Business and Finance
Uganda moves past Kenya in race for foreign investment
Uganda has overtaken Kenya as a preferred destination for foreign investors seeking opportunities in East Africa, according to a new World Bank report.
Kenya, which is East Africa’s largest economy, lost its grip on reforming the business environment to finish at number 121 from position 109 last year out of the 185 countries surveyed for the Doing Business 2013 report.
The report shows that Kenya’s lacklustre performance was mainly the result of inability to sustain reforms it started in the area of awarding building permits.
Kenya’s ranking in the annual survey improved significantly last year helped by reforms in the real estate sector that reduced the time it takes to get a building permit from 50 to 30 days.
That outcome allowed Uganda, the region’s third largest economy, to step ahead of Kenya helped by aggressive reforms in area of corporate insolvency.
Kenya’s neighbour is now the world’s 120th most preferred investment destination, having climbed two slots from position 123 last year.
Uganda is now East Africa’s second most competitive economy when it comes to ease of doing business after Rwanda, which is the world’s 52nd most attractive investment destination.
Kenyan executives with operations across the region agreed with the World Bank’s ranking, saying Nairobi has been particularly slow in decision-making and pushing reforms through.
Vimal Shah, the chief executive of Bidco Oil Refineries, a producer of fast moving consumer goods with operations in both Kenya and Uganda, said it has become much easier to do business in Uganda than in Kenya.
“It is easier because decisions are made faster and there is no procrastination while in Kenya under the present circumstances it takes too long to get things done,” said Mr Shah.
Sammy Onyango, the Deloitte East Africa chief executive, said Kenya has been slow in implementing reforms and that some processes take longer than in Uganda.
“Kenya has a lot more bureaucracy and the Uganda Revenue Authority is more tax payer-friendly than the Kenya Revenue Authority.
The Uganda Investment Authority is also very helpful and they even go out of their way to help,” said Mr Onyango.
Tanzania, which is ranked 134th globally and Burundi at number 159 out of the 185 economies surveyed are the region’s fourth and fifth most attractive economies to foreign investors.
This year’s survey found that Kenya heavily relied on the improved tax filing system – making it easier for businesses to file returns – to defend its position in the ranking of nations.
“Kenya made paying taxes faster for companies by enhancing electronic filing systems,” says the World Bank report that was released on Tuesday.
The report also shows that East Africa’s largest economy also made it easier for entrepreneurs to start a business.
Kenya’s ranking on the ease of starting a business improved to 126 from 132 last year, having reduced the number of procedures required to establish a business to 10 from 11 and the time taken to finish the process from 33 to 32 days.
It, however, slipped in key areas such as issuance of construction permits, getting connected to electricity, registering property and access to credit.
According to the report, no progress was made in the protection of investors despite the numerous corporate scandals that hit listed firms resulting in suspension of two companies from trading shares at the Nairobi Securities Exchange.
However, the Capital markets regulator, CMA, has made a number of regulatory changes in the wake of the scandals but that appears not to have registered with investors as changing the protection environment.
Uganda rode on changes to its insolvency and mortgage laws that have made it easier for entrepreneurs to access the title registry and digitisation of title records to improve its ranking.
“Digitising records at the title registry has increased efficiency at the assessor’s office and made it possible for more banks to accept stamp duty payment,” the bank says in the Doing Business 2013 report.
But Kampala also moved a step backwards in the area of property registration with the introduction of a requirement that property purchasers obtain an income tax certificate before registering property, resulting in delays at the Uganda Revenue Authority and the Ministry of Finance.
Kampala strengthened the insolvency process with the refinement of rules on creation of mortgages, establishment of the duties of mortgagors and mortgagees, providing remedies for mortgagors and mortgagees and establishing the powers of receivers.
“Doing Business is about smart business regulations, not necessarily fewer regulations,” said Augusto Lopez-Claros, the Director, Global Indicators and Analysis at the World Bank. “We are very encouraged that so many economies in Africa are among the 50 that have made the most improvement since 2005.”
Tanzania made starting a business easier by eliminating the requirement for inspections by health, town and land officers for issuance of a business license but also made dealing with construction permits more expensive by increasing the cost.
East Africa’s second largest economy also remains shackled by its decision to make importation of goods more difficult with the introduction of a certificate of conformity before the any goods are shipped in.
Rwanda, the region’s fastest growing economy, made getting electricity easier by reducing the cost of new connections and eased enforcement of contracts with the launch of an electronic filing system for initial complaints.
This was however not enough to stop it from slipping from position 45 last year to this year’s 52.
The Economic Survey of 2012 Uganda indicates that Uganda is Kenya’s largest export destination in Africa and the third largest source of imported goods in the region.
Last year, Kenya sold goods and services worth Sh75.95 billion up from Sh52.1 billion in 2010 to Uganda and bought goods and services worth Sh10.33 billion up from Sh9.22 billion the previous year.
Kenya also exported goods and services worth Sh41.74 billion to Tanzania up from Sh33.21 billion in 2010 and imported goods and services worth Sh15.67 billion from its Southern neighbour up from Sh10.54 billion the previous year.
A number of Kenyan banks, including KCB Group, Diamond Trust Bank (DTB), Bank of Africa (BOA), Fina, Equity, Imperial, NIC and African Banking Corporation have subsidiaries in Uganda.