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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

Implementation of the Regulatory Guillotine in Kenya

Ben MusauChair, Working Committee

Workshop on Reducing Business licences19 April 2005, Nairobi

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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

The Regulatory Reform Challenge Facing Kenya

Like all emerging market economies, Kenya faces an enormous task of reviewing and updating business laws, licences and regulations dating back decades.

The process of review is challenging because it imposes huge administrative, legal and political costs, and it takes a long time.

The complex licensing regime has forced Kenya not to make fast progress to support economic development goals.

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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

Business licences reduce economic growth in Kenya

Kenya Economic Recovery Strategy for Wealth and Employment Creation: “Government must stimulate economic growth through higher public and private investment to significantly reduce poverty.”

2004 Index of Economic Freedom: “Businesses complain that they sometimes have to “pay more for a single business permit than they have paid before for many trading licences.”

KIPPRA: “Trade licensing laws and bylaws act as a major deterrent to entry into, and the growth of business in the private sector in Kenya.”

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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

The Government has committed to licence reform

In the 2003/4 Budget Speech the Minister for Finance underscored Government’s commitment to regulatory and licensing reform “the Government will institute legal and institutional reforms … with special attention to … out of date statutes …”

In the recent Consultative Group meeting last week, the Government undertook to overhaul business licensing with a view to reducing the number of licences and the time taken to a minimum within the action plan for the anti-corruption strategy:

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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

Vicious circle of poverty as applied to licensing in Kenya

Under & un-employment,

braindrain

Insecurity

Many licences

(600+) High Costs,

Corruption

Less competitive investment

environment, Unpopular

Low investments,

poor infrastructure

Low economic

growth rate (GDP)

Low tax base, more licences for

higher revenues

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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

The Solution: Goals of Regulatory Guillotine* Rapidly eliminate unneeded and

damaging business licences and fees, based on a systematic and independent review

Establish consultation processes for businesses and other stakeholders

Create a sustainable process to control the number and quality of new licences in future

*The Regulatory Guillotine was developed by Jacobs and Associates Inc. in Washington, DC. See their website at www.regulatoryreform.com

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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

A Summary of the Regulatory Guillotine Scope: all business licences and fees in Kenya Summary of Process:

– Step 1: Create comprehensive list of all licences and fees

– Step 2: Review the need and legality of all licences through a fair and systematic process

– Step 3: Eliminate licences that fail the tests of need and legality

– Step 4: Create a comprehensive and central electronic registry of all licences

– Step 5: Establish a permanent quality review of new licences in the future

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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

Implementing the Regulatory Guillotine in Kenya 24 February 2005: Circular from PS Finance to 178 ministries and

public bodies “Streamlining the regulatory environment for business activity”

March 2005: Creation of Working Committee on Regulatory Reforms for Business Activity in Kenya

18 March 2005: All bodies submit lists of all business licences and fees to Ministry of Finance. So far 57 bodies have responded submitting 154 licences for guillotine. This is out of an estimated 600 licences.

22 April 2005: Working Committee completes reviews of 50 licences (we have, in fact, reviewed 85 licences) and submits recommendations to Minister of Finance

June 2005: Finance Minister expected to include the recommendations and legal revisions in 2005 Budget Speech

June 2005 – June 2006: Remaining licences are reviewed and a second reform package is prepared for 2006 Budget speech

June 2006: Comprehensive electronic registry created in Office of the AG and is maintained for all new licences

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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

Ministries and public bodies

List of licences

1. Is it needed?

2. Is it legal?

3. Is it efficient and market friendly?

The Process: First Review by Ministries and Public Bodies

1st Review

All licences with “yes” answers to the three questions go to 2nd Review. Working Committee selects 50 licences for the first phase of review.

For each licence, responsible bodies must answer the following Quality Checklist in writing:

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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

Second Review by Independent Working Committee

1st Review

All licences with “yes” answers to the three questions go to 3rd Review

2nd Review

For each licence, the Working Committee must answer the following Quality Checklist in writing:

1. Is it needed?

2. Is it legal?

3. Is it efficient and market friendly?

Ministries and public bodies

List of licences

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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

1st Review

Working Committee considers the advice of businesses and develops Recommendations for the Minister of Finance by April 22, 2005

Third Review: Consultations with Stakeholders

2nd Review 3rd ReviewMinistries and public bodies

List of licences For each licence,

the Working Committee asks stakeholder the following questions:

1. Is it needed?

2. Is it legal?

3. Is it efficient and market friendly?

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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

The Problem: Open up the Mexican economy, deregulate burdensome formalities and reduce corruption by minimizing administrative discretion

The Solution: Review 4,000 business formalities (licences, permits authorizations, concessions) with the guillotine. The estimate of 600 in Kenya does not include other permits, authorisations and concessions. If these were included we would be talking about a figure similar to that of Mexico

Mechanism– Scope of reform was precisely defined: “information requirements to provide

or to keep” information– Government established a clear review process for 12 ministries– An E-Government Portal was set up for the registry

Results: Mexico eliminated almost half of business formalities, and simplified 97% of the ones that remained

Uganda & Tanzania: attracting higher new investments than Kenya. Some Kenyans running away from the local market to try better opportunities there. Stamp duty counter example in Uganda and incorporation of companies in a single day: picked recommendation from Kenya. Fewer licences. No investment code restrictions unlike us.

Benchmarking experience: Mexico

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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

What the Working Committee Needs from Stakeholders

Review each licence against the three questions Provide the Working Committee with clear

answers and explanations Support the Guillotine as it moves through the

political process in April-June 2005 Continue working with the guillotine as the other

licences are reviewed through June 2006

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WORKING COMMITTEE ON REGULATORY REFORM FOR BUSINESS ACTIVITY IN KENYA

Reducing licences in Kenya

Thank you

Ben MusauBen@bmmusau.co.ke