Many global firms are downsizing or pulling out of Kenya largely due to high taxes and unpredictable policies.
Further, despite their resilience, businesses in the country are grappling with weakened consumer spending, low public investment, corruption, weak governance structures, and political uncertainty.
The development and regulatory roles of the government are pivotal to business growth. If well implemented, they drive private sector growth, otherwise, they stifle growth, leading to stagnation or slow economic expansion.
The cost of living in Kenya is skyrocketing, making it harder for people to make ends meet. Increased taxation and regulatory compliances that come with fees and levies result in high prices. Taxes that affect employment incomes impact purchasing power, resulting in decreased demand affecting manufacturing and in turn reducing tax collections.
According to the World Bank, in its 27th Kenya Economic Update 2023, over-taxation is driving the economy underground. Increased taxation disincentivises investments, thus reducing capital formation that supports manufacturing, leading to job creation and increased incomes.
In the update, the Bank anticipates that inflation would stabilise at 7.8 percent, before dropping to 5.8 percent this year, while the current account deficit would slim by 0.1 percent on increased exports.
In hindsight, the purchasing power of households in the medium term will be negatively affected by the proposed tax measures.
This is likely to add to the current inflationary pressures owing to an increase in prices of basic commodities, especially food and fuel, and signals tougher times ahead for businesses dealing with reduced demand.
To spur growth, regulations ought to promote and protect both local and foreign investments. Arduous regulatory regimes make it difficult to invest in Kenya. If they are difficult to comply with or do not add value, they become a burden, creating an opportunity for rent-seekers to bombard investors.
Regulatory burdens are the increase in complexity of rules that require compliance without adding value to the companies, households, or the long-term objective of government policymakers.
An effective and transparent regulatory environment is key to entrepreneurship development at all stages of the business cycle, including entry, investment and expansion, transfer and exit.
Moreover, solutions are key to the issues the country is facing, which means centring on practical and easily achievable steps to reduce the challenges facing businesses and citizens.
We require political goodwill to reduce the cost of doing business in Kenya. We must make our tax system understandable and predictable.
The author is the CEO of the Retail Trade Association of Kenya.
