What can be done to maximise foreign direct investment in labour-intensive activities?
MOSES IKIARA: By African standards, one of the biggest strengths of Kenya is its labour pool. Several companies locating to the country have said that coming to Kenya is a breath of fresh air. Kenya is therefore starting with a very strong advantage. A key foundation for this is education, which remains a top priority within our government, receiving the largest budget allocation each year. Despite this, there is emerging evidence that sometimes our educational institutions are not producing the skills that industry requires. There is a mismatch, and this is further threatened by conversion of middle-level colleges into university campuses. In order to fulfil the needs of the booming construction industry, for instance, the sector needs specific skilled workers. Thus, the country is undertaking a skills survey to see what critical gaps need to be filled. We must put more resources into technical institutes, and we must create more partnerships between universities and industries for regular feedback. In addition, incentives for investors could be conditional and based on labour and employment targets set by the country.
In what ways can Kenya’s ranking in the World Bank’s “Doing Business” report be improved?
IKIARA: The ratings have been a big challenge for us, but one of the most important things to highlight is that Kenya is not necessarily sliding back or introducing regulations that are making things worse. It is simply that our competitors are reforming faster than us. Between 2005 and 2007, Kenya undertook deep reforms, doing away with procedures that were seemingly redundant. In those same years Kenya was among the three most rapidly reforming countries in Africa. Further reform in the ensuing years required legal modifications and this has taken time. We have a good foundation for the long term, but in the short term real reforms remain a process. One of the things we are focusing on in 2014 is improving the ease of doing business by creating a one-stop shop for investors, so that people do not have to get approvals and licences from multiple institutions in different parts of the country. A one-stop shop that provides information on where to invest, business registration and all other services required by investors will transform ease of doing business in the country. Moreover, there is a Cabinet committee working on this. Within a short while, we believe these efforts will change the ranking of the country.
How can foreign firms best capitalise on the changes resulting from the devolution process?
IKIARA: Devolution has the potential to transform our country. If you look at a few counties that are working well, the level of innovation is extraordinary. What foreign firms need to do is look out for opportunities. Now that we have devolved the system, it will be possible to properly identify investment opportunities in every part of the country. The challenge county governments are facing is a lack of adequate capacity to develop and execute master plans. You find the typical county claiming to have potential in agriculture or tourism, but this is not backed by clear data indicating how big these opportunities are. If foreign firms could exploit first mover advantage by going in and doing the studies themselves, it would help address this problem. All the county governments are working hard to sign contracts at the moment, and foreign firms can secure bargain deals before competition increases. In terms of incentives, most taxes fall under the national government’s mandate, which the county governments cannot modify. However, because the counties are responsible for duties such as property taxes, there is significant scope to give incentives to investors. Moreover, the main incentive is a more conducive investment environment, which will be largely determined by the devolved county governments. Another way foreign companies can capitalise on devolution is to form partnerships with Kenyan investors, as this is the best way to win the hearts and minds of local consumers and clients.
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