Kenya's business people have the unfortunate privilege of being both over regulated and under regulated - we have a lot of compliance we have to deal with, but where it matters, we have to dig into our pockets to cover the cost. Writes Phares Kariuki, CEO of Pure Infrastructure Ltd.
There are these two young fish swimming along and they happen to meet an older fish swimming the other way, who nods at them and says “Morning, boys. How’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes “What the hell is water?”
- David Foster Wallace
This quote has stuck with me for a while, as it perfectly addresses something - all businesses, individuals in Kenya occupy the Kenyan political economy. We all swim in the water that is Kenya, whether or not we realize it. The combination of policies and actions by our government determine how businesses function. This is our water.
The Analogy of Escobar's Cocaine Hippos
In 1978, Pablo Escobar, the notorious drug lord, purchased a sprawling Colombian estate, known as Hacienda Nápoles. He filled this property with a variety of profligate features, but what was particularly interesting were the exotic animals he imported into it. There were rhinos, giraffes, zebras and four hippos. After his death in 1994, the government relocated most of the animals to various zoos, but left the hippos, which were viewed as too aggressive and dangerous to move.
They had no natural predators in Colombia, unlike Kenya / parts of Africa where their population is generally controlled when there’s drought. Lack of water and food leads to increased competition, aggression, disease, and mortality, forcing hippos into confined areas where overcrowding leads to stress and even death. Droughts disrupt hippo social structures, reduce their overall numbers, and can lead to significant population decline.
With no natural factors to control their population in Colombia, they bred. They are all in the periphery of the nearby Magdalena River. From four when Escobar died in 1993, there are now an estimated 170 hippos and without any intervention there would be around 1,000 hippos by 2035. The Colombian government has recently announced measures to get rid of the hippos.
The primary reason the government is getting rid of them is more subtle than just the risks they pose to human beings, it’s ecological. The animals, the hippos, 'murder donkeys' as some refer to them, produce a lot of waste. So much waste that they began to actively change the ecology of the river, and kill off some other fauna in the river.
They haul a lot of carbon into the water, especially in lakes that they wallowed in. This reduced the amount of oxygen at times below what fish could handle. They also had a knock on effect of allowing algae to bloom. In short the hippos are poisoning the water.
Kenya's Agent of Entrepreneurial Chaos
So, completing the analogy, our government has been acting like the hippos. It’s been an agent of chaos in our local economy. How we file taxes has changed every single year for the last five years. The rates of taxes have changed. The amount of tax has changed, never for the better. The judicial system is trying but is letting us down.
We pay for services we don’t get and this has a knock on effect - as we have less disposable income for things that are elective - between taxes and paying for the things the taxes should have paid for - we are broke - and the country is struggling for it. This is a simple example. So this continuous harm poisons the well, and leaves both citizen and business struggling.
So everyone struggles, and feels as though they are stupid - however, it’s not that their labour is suddenly inferior - it’s that their water has been poisoned. When you have such shifts in ecology some new creatures take advantage of the situation - but it’s not that they make things better, it’s that they learn to profit from the dysfunction - making it harder to ever get back a state of equilibrium that works for most. Which is why we hear of ‘cartels’ and other random wheeler dealers.
What the government doesn’t seem to understand is that investment into a market and participation in it is done by free will. Investors in other markets will speak with Kenyan firms and determine that it’s too much work to participate in this market - the regulatory costs and other costs are too high. Currently, power is a huge driver of cost, half that cost is in taxes.
We have NITA (the National Industrial Training Authority) and a variety of other amorphous bodies. So we as Kenyan business people have the unfortunate privilege of being both over regulated and under regulated - we have a lot of compliance we have to deal with, but where it matters, we have to dig into our pockets to cover the cost. We pay high taxes, but have to pay for guards, security infrastructure and other costs to protect what little capital we accumulate.
We have to have buffers for staff incase of medical emergencies, we have to pay for arbitration and get expensive loans as contract enforcement is impossible. These cumulative actions lead Kenyan businesses to struggle to accumulate capital. The difference between entrepreneurs in Kenya and many other markets is simply how hard it is to simply break even and then accumulate capital. If we could solve for this we would have more entrepreneurs and more employees and the government would get more taxes.
Taxes are also now something you prepay - regardless of whether or not your customer has paid you - your business can be shut down if you aren’t able to raise taxes for services you have delivered and not been paid for (See VAT Special table).
The dream should not be infrastructure led growth - the dream should be making it simpler for firms to accumulate capital, invest in this market, make it easy for them to collect. Tax reporting should be simpler and less punitive. Some people misbehave, but in Kenya right now, a couple of bad quarters can have the tax authority shutting you down - permanently preventing you from recovery.
We should get the hippos out of the river and stop spoiling our water. Let’s make it simpler to do business, simpler to export, simpler to function. Let’s stop poisoning the water.
