EA Business report

Monday, 01 October 2007
By Humphrey Liloba

NAIROBI, KENYA — The cost of doing business in East African is once again on the spotlight following a decision by giant household items manufacturer, Reckitt Benkiser, to shut down its operation in Kenya.

Officials told reporters last week high operational costs were the key contributory factor to their decision to relocate to Egypt, which they said is comparatively cheaper in business expenses.

The shock announcement came just a day before a World Bank report declared Kenya among the top 10 reformers worldwide.

Kenya is also one of two African countries with Ghana, which made the most significant advances in aggregate ease of doing business on the continent, according to the report.

Subsequently, Reckitt has sold and handed over the manufacture of at least 40% of its products to Orbit Chemical Industries. Some of its products include Jik, Harpic and Dettol, which are household names in the region. Reckitt’s General Manager, Mr. Attar Safdar told reporters high licence costs, huge electricity bills and effects of globalisation were the main reasons for the closure.

"The changes in the sourcing strategy would enable the business to concentrate its manufacturing in the least cost manufacturing locations within the COMESA region and the Middle East," said Safdar.

He said the restructuring process would involve retrenchment of some 37 staff but added that the company had set aside KSh30m (US$4.5m) to support the affected employees.

“The company will also provide business management and entrepreneurship training to the retrenched employees,” Safdar said.

Reckitt’s closure now validates another recent report that indicted that Kenya was the most affected country by high business costs and Non Tariff Barriers (NTBs).

The report said this has led to the highest cost of doing business in the East African region.

The annual Business Climate Index released recently by the East African Business Council, the private sector arm of the East African Community, said the severity of the barriers was most felt in Kenya as compared to Uganda and Tanzania.

The report which focuses on the impact of NTBs and other business climate factors further said the country must work hard towards eliminating the barriers or risk losing investor confidence.

Reckitt is the latest to join a long list of an exodus of multinationals operating in Kenya.

Economists and business analysts have criticised the Kenyan government for dragging its feet in the elimination of licencing bureaucracy, a major turn-off for would be investors in the country.

However, early this year, Kenya scrapped some 700 business licences and announced that another 1000 were being reviewed. Not much has been done since then, except promises of future ease, thus causing anxiety in the business community.

The EABC report had cited that whereas some areas of the business environment have improved, factors such as insecurity in Kenya and power rationing in Tanzania and Uganda are still major challenges to doing business in the region.

Other areas cited then included customs procedures, immigration and work permits, business registration and licensing, police roadblocks, weighbridge stations and quality standards and certification.

Rwanda and Burundi, which joined the EAC recently, were not sampled but both countries will be include next year.

Currently goods entering Kenya from Uganda and Tanzania are tax-free but those exported from Kenya to the two partner countries attract tax on select items under an arrangement that will see free flow of trade by 2010 under the customs union.

Kenya will therefore have to contend with fleeing investors if the licencing and business cost issues are not addressed in time.

Some of the investors who have fled the country in the past have set shop right in neighbouring countries where the costs are perceived to be a bit friendly.

Kenya early this year launched an ambitious economic development plan, Vision 2030 that among other things depends heavily on foreign investment. But in the light of the poor business environment, analysts predict tough times ahead unless something is urgently done.