation suffocates businesses and is punitive to citizens, it ceases to serve its meaningful purpose and becomes a burden to the economy with far-reaching detrimental consequences.
At a time when we are facing stiff competition, in terms of trade, from our partner states, and further, when the continent is opening up to create the largest market in the world through the Africa Continental Free Trade Area, it seems retrogressive for us to be effecting a myriad of regulations that clip the wings of local businesses, rendering them uncompetitive for present and future markets. We are setting ourselves up to start at a disadvantage, when we should be doing everything possible to ensure that Kenya stays ahead of the curve.
Despite being a key pillar in the Big 4 Agenda, the manufacturing sector continues to be plagued with numerous regulations and over taxation. For a sector that should grow at double-digit every year to provide productive employment and in turn, grow the economy, its share of GDP is dropping and growth per year decreasing. From an average share contribution of 10% per year for several years, right now we are balancing at 7.7% contribution to GDP. The reasons for these are many, but for the most part, can be attributed to lack of well-structured regulatory frameworks and tax policies that ought to nurture and propel businesses and innovation.
For instance, this year KRA Introduced a VAT Auto Assessment System (VAA) whose aim is to decrease fraudulent tax claims by correctly matching input tax claimed by buyers (of taxable goods) to the corresponding output charged by the respective sellers. This system also aims at broadening the tax base in order to increase the country’s revenue collection. Since its introduction, manufacturers have flagged 11 critical issues that have huge cost implications, impede effective business operations and are time-consuming and cumbersome for their businesses, to the relevant authorities. These issues are yet to be resolved.
Another is the EGMS system that is being implemented despite the high court ruling and without taking into account some of the operational and technical issues that have been highlighted by manufacturers.
There are many other examples where businesses have suffered because of lack of procedural uniformity and duplication of roles of Government agencies. This has resulted in, for example, punitive corrective measures such as closures or suspensions being executed without the knowledge of the leadership of the regulatory agencies or with little supervision; lack of review of regulators processes to ensure their adherence to the fair administration principles; lack of transparency and use of unnecessary force over what is cited as ‘compliance issues’ by the same compliance agencies that have issued up-to-date licenses and permits to manufacturers, and so much more.
There is indeed a dilemma in executing regulation: The balance between its contribution to fairness and equality – ultimately everyone’s welfare; and the inevitable costs that they come with, especially when an economic system is not structurally aligned to deliver regulations and policies in an effective and sustainable manner. The aforementioned benefits of any regulations, that is, the protection of people and businesses, are negated when the implementation of said regulation falls short. Then public trust dissipates and everything that comes afterward is treated with suspicion.
In the short and medium-term, part of the remedy can be that a review of the roles and mandate of regulatory agencies is conducted in order to identify and address overlaps and support effective coordination of functions and actions. Additionally, we need to look into establishing a uniform government communication process for regulatory agencies to the public touching on businesses’ regulatory operations.
Poorly designed regulation and ineffective implementation of regulation can stifle innovation, growth, job creation and investments. Our economy has been in dire need of a massive boost and this can come through an enabling business environment that increases productivity, jobs and wages, and equal distribution of resources through growth and investments.
Our number one priority in formulating sustainable development policies should be to do away with policies and taxes that are tantamount to over-regulation and let businesses breath.
The Writer is the CEO of Kenya Association of Manufacturers and the UN Global Compact Representative for Kenya.
She can be reached at [email protected]