•The Technical and Vocational Education and Training facilities can help in driving industrialisation.
•The private sector is calling for national dialogue so that the disruption in the economy is avoided.
The recent Gen Z demonstrations have impacted the country’s economy while putting investors in a wait-and-see mode.
The Star spoke to the Kenya National Chamber of Commerce and Industry (KNCCI) CEO Patrick Nyangweso on the country's business, investment environment, and way forward.
What impact have the Gen Z demonstrations had on businesses?
The country has had an unpredictable business environment in the past month where businesses don’t even know when to open or operate. However, one of the biggest impacts has been on the supply chain. Disruptions have hampered the ability to transport raw materials, especially for the manufacturing sector. This has equally affected the production and supply of finished goods both locally and exports. This poses a challenge to meeting the demand in the market and the sector’s contribution to the economy. Looking at the about Sh1 trillion that the sector contributed last year, as per the Economic Survey, it means we are losing about Sh2.86 billion every day mainly in value addition, whenever there are disruptions. If this continues, then Kenya will remain a consumption market relying on more imports because our factories will not be able to produce optimally. For us to achieve the 20 per cent target of the sector’s contribution to the GDP by 2030, we must ensure a conducive operating environment and smooth supply chains.
Apart from the supply chain, which other sectors have been affected?
The tourism sector. There have been cancellations of up to 27 per cent of bookings. Coming at a time when we are into the high season, including the ongoing wildebeest migration, this is a huge loss to the sector and country which is missing on foreign exchange. This must be addressed otherwise we will lose to competing markets including neighbouring Tanzania. We have also seen the shilling, which had stabilised against the US dollar start losing again. This means costly imports. The demonstrations have hurt our money and capital markets, something that we need to correct.
How best do we cut the huge trade deficit?
This can only be achieved if we empower our local manufacturers. From the cottage industries (small-scale manufacturing businesses owned and operated by an individual or a family and often based in a home), to large manufacturers. We need to empower local industries to become more competitive. This way, we will ensure value addition, increased local production and growth in exports, which hence automatically cuts the trade deficit currently at about Sh1.6 trillion. To make the industries remain competitive, we must ensure they get affordable power, good infrastructure and access to credit otherwise local production will be too costly hence continue losing to cheaper imports, including from our neighbours Tanzania and Uganda. We must also ensure a predictable tax environment and friendly taxes, which is critical on investment decisions.
How is the current investor confidence?
Investors are concerned about the political environment and the country’s stability. Many are holding back their resources, which means a slowdown in Foreign Direct Investments (FDIs). So we are calling upon the government to bring all stakeholders to the table for dialogue and stabilise the country. This will ensure retention of existing investors, both local and international, while attracting new ones.
There are concerns over bureaucracies in government. What is your take?
It is true; there are a lot of bureaucracies. We over-regulate the business environment. For instance, if you register a business today let's say a restaurant, you will require more than 14 licenses to operate. Let's say you have a seed capital of Sh500,000 or one million, you will spend up to 75 per cent to acquire licenses and other approvals, then taxation, how will you operate that business? Within one year your turnover may not even be enough to pay salaries and continue operating. That is why we see a lot of MSMEs close within the first year of operation. Yes, there has been a push for single permits at counties but overall, it is still too expensive to start a business in the country. Both the national government and counties must address these bureaucracies. Counties must also stop these extra fees and levies such as branding which is charged on moving goods across. They should harmonise these taxes.
How is access to credit for businesses?
It is a headache for many. The banks' interest rates are too high and end up seeing businesses struggle to repay loans whenever they are not doing well. They finally end up being auctioned. This is not healthy, especially for MSMEs. We must have structures that support access to affordable credit including reviewing downwards the interest rates. The government also needs to support small businesses, including tax incentives. For instance, give businesses that are starting a tax break of six months to one year before bringing them into the tax bracket. This will help them stabilise and you will see, people will actually comply easily instead of evading taxes. We also need to look into agri-business, value addition and digital economy to create jobs, especially for the youth. We need to support women and the youth to access affordable credit to invest in businesses and tap opportunities in production and supply chain.
The government is banking on industrial parks to support value addition and industrialisation. What do you make of this?
It is a good move because for a long time, most industries have been centralised in urban centers. The move decentralises manufacturing. The county aggregation parks have the potential to spur industrialisation including the growth of cottage industries into big players, which will also translate to job creation and economic growth. At the chamber of commerce, we support the move. If they are well managed and supported, they will turn around the local economies and support the growth of exports.
Why are investors still importing human resources despite Kenya having a well-educated and trained population?
The biggest challenge has been skills mismatch. Our youth, while very educated, are not competitive in the job market because of the skills mismatch. We need to engage our learning institutions to match the industry needs with their curriculum. This will make our youth more competitive not only in Kenya and the region, but globally. The Technical and Vocational Education and Training facilities we have across the country can help a great deal in filling this gap. We need to have in place what we call dual TVET where one can be both at the institution and in the field. By the time they graduate, they just transition into the job market having already gained experience. This is something KNCCI is doing with development partners including GIZ and government agencies. It is being piloted in about 14 counties.
Way forward as a country?
As private sector, we call for national dialogue so that the disruption in the economy is avoided. We must find solutions to the issues being raised, address taxation issues and create a conducive business environment for economic prosperity.