A new World Bank Report has revealed that most Start-ups in Kenya do not make it past the inception stage due to corruption and excessive bureaucracy in the country. The report also said that the country relies heavily on more established companies, some of which have been around since Kenya got its independence.
The country is reportedly at the mercy of these few companies, some of which are unproductive, due to the fact that very few new businesses find room to grow and establish themselves.
The Systematic Country Diagnostic report from the World Bank identifies country-level actions and investments. In the report, it cited the huge presence of State-owned and State-linked enterprises among some of the factors limiting the growth of Startups.
More reasons include high levels of informality in Kenya’s economy as well as strict and almost unachievable entry barriers and a private sector that suffers from limited access to loans.
Local Banks are also more inclined to give loans to low-risk government institutions edging out smaller businesses which as a result remain stagnated.
The report notes that new businesses in Kenya have had minimal contribution from dynamic reallocation in the country. This is achievable if labour, entrepreneurship, land and capital are moved from less productive areas to more productive areas.
” This is lower than in other countries, indicating that Schumpeter’s creative destruction process, which historically has accounted for long-term prosperity, is remarkably weak in Kenya,” the report says. An apt example for the creative destruction process in Kenya is the emergence of the mobile phones in the country, which killed letters ultimately dealing a hard blow to the Kenya Posts and Telecommunications Corporation (KP&TC)
The government has however maintained that it has developed and made significant changes in policies in efforts to drive the growth of small businesses in the country.
“We have recorded many milestones thus far, such as Kenya’s 80-slot improvement since 2014, with our nation currently ranking at 56th globally and ranking third in Sub-Saharan Africa on the Ease of Doing Business Global Ranking Report , from a low of 136th globally in 2014,” President Uhuru Kenyatta said in a past state address.
The president further noted that Kenya currently ranks first in the protection of minority investors and fourth globally on getting credit according to the World Bank Report.
The president also said that during the pandemic, the daily average registration of companies increased by 500 percent to 300 compared to 30 daily registrations in 2014.
At least 400,000 companies are registered each year in Kenya.
“My government has heeded the cries of Kenyans for bold and decisive actions to reduce the unnecessary regulatory burden occasioned by the multiplicity of licenses at both the national and county levels,” the president said.
He further noted that the government had waived single business permits for new businesses registered in Nairobi for the first two years of operation since March 2020.
A new bill signed into law also waives the presumptive tax requirement for all new businesses with plans to roll out the measures countrywide.
However, a report from the Kenya National Bureau of Statistics in 2016 showed that at least 500,000 businesses die annually, with the majority citing steep operating costs and losses.
The report says a number of countries have rivaled Kenya in the growth of these businesses, citing Ethiopia as an example that has registered a significant number of new businesses entering the market with older ones exiting. Chile, China, Columbia and Malaysia are also reported to be doing better than Kenya.
The only country that Kenya has beaten, according to the report, is India.