Advertisement

Doing business and graft rankings: EA feels the pinch of corruption and lengthy procedures

Saturday November 02 2013
biz

The country where you are most likely to encounter bribery in the EAC is Uganda, according to a report by Transparency International.

Salim Khan is the proprietor of a medium-sized food processing factory in Nairobi, set up five years ago. In his office, dozens of framed certificates take up half of a wall, each a licence from one agency or another.

“Let’s see, here I have a single business permit from the City Council, there’s one from the Kenya Bureau of Standards, another from the National Environmental Management Authority, one on Occupational Health and Safety Standards. Then there is another which is a Food and Chemical Substances Registration Licence, another from the Department of Industrial Training, two from the Kenya Revenue Authority — the red tape is truly extensive,” he says.

But the number of licences isn’t the biggest headache — it is the fact that setting up a business in Kenya, as in other East African countries, can be compared to a treasure hunt.

“You actually find out about the different licences you need as you go along; no one advises you on the certifications that you need to secure when you’re setting up. Regulators show up at your business asking you for some licence you’ve never heard of, so they catch you out. The lack of information is a huge loophole that is being used to extort money from businesses,” he said.

And in the process of getting the licences, in most cases, one has to part with a bribe.

Mr Khan’s experience sums up the findings of two reports released last week, Doing Business 2014 and the East African Bribery Index 2013, which, at first glance seem unrelated. But comparing the data reveals how pervasive corruption is strangling regional efforts to support entrepreneurship, create a thriving business climate and achieve middle-income status in the next few decades.

Advertisement

The Doing Business 2014 report by the World Bank and International Finance Corporation paints a damning picture of the regional business climate — with the exception of Rwanda, the other East African countries are in the bottom half of the 189 countries surveyed, when it comes to the ease of doing business. Rwanda comes in at position 32, Kenya follows at 129, Uganda is ranked at 132, Burundi at 140 and Tanzania at 145.

The country where you are most likely to encounter bribery in the EAC is Uganda, according to Transparency International’s East African Bribery Index, followed by Burundi, then Tanzania, then Kenya. Rwanda comes in as the least bribery-prone country in the region.

“For Uganda, the issue of bribery in the judiciary is a sensitive one, because while we have bribery at a business level that tends to increase the cost of doing business, at the same time politics makes it thrive. Many people decide to pay the bribe, especially in the process of registering their business, because they are not aware of the procedures to follow. That is what makes them even pay for what is supposed to be free,” said Issa Ssekito, the spokesperson at Kampala City Traders Association.

Tanzania’s police are ranked as the most corrupt institution in the region, overtaking Kenya’s that had taken the top slot in a number of previous reports.

READ: East Africa's high corruption rates bad for business

The World Bank’s and TI’s latest assessments, while showing some improvement from yesteryear, indicate that East Africa’s standing as one of the continent’s most attractive destinations for foreign investment remains under threat from other blocs.

The World Bank measures a country’s ease of doing businesses in terms of regulations affecting 11 areas; from starting a business, dealing with construction permits, getting electricity, registering property, and getting credit. Others are protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and employing workers.

As individual countries dither over business reforms, frustration has been growing among business executives in the region over the continued erection of non-tariff barriers as well as lengthy licensing procedures.

“Longer periods to obtain necessary documents to start up a business have always increased the costs of doing business. This is worsened by investors moving from one department or office to another to get relevant documentation,” said Sebaggala Kigozi, the executive director of the Uganda Manufacturers Association.

“We are putting pressure on the government to ensure that the number of days required to get all the necessary requirements is reduced to at most two, or at worst three days,” he said.

Improvements were however registered in paying of taxes, getting an electricity connection and starting a business — improvements that if leveraged could see the region become more competitive and improve in its global ranking. But there are more concerns among business executives.

“Delays in issuance of building permits have had a great impact on investments in the country, because once money is set aside for implementation of a project, that money must be spent within a particular time frame or the whole project might need a revaluation,” said Godfrey Simbeye, executive director at the Tanzania Private Sector Foundation.

“This has led to massive corruption during the process of acquiring these permits because investors buy their way through to beat the time limit; most of the buildings you see coming up in Dar es Salaam and elsewhere have secured their permits through bribes,” he said.

It would seem that rampant corruption is likely to spread the feeling of dissatisfaction and that “life is unfair” among people, even though the country may not necessarily have the highest levels of poverty.

World Bank data on poverty and a recent report by Afrobarometer on the levels of dissatisfaction with current economic conditions reveal that Uganda, though having the lowest proportion of people living in poverty in the EAC, reports a high level of dissatisfaction with how the economy is being managed.

READ: Growing unemployment raises risk of political, social upheavals in EA

Pervasive corruption may even shorten your life — there is a strong positive correlation between the levels of bribery and life expectancy in the EAC; countries with high levels of bribery also have the lowest life expectancy.

Unpacking the indicators covered by the reports exposes the common thread running through the two — how corruption is both a cause and a product of the snail-paced, complex and exhausting procedures that bedevil doing business in East Africa.

“We have been talking a lot and we don’t seem to be moving forward,” said TI-Kenya’s head of programmes Dalmas Okendo. Only two countries — Kenya and Rwanda — are optimistic about reducing corruption in their countries in the next year according to the Bribery Index.

Additional reporting by Dorothy Kweyu and Ray Naluyaga

Advertisement