Government of Kenya

Final Report of the Working Committee on Regulatory Reforms for Business Activity in Kenya

Review of Business Licenses and Fees

in Kenya

Submitted to the Minister for Finance and the Minister for Trade and Industry

The Working Committee on

Regulatory Reforms for Business Activity

in Kenya

Chair: Ben Musau, Advocate

on March 5, 2007

Table of Contents

Acronyms. ii
Foreword. iii
Executive Summary. v
1    Introduction and background. 1
2    Review of all business licenses and fees in Kenya. 7
3    Establishment of an electronic registry. 57
4    Input to a medium term regulatory reform strategy. 58
5    Institutional issues – building drivers of regulatory reform.. 65
6    Conclusions and the way forward. 72
Annexes to the Report 74
A    Mandate and composition of Committee. 74
B     Decision memos. 77
C     Consultative meetings held by Committee. 78
D    Proposed tasks for Business Regulatory Reform Unit 79
E     Final list of licenses in Kenya. 85
F     Design and Establishment of an Electronic Register 85
G    Action Plan for sustainable regulatory reform strategy. 85

Acronyms

AGO	Attorney-General’s Office
B M & Co.	B M Musau & Co., Advocates
CBS	Central Bureau of Statistics
CCK	Communications Commission of Kenya
DFID	Department for International Development
EIA	Environmental Impact Assessment
ERS	Economic Recovery Strategy
FIAS	Foreign Investment Advisory Services
GOK	Government of Kenya
HCDA	Horticultural Crops Development Authority
KAM	Kenya Association of Manufacturers
KEBS	Kenya Bureau of Standards
KEPSA	Kenya Private Sector Alliance
KIPPRA	Kenya Institute of Public Policy Research & Analysis
KLRC	Kenya Law Reform Commission
KNCCI	Kenya National Chamber of Commerce & Industry
KRA	Kenya Revenue Authority
KShs.	Kenya Shillings
LA	Local Authority
MoF	Ministry of Finance
MoLG	Ministry of Local Government
MoTI	Ministry of Trade & Industry
NEMA	National Environmental and Management Authority
NRD	Norway Registers Development AS
PHRD	Personnel & Human Resources for Development
PSD	Private Sector Development
SBP	Single Business Permit
SME	Small and Medium Enterprises
TLB	Transport Licensing Board
UBA	United Business Association

Foreword

This report summarizes the results of nearly two years of work of the Working Committee for Regulatory Reform in Kenya.
The Working Committee was formed by the Government through the Ministry of Finance Circular Ref. No. Conf.262/02/(3) of 24 February 2005 as read with Kenya Gazette Notice No. 7521 published in the Kenya Gazette of 23^rd September, 2005. The Government subsequently continued the Committee’s mandate until 31 December, 2006 (subsequently extended to 28 February, 2007). The mandate of the Committee has been to provide input to government decisions on the following:

Review all business licenses in Kenya;
Creation of an electronic regulatory registry for all business licenses;
Establishment of a Business Regulatory Reform Unit;
A medium term regulatory reform strategy.

The Committee’s mandate in the first and second phases is available in Annex A to this report. Phase I commenced on 12 March, 2005 and ended on 30 June, 2005 upon the review of 86 licenses while phase II started on 1 July, 2005 expired on 31 March, 2006 upon the review of 1,325 licenses.
The Committee is specifically mandated by Government to focus on licensing as an extremely damaging form of business regulation and to use the regulatory guillotine approach to eliminate unneeded or redundant licenses while simplifying those which are necessary.
The report was prepared by a Government-appointed team led by Ben Musau (Senior Partner, B M & Co.), and comprising Hezekiah Okeyo (MoTI), Christine Agimba (Deputy Solicitor-General, State Law Office), Josephine Kanyi (MoF), Valeria Onyango (Commissioner, KLRC), Catherine Munyao (KLRC), Gad Awuonda (State Law Office), Jacob Gumba (MoF), Joshua Kimulu (MoTI), Micah Kilonzo (MoLG) and Peter Ng’ang’a (MoLG). Morris Kimuli (B M & Co.), Andrew Mwaura (B M & Co.), Peter Biwott (MoTI), Robert Nyaga (MoF) and Richard Gakunya (MoF) provided assistance in preparation of the report.
The report relies heavily on the outcome of interviews and workshops attended by representatives of various ministries and government agencies, private sector and donors.
The Committee’s work received continuous technical advise and support from a FIAS team led by Peter Ladegaard and Roy Pepper (and from February to April 2005 by Xiaofang Shen). The initial design of the licensing reform in Kenya was prepared by Scott Jacobs and based on the Regulatory Guillotine. The term regulatory guillotine has been used for several years to describe variations of the basic reform. Regulatory GuillotineÔ is a trademark of Jacobs and Associates Inc. The project also received additional input in parts of the project from Lars Grava, Septi Bukula (UP Business Strategies), Jon Fjalestadt and Vytautas Urbonas (Norway Registry Development). The committee’s work has also benefited from continuous support from Vyjayanti Desai and Matilde Bordon from the World Bank.
The Committee engaged the services of sector experts who provided invaluable input on technical considerations on which the report is based. These include James Gathage (agriculture and traceability issues), David Phillips (environmental concerns), Agriphine Njoroge (local government), and Jan-Bjarni Bjarnason (tourism).
In addition to the significant human resources made available by the ministries and other bodies represented in the Committee, the work was carried out and the report prepared based on funds provided by the Department for International Development (DFID), the Policy and Human Resource Development (PHRD) grant of the Government of Japan administered by the World Bank, and FIAS.

Executive Summary

A web of laws, regulations and administrative procedures impede private sector development in Kenya. Excessive regulation leads to lower investment and innovation, corruption, reduced income generation and employment growth. Pervasive and confusing business regulations impose high risks and costs on formal businesses.
Several studies and surveys have identified business licenses as the single most important regulatory constraint to doing business. In recognition of this problem, the Government in March 2005 established the Working Committee on Regulatory Reforms for Business Activity in Kenya. The mandate and duration of Committee work was significantly extended in July, 2005 and April, 2006 to include a comprehensive review of all business licenses and fees in Kenya, and to include recommendations on how to assure that the results of the licensing reform would not be undermined by a wave of new licenses.
This report presents the findings and recommendations of the Working Committee. The identification and detailed scrutiny of all business licenses and fees in Kenya confirm the general impression often voiced by the private sector and foreign investors.
The work of the Committee has been based on an extensive consultative process with stakeholders from the public and private sectors. The Committee fully considered the information and explanations provided by the responsible bodies, and contacted many of them to invite them again to make any additional submissions they wished.
One key outcome of the Committee’s work is a first-time ever identification and mapping of all business licenses in Kenya. Annex F is the list of the 1,325 licenses identified, and Annexes C1-C5 are the decision memos providing detailed information about the purpose and relevance of each license, leading to recommendations on whether to eliminate, simplify or retain each of the licenses.
In line with the Government mandate, the Committee adopted the “regulatory guillotine” approach to the licensing review. At the core of the guillotine approach to reform is the reversal of the burden of proof: Regulators, not reformers, must actively defend and justify the status quo. In principle, the guillotine approach is based on a legally binding decision by government that all laws and regulations (and in this case: licenses) subject to review will, by default, be eliminated at the end of the review process, unless regulators or other stakeholders prove that the regulation/license is in compliance with basic review criteria such as necessity, efficiency and business-friendliness. The guillotine is a means of rapidly reviewing regulations, and eliminating those that are no longer needed, without the need for lengthy and costly legal action on each regulation. If supported by strong political commitment, it is clear, decisive, and fast.
The use of the guillotine approach in Kenya involved a number of adaptations to the “dogmatic’ approach described above. Firstly, the Government of Kenya never passed an Act of Parliament or similar legal measures that de jure changed the burden of proof. Throughout the review process, it has de facto been the Committee which has been carrying the burden of proof and has undertaken all or most of the research required to identify and analyze the 1,325 licenses. Secondly, the review process has been longer and possibly more thorough than the quick-and-dirty approach often implied by the guillotine approach. The nearly two years of work has added lots of nuance to the reform process by involving sector and other experts to carry out more detailed reviews of licenses in certain sectors (tourism, agriculture, local government and environment). Consequently, and reflected in the many simplification options the Committee has considered as part of the review, the level of detail in the advice to Government is often rather nuanced, and in some cases exhaustive for the reforms required.
The Committee carried out a pilot review which culminated in the report submitted to the Government on 22nd April, 2005. It related to the review of 86 licenses. The Committee presented its second report to the Government on 31 March 2006. Part of the Committee’s recommendations were announced in the Minister for Finance’s Budget Speech for 2006/2007 in which the Finance Minister committed the Government to:
The current status of the implementation of the Committee’s recommendations since the Budget 2005/6 through the Budget 2006/7 is as follows:

The network of government bodies with regulatory functions in Kenya is broad and complex, and their responsibilities are often vaguely defined and overlapping and sometimes contradictory. More than 60 government agencies and all 175 local governments are authorized to issue new licenses without any systematic assessment of the licenses’ impact on businesses and Kenya’s competitiveness.
The regulatory system in Kenya is partially out of control. Unlike the annual Budget process, which centralises key decisions on government spending, there is no similar system in place to guide decisions and the processes imposing regulatory costs on businesses and citizens. A very significant number of government institutions both at the local and central level issue and implement regulation in an often discretionary and unchallenged way.
Licensing is often inappropriately used as mechanism to raise revenue, rather than a means to regulate business entry and activities in areas where business activities may have security, health or safety implications.

Eliminate 37 licenses announced for elimination earlier in the financial year;
Eliminate an additional 118 licenses and simplify seven;
Simplification of another 700 licenses in the course of the financial year through harmonization, and reduction of fees and charges;
Review all local government licenses by 31^st of December 2006;
Create a Business Regulatory Reform Unit in the Ministry of Finance to liaise with Regulators to put a halt to the mushrooming of licenses and permits after the elimination process is completed;
Develop and implement a medium-term regulatory reform strategy, including monitoring the quality of new licenses;
Establish an Electronic Consolidated Regulatory Registry for all valid business licenses;
Introduce in Parliament an implementing Bill on Business Regulation Reform.

Table 1: Summary of the current status of implementation of licensing reforms in Kenya as at February 2007

Since the June 2006 Budget Speech, the Committee has focused its activities on the review of local government licenses, and further scrutiny of national licenses not eliminated through the mechanisms listed above.
The table below summarizes the license reform recommendations of the Committee for the entirety of its work, including all reviewed licenses.

Table 2: Summary of the results and recommendations

Total No. of licenses identified	Total No. of licenses to be eliminated	Total No. of licenses for simplification	Total No. of licenses to be retained
1,325	424	607	294

Source: Working Committee on Regulatory Reforms for Business Activity in Kenya

Although the Committee’s review was comprehensive, special efforts were devoted to address the licenses which the private sector found particularly burdensome. At the request of the Committee, the private sector established a list of the 26 most burdensome and annoying business licenses in Kenya. The specific concerns of the private sector were addressed through intensive dialogue and several interactions specifically aimed at the “top 26 list”. As a consequence of these efforts, the Committee proposes revisions and simplification measures that will eliminate 16 and simplify the remaining 10 on the top 26 list.
Special attention was also devoted to the Single Business Permit (SBP), imposed by the local authorities. Businesses consulted as part of the review were very critical of the SBP and expressed deep concerns about many of the activities regulated under the SBP, and in particular the way the SBP is being implemented and enforced differently in different local authorities. The Committee agrees with many other observers of the SBP that in principle a fundamental overhaul or elimination of the SBP is required. However countervailing concerns related to funding and autonomy of local governments require that reforms are implemented gradually and towards a well-identified long-term and sustainable alternative. Nonetheless, the report proposes a number of significant immediate revisions of the SBP, including:
In the medium term, the Government should eliminate the SBP, and introduce compensatory measures for local governments.
A number of other recommendations of the Committee will provide significant reductions in regulatory costs and risks for businesses and investors:
In order to adress massive duplication of licenses in the transport sector and to allay concerns of businesses, the Committee proposes to consolidate the road service license with the public service vehicle license.
There will be little or no loss to the budget since the 2006/2007 Budget assumed a drastic reduction in revenues from business licenses. At the same time, the individual regulators are still receiving revenues generated from licenses. The decision memos include information about the fees charged per license, although regulators did not want to share with the Committee information on the actual amount of revenue collected on account of each license.
If the proposed control mechanisms are not immediately implemented, the results of the licensing review may quickly be eroded by creeping re-regulation. New institutions, processes and capacities should be put in place to ensure that the results of the reform are safe-guarded, and that new licenses are subject to scrutiny. The Committee has been charged to look at three major institutional components announced in the Finance Minister’s 2006/2007 Budget Speech: A Business Regulatory Reform Unit, an Electronic Regulatory Registry, and Medium-Term Regulatory Reform Strategy. Together these three components, if implemented, will ensure that the gains of the licensing review and attendant reforms are not eroded by creeping re-regulation.
The purpose of the Business Regulatory Reform Unit (the Unit) is to vet the quality of and review new licenses to ensure that they are in consonance with internationally accepted regulatory practices and standards. At a later stage, the scope of the Unit’s work should be extended to cover other types of business regulation. The Committee proposes that the Unit is authorized with strong powers to scrutinize new licenses (laws and regulations), and that the Unit be charged with establishing a system for Regulatory Impact Assessment (RIA), and the development of the Regulatory Reform Strategy.
The Electronic Regulatory Registry will host all valid business licenses. Licenses not in the registry cannot be enforced. The registry will:

Rationalization and reduction of the number of bands (fee categories) from 16 to 10, thereby increasing the certainty of application of rules, and critically reducing the scope for arbitrary decisions by local authorities in allocating businesses to fee categories;
The SBP replaces all other business licenses, which have illegally mushroomed since the introduction of the SBP.

In agreement with the Immigration Department, and to allow for a more flexible system for approval of entry permit, the Committee proposes the creation of an interim work permit for certain permit classes;
In agreement with representatives for the local authorities and the Ministry for Local Government, and to address numerous complaints and concerns of businesses stemming from harassment by local inspectors, all local government advertising licenses (with the exception of billboards) are proposed to be eliminated and replaced by standards.

Serve as the national repository for license requirements in Kenya (single point of information);
Provide easy access to information for the business community (facilitate transparency);
Provide timely, correct and complete information about license requirements (what is not in the registry is not enforceable);
Be a tool for sharing information among regulatory authorities (the public-public communication);
Serve statistical purposes by sorting information by business code and geographical codes.

The purpose of a medium-term reform strategy is to sustain the reform momentum, to provide a focus and a rallying point for reform, and a basis for monitoring the reform progress. The regulatory reform strategy must define clear and operational targets for the improvement of the regulatory business environment and establish the institutions and processes required to implement the strategy in an efficient, transparent and accountable manner. The Committee recommends that the Regulatory Reform Strategy provides an implementation and policy framework for the following issues:
The Committee is preparing three legal texts to implement the recommendations and will submit the draft legal instruments by 31st March, 2007:

Development of principles of regulatory quality: When to regulate and how?
Establishment of transparent and efficient processes for regulatory policy-making: Piloting and adapting a system for Regulatory Impact Assessment (RIA);
Identification and streamlining of high-priority regulatory problems;
Building regulatory reform capacities in ministries and the private sector; and
Setting targets for improvements in regulatory quality and performance.

The Business Regulation Bill, 2007 to create and give legal effect to the Business Regulatory Reform Unit as well as the Electronic Registry;
The Licensing Laws (Repeals and Amendment) Bill, 2007. This bill has a number of activities associated with it:
- It addresses the legal changes which are required to effect Government’s recognition of the business licensing priorities;
- It deals with the new licenses which have been identified since phase II;
- It faces the issue of licenses required to have been implemented in phase II (they were identified as due for elimination either because they were illegal, unnecessary or not friendly to businesses);
- Local government licenses, fees and charges and associated reforms; and
- The other licenses (not covered above) and which require simplification.
- Legal notices to be signed by Ministers or regulators in respect of which only administrative action is required. This applies where specific provisions of an Act of Parliament do not require to be amended.

The Committee recommends that the Government charges the Business Regulatory Reform Unit in the Ministry of Finance with implementing the recommendations of the report. It is particularly important that the appropriate legal texts are activated in order to sustain the momentum of regulatory reform in Kenya and to satisfy the wishes of an expecting business community.

1 Introduction and background

Kenya has adopted a “regulatory guillotine” approach to streamline the business environment. The aim of this approach is to rapidly identify and eliminate those business licenses which are not necessary or justified on health, safety and environment considerations. Necessary licenses are simplified so as to achieve the required regulatory goals while reducing the cost of doing business.
The benefits to the country are that the streamlined business environment will reduce opportunities of corruption, lower the cost of doing business, and encourage existing investments to expand. It will also lead to initiation of new investments, new employment opportunities, reduced crime, a higher economic growth rate, a higher tax base, more revenue for social services, and less dependence on licensing revenue.
Kenya has had a long history of economic leadership in East Africa as one of its largest and most advanced economies. While Kenya was a preferred destination for investment in Eastern and Southern Africa in the 1960s and 1970s, poor economic policies and inconsistent efforts at structural reforms, growing problems of insecurity, corruption partly as a result of licensing (which act as an opportunity for corruption), poor infrastructure, inter alia and the resulting poor investment environment have discouraged domestic and Foreign Direct Investments (FDI) since the 1980s while on the contrary, the neighbouring countries made significant strides.
This has contracted Kenya’s prospects for wealth and employment creation, exacerbating the poverty situation in the country with more than 56% of Kenyans living in abject poverty. The trade and industry sector offers the potential to alleviate poverty through business establishments especially the Micro, Small and Medium Enterprises (MSMEs) which are accessible to the majority of Kenyans. However, this is hardly achieved due to stringent and cumbersome requirements that are needed in starting and operating a business.
Most Kenyans would like to start and operate businesses formally but due to licensing impediments they resort to undertaking businesses informally. This has resulted in, among many other disadvantages, loss of revenue by the Government which impacts negatively the provision of public goods. Consequently, Kenya has experienced a long period of poor economic performance with her GDP contracting to below-zero levels in the 1990s.
Various studies have been done by the Government and development partners on the country’s investment climate including:

Improving the Legal and Regulatory Environment for Business through Deregulation by the Kenya Public Policy Research and Analysis (KIPPRA) with the World Bank (2000);
The Study on Administrative Barriers and other Impediments to Trade in Kenya by the Government of Kenya (2005);
Accelerating Reforms to Improve the Commercial Legal Frame and Remove Administrative and Regulatory Barriers to Investment by the Foreign Investment Advisory Service (FIAS) of the World Bank (2004);
World Bank’s Growth and Competitiveness Report (2005). These studies identified regulatory and administrative barriers as a great impediment Kenya’s investment climate because they add to the high cost of doing business and proposed that the country should undertake Licensing Reforms.

Growth and Poverty Reduction

In order to enhance economic performance, the Government in 2003 launched the Economic Recovery Strategy for Wealth and Employment Creation (2003-2007) which considers the improvements and reforms needed to allow private investment to blossom and be at the core of a marked acceleration in economic growth and wealth creation.
The private sector is at the heart of the development process of a country. Driven by the quest for profits, they invest in new ideas and facilities that strengthen the foundation of economic growth and prosperity. They provide opportunities for employment where people apply their talents and improve their situations, goods and services needed to sustain life and improve living standards. They are also the main source of tax revenues, contributing to public funding for health, education, and other social amenities.
A good investment climate therefore facilitates growth and development of firms which are critical actors in the quest for growth and poverty reduction. It is because of such a background that the Government through the Investment Program for the Economic Recovery Strategy for Wealth and Employment Creation (IP-ERS) identified regulatory reforms for business activity in Kenya as key among other reforms the Government prioritised in the effort to increase trade and investment performance in Kenya.
In 2005 the Government initiated the preparatory process for the Private Sector Development Strategy (PSDS). The overall goal of the PSDS is to enhance private sector growth and competitiveness so as to contribute to wealth and employment creation. In order to address quick wins that would yield maximum results for the private sector over the immediate term (12-24 months) during the development of the PSDS, the Investment Climate Action Plan (ICAP) was rolled-out. The ICAP is part and parcel of the PSDS and is a fast tracking initiative, covering the period 2005-2007, to address the urgent needs of the Investment Climate and complements the longer focused (5 years) PSDS. Removing inefficient, unnecessary, unfriendly and cumbersome licensing is cluster four of ICAP.
One of the five goals of PSDS is to facilitate growth through greater trade expansion. Trade facilitation will therefore increase Kenya’s prospects to be a globally competitive and prosperous nation with high quality of life in the next 25 years as enshrined in the Vison 2030. This vision is anchored on three pillars which seek to (1) maintain a sustained economic growth of 10% per annum for the next 25 years (Economic Pillar); (2) have a just and cohesive society enjoying equitable social development in a clean and secure environment (Social Pillar); and (3) have an issue – based, people – centred, result-oriented and accountable democratic political system (Political Pillar).
Licensing Reforms will therefore assist the efforts by the Government to improve on the business environment and enhance Kenya’s position as a leading investment destination both regionally and internationally. This is because of accruing benefits to the country such as reduced opportunities of corruption, lower cost of doing business, and expansion of investment. It will also lead to initiation of new investments, new employment opportunities, reduced crime, higher economic growth rate, higher tax base, more revenue for social services, and lesser dependence on licensing revenue.
It is important to emphasize the importance that the licensing review has had and will continue to have on addressing the problem of corruption in Kenya. There is ample evidence internationally[1] that complex rules and regulations, which make interpretation and equitable implementation difficult, are positively correlated with corruption.
The process of research and stakeholder consultation undertaken in the licensing review identified areas where the imposition of licenses opens opportunities for corruption.
The proposed licensing reforms will increase transparency, reduce the number of times it is necessary for officials and businesspersons to interact, will standardize the fees system and reduce the asymmetry of information. All of these outcomes, pending successful implementation of the licensing review, will have a direct and positive impact on reducing corruption in Kenya.
And looking forward, other recommendations in this report are geared toward reducing corruption by creating a more transparent regulatory environment.

Working Committee on Regulatory Reforms

The Government in March 2005 established the Working Committee on Regulatory Reforms for Business Activity in Kenya. The mandate and duration of Committee work has over time been significantly extended to include a comprehensive review of all business licenses and fees in Kenya, and to include recommendations on how to assure that the results of the licensing reform would not be undermined by a wave of new licenses.
The Working Committee on Regulatory Reforms for Business Activity in Kenya conducted the reforms in three phases.

Phase I

The Committee was mandated to review and provide recommendations on improving the business environment in Kenya. The Treasury Circular directed the Committee to:
The Committee reviewed a total of 86 licences by 22nd April 2005. The licences were selected as potentially costly to businesses based on consultations and existing public and private sector development studies. The recommendations of the Committee were incorporated into the Statute Law (Miscellaneous Amendments) (No.2) Bill, 2005 for parliamentary consideration.

focus on licences as a particularly damaging form of government regulation;
use the guillotine strategy to identify all business licences in Kenya;
select 50 licences for review in the first phase; and
submit our recommendations by 22 April 2005.

Phase II

The Committee completed the review of a total of about 1,300 and worked with 178 regulatory public bodies. The Committee fully considered the information and explanations provided by the responsible bodies, and invited them to make any additional submissions. The review process provided a full and fair opportunity to all interested parties to support their positions.
The Committee presented its report to the Finance Minister on 30th March 2006. The recommendations of the Committee were incorporated into the Budget Speech 2006/07, the Licensing Laws (Repeals and Amendments)Bill, 2006 and Legal Notices.
During phases I and II, 37 licenses were eliminated through the budgetary process for the financial year 2005/06.
The Licensing Laws (Repeals and Amendments) Bill, 2006 has been debated and passed by parliament and assented to by the President by close of 2006. It now awaits the Minister for Finance to publish a commencement notice. 73 licenses are to be abolished when the Act is operational.

Phase III

The final phase of the Licensing Reform commenced through the extension of the mandate of the Committee from 1st April, 2006 to 31st December, 2006. During this phase the Committee carried out several further interrelated activities, namely:

Completion of the business licensing review including liaison with the budget team in the Ministry of Finance;
Reviewing business sector priority licenses, licenses recommended for elimination in phase II but not actually eliminated, new licenses identified on the conclusion of phase II, Local Government licenses, fees, permits and other charges as well as reviewed all licenses indicated as requiring simplification;
Preparation and implementation of a medium term regulatory reform strategy to coordinate the reform program so as to ensure:
- Creation of an Electronic Consolidated Regulatory Registry for all business licenses; and
- Establishment of a Business Regulatory Reform Unit.

Consultative Forums

The Committee engaged in an extensive consultative process with a view to seek their views regarding the licenses identified by the committee and give recommendations. The stakeholders were from the Public Sector including the regulators and the Private Sector business people and organizations. With this regard, the decisions made are based on adequate research by the Committee and consultations from all relevant public and private sector stakeholders.
In the review, the Committee fully considered the information and explanations provided by the responsible bodies, and contacted many of them to invite them again to make any additional submissions they wished. The Committee carried out a thorough, transparent, and independent review, and consulted with stakeholders to determine their views on each license. The review process provided a full and fair opportunity to all interested parties to support their positions to the Working Committee.
Special efforts were devoted to address the licenses which the private sector found particularly burdensome. At the request of the Committee, the private sector established a list of the 26 most burdensome and annoying business licenses in Kenya. The specific concerns of the private sector were addressed through intensive dialogue and several iterations specifically aimed at the “top 26 list”.
A list of the consultative meetings organised by the Committee in the run up to this final report is annexed as Annex D.

Structure of this Report

This report is structured as follows:

Chapter 2 “Review of all business licenses and fees in Kenya” begins with an overview of the problems relating to business licensing in Kenya, describes the approach taken by the Committee to review and address these problems, then goes through a detailed review of various categories/clusters of licenses reviewed, summarizing the decisions made by the Committee. The detailed assessment for each of the licenses is included in each of the decision memos, annexed to this report.
Chapter 3 “Establishment of an electronic registry” is based on an input from FIAS, reviewed and supported by the Committee. The chapter covers: the objectives and benefits of the E-Registry (including providing “positive legal security” for businesses about licenses registered), the role of the institutions involved and their responsibilities, and detailed recommendations on how to implement such a system.
Chapter 4 “Input to a medium-term regulatory reform strategy” describes the importance of preparing a comprehensive strategy and frames the components needed to implement a coherent and sustainable regulatory reform strategy for Kenya.
Chapter 5 “Institutional issues – building drivers of regulatory reform” describes institutions and their roles that will be necessary for continuing and sustaining regulatory reform.
Chapter 6 “Conclusions and the way forward” charts the next steps.

2                  Review of all business licenses and fees in Kenya
Introduction
2.1              Kenya has amassed too many license requirements, many contradictory, some pointless, such as the license to rent bicycles or the requirement to purchase onion seeds (which has now been removed).
2.2              In order to tackle this burden on businesses, Kenya has adopted a variation of the regulatory guillotine to streamline the business environment. The aim of this approach is to rapidly identify and eliminate those business licenses which are not necessary or justified on health, safety and environment considerations. Necessary licenses are simplified so as to achieve the required regulatory goals while reducing the cost of doing business.
2.3              The benefits to the country are that the streamlined business environment will reduce opportunities of corruption, lower the cost of doing business, and encourage existing investments to expand. It will also lead to initiation of new investments, new employment opportunities, reduced crime, a higher economic growth rate, a higher tax base, more revenue for social services, and less dependence on licensing revenue.
2.4              This chapter begins with an overview of the problems relating to business licensing in Kenya, describes the approach taken by the Committee to review and address these problems, then goes through a detailed review of various categories/clusters of licenses reviewed, and summarizes the decisions made by the Committee. The detailed assessment for each of the licenses is included in each of the decision memos, annexed to this report.
Business licensing increases costs of doing business
2.5              Consultations by the Committee with various stakeholders have further highlighted concerns about inefficiency in business licensing in Kenya, which include:

Wide discretionary powers given to licensing officers;
Lengthy and cumbersome approval procedures, which increase costs to businesses in time spent and the cost of personnel to follow up issuance of the licences;
Multiplicity of licences issued by different regulatory and administrative agencies;
Excessive licence fees, which do not reflect the costs of processing applications and keeping records, in accordance with international practice;
Inappropriate and inadequate enforcement mechanisms result in licensing officers harassing and intimidating businesses, both big and small when going round demanding licenses and payments. Accordingly, licenses and inspections should be adjusted to the size and nature of the project. Smaller projects should receive less scrutiny, lowering compliance costs and allowing regulators to focus their energy on more complex projects.
Lengthy application and multiple approval processes create room for inefficiency and corruption, as businesses often pay bribes demanded in the hope of making the approval processes move faster. Inadequate enforcement measures often result in lack of licensing compliance by businesses. Inappropriate enforcement processes give rise to opportunities for enforcement officers to demand bribes and threaten business owners with arbitrary arrests so that those who are affected are extorted to buy their freedom.

Corruption
2.6              Business licensing in Kenya, therefore, creates opportunities for corruption because it is discretionary, bureaucratic and there are no clearly published conditions and standards. Many licensing agencies have not published clear guidelines and requirements for issuing licenses. This has the overall impact of increasing the cost of doing business in Kenya, in terms of time spent, human resources and financial expenses.
Costs of doing business increases unemployment and poverty
2.7              The cost of doing business in Kenya is perceived to be high, firms in key sectors such as the agricultural, tourism and industrial sectors, contract instead of expanding. A number of businesses have closed down while others are said to have relocated to more favourable jurisdictions.
2.8              If businesses shrink, close down or relocate, this adversely affects the economy, leading to reduced opportunities of employment, reduced tax base and low revenues to Government. This results in reduced funding for social welfare, education, health and security.

Reversing the burden of proof: The guillotine approach
2.9              The guillotine process is defined as an independent, neutral and objective process whereby licenses are reviewed according to the following criteria: is it legal, necessary, business friendly, can it be simplified by conversion into a notification, amalgamation, reducing the target group, reducing the reporting frequency, applying silence is consent rule or by establishing time limits for responses.
The Guillotine approach in Kenya
2.10          In line with the Government mandate, the Committee adopted the so-called “regulatory guillotine” approach to the licensing review. At the core of the guillotine approach to reform is the reversal of the burden of proof: Regulators, not reformers, must actively defend and justify the status quo.
2.11          In principle, the guillotine approach is based on a legally binding decision by government that all laws and regulations (and in this case: licenses) subject to review will, by default, be eliminated at the end of the review process, unless regulators or other stakeholders prove that the regulation/license is in compliance with basic review criteria such as necessity, efficiency and business-friendliness.
2.12          The guillotine is a means of rapidly reviewing regulations, and eliminating those that are no longer needed, without the need for lengthy and costly legal action on each regulation. If supported by strong political commitment, it is clear, decisive, and fast.
2.13          The use of the guillotine approach in Kenya involved a number of adaptations to the “dogmatic” approach described above.

Firstly, the Government of Kenya never passed an Act of Parliament or similar legal measures that de jure changed the burden of proof. Throughout the review process, it has de facto been the Committee which has been carrying the burden of proof and has undertaken all or most of the research required to identify and analyze the 1,325 licenses.
Secondly, the review process has been longer and possibly more thorough than the quick-and-dirty approach often implied by the guillotine approach. The nearly two years of work has added lots of nuance to the reform process by involving sector and other experts to carry out more detailed reviews of licenses in certain sectors (tourism, agriculture, local government and environment).

2.14          Consequently, and reflected in the many simplification options the Committee has considered as part of the review, the level of detail in the advice to Government is often rather nuanced, and in some cases nearly exhaustive for the reforms required.
Scope
2.15          Scope of the guillotine exercise in Kenya is all business licenses meaning all Government regulations impinging on business activities (start-up, operation and termination) requiring active, official authorisation prior to or subsequent upon the commencement of business operations.
2.16          Business licenses permits, approvals, certificates, registrations, authorisations and their renewals at the national and municipal levels.
Guiding principles for the licensing review
2.17          The Committee developed several criteria to guide its work. These criteria are based on the mandate of the Committee to reduce the administrative burdens of compliance with business licenses. The most important of these criteria based on internationally accepted business licensing principles (which Kenya should adopt for general application in business licensing) are:

Licenses shall not be used to determine commercial quality that is better decided in the market.
Licenses shall be simplified to the maximum extent possible to improve access for small and medium entrepreneurs. For example, most license applications shall be reduced to one page.
License fees should be fixed and should reflect only costs for processing and keeping documents while application fees are kept at the bare minimum of recovering the cost of paper. Accordingly, application fees shall be no higher than Shs.100, while license fees shall be the minimum necessary to cover the cost of administering the license.
Duplication of information and licenses shall be entirely eliminated. Public agencies that require information shall share information among themselves, rather than imposing burdens on private businesses. Licensing should be established as one-level authorization permits. In other words, in order to get a license, business should not be forced to receive other permitting documents nor should the application be subjected to other agencies.
Business licensing should have only a regulatory function and be applied only to activities that can pose danger to safety (of people and property), health (life) or environment. All other activities should be not licensed.
Danger factors (characteristics of a business activity that can undermine safety and pose risks for health and environment) should be clearly assessed and formulated. The licensing regime should focus on minimising these danger factors.
Only activities that have danger factors should be licensed. All other activities should not be licensed. Licensing should not be used for limiting competition.
Exhaustive lists of requirements should be formulated and adopted as regulations and named licensing conditions or standards. Each licensing condition or standard should minimize the danger factor. In the cases when danger factors can not be minimized by licensing conditions, these activities should not be licensed. Licenses and inspections should be adjusted to the size and nature of the project. Smaller projects should receive less scrutiny, lowering compliance costs and allowing regulators to focus their energy on more complex projects.
For regulated activities with established licensing conditions, presumptive requirements (investments or know-how that have to be in place for the enterprise to function in compliance with the given regulations) must be separated from the operational requirements (rules of operation):
- Before opening, businesses make investments in material and personnel. Before they begin operating only a number of requirements can be checked and documented. These are presumptive conditions that should be necessary for license application approval;
- Majority of licensing conditions directly relate to the rules and procedures of business operation. They cannot be properly assessed before operation begins. Licensed businesses, however, must be informed about these licensing conditions and adhere to them while operating. Proper inspections must be undertaken at regular intervals to ensure compliance. Thus, regulatory objectives are mostly achieved through inspections rather than through presumptive assessments; and
- Business licenses, therefore, must have long periods of validity or be without terms of validity (assuming maintenance of qualification and operational requirements).
- An Act of Parliament that specifies regulated areas must state the exhaustive list of business activities to be licensed.
- Business licensing should be valid on all territory of Kenya; liability should rest with company and not with its branches. Therefore, there should be no licensing of branches.
- Licenses shall be used as regulatory tools for health, safety, and environmental protection, rather than for revenue raising purposes. Taxes are considered adequate sources of revenue for central and local governments. Accordingly, local government business licenses are replaced with a local business tax in the long-term. In the meantime, all local government business licenses are immediately consolidated into the single business permit to achieve the initial aims of the single business permit introduced with effect from 2000, while the Local Government Act is amended to ensure there is no abuse in future while the bands of the single business permit are rationalised in the medium term.
- Reforms shall not reduce health, safety, or environmental protection, but shall aim to achieve these goals more efficiently and effectively.
- The business licensing principles have been incorporated in all the decisions and recommendations including the legal texts.

Legality, necessity, business-friendly, effectiveness
2.18          The guillotine approach considered the legal effectiveness, necessity and business friendliness of each business license. Is the license legal, necessary or business friendly? The decision memos have been prepared by the Committee. The decision memos are reviews of licenses that are of particular concern to businesses in Kenya.
2.19          “Legality” is determined based on a review of the relevant legislation governing the license including the statutory expression for it and the fees charged for purchasing the license.
2.20          “Necessity” is based on the viewpoints of government officials implementing the licenses. This section also contains the official “objective” or purpose of the license. Occasionally this section describes some of the administrative requirements for receiving the license.
2.21          “Business friendliness” is based on views of the business community expressed in numerous consultative forums and stakeholder submissions, then assessed by the Licensing Working Committee. In some cases, relevant international practice is also described;
2.22          “Budgetary effect” reflects the fees imposed by the license under review.
2.23          “Efficiency” is a factor which arises in view of difficulties of obtaining a license in Kenya. Effective and efficient licensing procedures in Kenya will help to reduce the cost of doing business, making it an attractive investment destination. Currently, it takes 54 days to go through 13 procedures to start a business in Kenya. Licensing reforms will facilitate a positive move towards an enabling business environment. Reforms shall not reduce health, safety, or environmental protection, but shall aim to achieve these goals more efficiently and effectively.
Cost-recovery
2.24          In line with international accepted business licensing principles, license fees should be fixed and should reflect only costs for processing and keeping documents while application fees are kept at the bare minimum of recovering the cost of paper. Accordingly, application fees shall be no higher than Shs.100, while license fees shall be the minimum necessary to cover the cost of administering the license.

Business priorities integrated and addressed
2.25          The Committee certified with the private sector relevant key business licensing priorities. The private sector representatives included the Kenya Private Sector Alliance (KEPSA), the Kenya Association of Manufacturers (KAM), and the Kenya National Chamber of Commerce and Industry (KNCCI).
2.26          The Committee consulted local authorities who appointed a team of 8 representatives coordinated by the Local Government Reform Program. The “Team of 8” concurs with the local authority licensing reforms discussed in this report.
SBP revised; local licensing requires further reform
2.27          The single business permit is the most troublesome of all local government licenses. The system of implementation of the Single Business Permit by local authorities is not procedural; furthermore, the enforcement system adopted by the local authorities is crude. Fundamentally, the single business permit has not been de-linked from other licenses.
2.28          The Single Business Permit (SBP) is issued by local authorities and is imposed on all businesses since 2000. It is cited by businesses in Kenya as the single deterrent to business activity at the local level. It is compounded by the fact that although it was intended to replace the then existing multiple business licenses, it did not.
2.29          SBP gives a local authority a big leeway to select the level of license fee which is attractive to it without consultation with the business sector operating in the jurisdiction of that local authority. In practice, many local authorities have selected fee levels which are, according to businesses operating in those areas, way above the business’s economic means. Most businesses are forced to close or bribe their way through the chain to continue operating. Others have been forced to reduce the size of operations as the local authority increases the fee according to the size of the business.
2.30          Businesses were very critical of the SBP. They expressed a number of additional concerns, including: an increase in a business’s economic activity is actually penalized by an increase in the fee category when doing annual renewal of the SBP; on the other hand, when an operation reduces activity there is no reduction in the level of the SBP fee; annual payments are rigid and some businesses actually benefit based on the month they started businesses, thereby creating an uneven playing field; local services have not improved with the introduction of the SBP.
2.31          A number of businesses complained that the implementation of the SBP has gotten out of hand, as some LAs charge manufacturers simply for transporting goods through the local authority’s territory for distribution elsewhere; local authorities continue to impose redundant licenses that should have been consolidated under the SBP – this particular issue has caused businesses to note that the SBP has been the biggest cause of harassment to manufacturers where local councils demand payment for separate licenses.
2.32          The revisions of the Single Business Permit are summarized as follows:

Eliminate the categories in the SBP on transport, distribution of goods by manufacturers or their agents.
SBP should only be imposed at the headquarters of the business. Otherwise this restricts trade and the flow of goods in Kenya.
Inspections of fire safety – and hence its specific components such as conformity of fire extinguishers to their purpose – must be viewed as a public service provided by the local authority to the business community and the general public. The elimination of the “user charge” for the fire extinguisher must serve as a precedent for the elimination of all other licenses, user charges and inspections (including health inspections, etc.) that should in fact be included within the objectives of the Single Business Permit.
Simplify and codify the application form for the SBP. Simplify the form to a simple one-page document with information capturing the identity and location of the applicant only requiring basic information e.g. name of applicant, location of business enterprise and other pertinent details, with no requirement to give shareholder or directors names. This form should be included in the Local Government Act. This will avoid situations like in Gusii County Council who have developed their own form of application.
Reduce the current levels of bands. The fee schedule is discretionary and most LAs aim at maximizing revenue and therefore tend to choose the highest band without regard to the prevailing economic conditions and the means of the people living in that jurisdiction. This opens up large opportunities of corruption amid low compliance rates. The discretion should be reduced by fixing bands that are amenable to easy compliance so as to increase the compliance rate: by the time FIAS[2] did their assessment of administrative barriers in 2004 the compliance rate for the single business permit was in the region of 60% for the Nairobi City Council.
The implementation of the following recommendations will spur a lot of economic activity especially at the small and medium size level with consequential creation of employment opportunities. The Bands will be reviewed again in 2 years.
Eliminate bands 1, 2, 3, 4, 15 and 16.
Retain the other bands: 5, 6, 7, 8, 9, 10, 11, 12.
Group the bands into four classes of councils:
- Class A: Cities: bands 12, 13, 14.
- Class B: Municipalities: bands 9, 10, 11.
- Class C: Towns: bands 7, 8.
- Class D: Counties: bands 5, 6.
- Local authorities are at liberty to choose a band allocated to their class.
- Local authorities may choose a lower band to encourage the establishment and expansion of enterprises within their jurisdiction.
- Local authorities are not permitted to choose a band that is above the bands allocated to their class.
- Local authorities who have bands above their class are required to revert to the bands allocated to their class by December 31, 2007.
- Local authorities are to choose their bands in consultation with the local business community. One mandatory mechanism is the publication, in a leading newspaper within the jurisdiction, of the proposed band and the consequences to businesses of the proposed band, affording them an opportunity to provide comments. Another mandatory mechanism is a consultative forum with representatives of the local business community and other stakeholders. The central government review bodies (MoLG, Business Regulation Reform Unit) will not accept the proposed legislation from the local authorities without documentation that these consultative mechanisms have been utilised.
- A local authority is bound by its choice of band and must operate within the parameters of that band.
- SBP replaces all other business licenses which have mushroomed (see the relevant recommendations below).
- Moneys paid by professionals to central government to be accounted to local authorities (eliminate this category from the SBP).
- Professionals are subjected to double licensing as they pay annual trading license fees to the central government. The central government will continue collecting the annual trading license fees from professionals in accordance with the existing arrangements and then account the fees to the local authorities through the local authority transfer fund. Accordingly, it is not necessary for local authorities to levy SBP fees on professionals and to this extent the categories in the SBP schedules relating to professionals are deleted.
- Amend Section 165 of the Local Government Act limit grounds of refusal to health, safety, and environment.
- To limit the grounds upon which grant of license can be refused on the ground of health, safety, and environment. This section provides unnecessary and arbitrary powers that deny the opportunity to do business. The power to refuse to grant a business license should be based on safety, health and environment.
- Amend Section 148 and Section 201 of the Local Government Act to subject discretionary powers to enact by-laws to Unit as well as MoLG.
- It is necessary to subject the discretionary powers of local authorities to enact by-laws to not only the MoLG but also the Business Regulatory Reform Unit, which will use internationally accepted criteria and principles to ensure that low quality business licenses are not enacted. This will be done in conjunction with the existing review mechanism of the Ministry of Local Government. This is necessary because notwithstanding the power of local authorities to license businesses through the single business permit, they have a myriad of other business licenses which have been secretly adopted on the resolution of council and approval by the Minister. Most of them have not been published in the Kenya Gazette and are actually not available for inspection by the public or even by the business people who are affected by them. This has led to a lot of confusion and misunderstanding amongst the private sector while at the same time creating rampant opportunities of corruption for the licensing and enforcement officers. One result will be that if the by-law is not duly approved and registered, it will not be in force in Kenya.
- Publish business licenses and bylaws before their coming into force.
- Before business licenses and by-laws are submitted to the Unit they should be published as a notification to the public for information and comments in at least two leading dailies of national circulation, then, after approval by the Unit, they will be published in the Kenya Gazette.
- Local authorities to adopt a uniform code of business licensing bylaws.
- In practice now local authorities use bylaws to reintroduce licenses which were intended to be eliminated by the single business permit. To ensure that the principles of the introduction of the single business permit are adhered to there is to be established a business licensing code to cover the situation. This code will apply in mandatory terms for those local authorities who have not conformed to the new situation after the expiry of a transitional period ending 30^th June, 2007 because of two reasons:
  - The Unit may not have adequate administrative capacity to handle all applications by then; and
  - Some local authorities might have difficulties of capacity to conform.
  - Introduce safeguards against arbitrary arrest relating to business licensing offenses.
  - Arrests of businesses are taking place at inconvenient times, such as Friday afternoon before the weekend. Businesses complain that this is designed to create maximum inconvenience for businesspersons and is a means to generate bribes. No public interest is served by such draconian and non-justifiable action.
  - Where enforcement is necessary, it should be carried out in a humane way and a clear procedure should be worked out in consultation with the business organisations, and strictly adhered to. This includes a requirement that all business-licensing related offences would be enforced between Mondays and Wednesdays unless the following day is a public holiday and are subject to arrest warrants issued by a court of law upon service of the warrant request form on the businessperson or enterprise.
  - Business offences are bailable and the enforcers are to be instructed to issue cash bail receipts within a limit of KShs.500 regardless of the offence.
  - The impact of the following recommendations regarding the Single Business Permit will be increased competition, improved quality services, improved productivity, sustainable growth and development of businesses, increased employment opportunities as well as improved quality and standards of living for the people of Kenya in response to an improved business environment as recommended by existing private sector development studies, including the World Bank Report on Growth and Competitiveness[3].
  - The recommendations below are the informed decisions of the Committee based on detailed analysis of sources and extensive consultations and agreements with the Ministry of Local Government, representatives from Local Government and representatives from the business community. The Committee has also taken into consideration the recent report by Robert Chutha “Policy Review of the Single Business Permit” (May 2006), which was submitted to and accepted by the Ministry of Local Government.
  - The main recommendations are (1) continue to simplify the SBP in the short and medium term (immediately to 5 years), and (2) in the long term replace it with a tax-based system for local revenue generation as well as necessary modifications to the transfer system.

Table 3: Summary table of recommendations:

	Recommendation	Timeframe
1	Eliminate the categories in the SBP on transport, distribution of goods by manufacturers or their agents.	ST
2	Eliminate user charge for fire extinguisher.	ST
3	Simplify and codify the application form for the SBP.	ST
4	Eliminate bands 1, 2, 3, 4, 15 & 16.	ST
5	Retain the other bands: 5, 6, 7, 8, 9, 10, 11, 12.	ST
6	Group the bands into four classes of councils:Class A: Cities: bands 12, 13, 14.Class B: Municipalities: bands 9, 10, 11. Class C: Towns: bands 7, 8. Class D: Counties: bands 5, 6.	ST
7	Local authorities are at liberty to choose a band allocated to their class.	ST
8	Local authorities may choose a lower band to encourage the establishment and expansion of enterprises within their jurisdiction.	ST
9	Local authorities are not permitted to choose a band that is above the bands allocated to their class.	ST
10	Local authorities who have bands above their class are required to revert to the bands allocated to their class by December 31, 2007.	ST
11	Local authorities are to choose their bands in consultation with the local business community. One mandatory mechanism is the publication, in a leading newspaper within the jurisdiction, of the proposed band and the consequences to businesses of the proposed band, affording them an opportunity to provide comments. Another mandatory mechanism is a consultative forum with representatives of the local business community and other stakeholders. The central government review bodies (MoLG, Business Regulation Reform Unit) will not accept the proposed legislation from the local authorities without documentation that these consultative mechanisms have been utilised.	ST
12	A local authority is bound by its choice of band and must operate within the parameters of that band.	ST
13	Moneys paid by professionals to central government to be accounted to local authorities (eliminate this category from the SBP).	ST
14	Amend Section 165 of the Local Government Act limit grounds of refusal to health, safety, and environment.	ST
15	Amend Section 148 and Section 201 of the Local Government Act to subject discretionary powers to enact by-laws to Unit as well as MoLG.	ST
16	Publish business licenses and bylaws before their coming into force.	ST
17	Local authorities to adopt a uniform code of business licensing bylaws.	ST
18	Introduce safeguards against arbitrary arrest relating to business licensing offenses.	ST
19	The SBP should have a national application.	MT
20	There should be no licensing of branches.	MT
21	Government abolishes the SBP and compensates loss of revenue to LAs through increased LATF	MT-LT
22	Alternatively, in the long-term the SBP is replaced with a local business tax collected by KRA and accounted to respective local authorities.	LT

ST: Short term (immediately to 2 years)
MT: Medium term (2-5 years)
LT: Long term (5-10 years)
Local authority licenses
2.33          The licenses that were identified as having an extremely high impact on businesses are the single business permit, and the local authority advertising licenses (motor vehicle branding (affecting distributors of products)), branding of business walls, putting company name on company premises, banners on the business’ own private property, advertising on bus shelters, signs showing direction to the business on the street or off-building, neon-lights and billboard advertising.
Solid waste management
2.34          Solid waste management is imposed under local authority bylaws. All the solid waste management licenses are to be simplified by consolidation into a single license and all fees reduced to a standard KShs.100.
2.35          However, the fee should be paid on guarantee by the local authority to provide the solid waste management service. In the longer term, a better system will need to be in place for waste management.
Advertisement licenses
2.36          Advertisement licenses identified by the private sector as most annoying are advertisement on bus shelter, putting company name on company premises, directional signs (company name on the street), neon lights, banners on private property, mobile advertisements (vehicle branding license), wall painting adverts on permanent premises (wall branding) and advertisement on billboards.
2.37          Advertisement licenses are not used in other jurisdictions since it is not practical for government officials to issue a license for each proposed advertisement, and it may open opportunities for unequal application of rules and corruption. Instead, reliance is placed on zoning and standards.
2.38          All local authority advertising licenses (with the exception of billboard licenses) should be eliminated immediately. They are replaced by standards to achieve law and order contained in a business licensing code under the Local Government Act. Local authorities are not to publish by-laws which are outside this code.
Billboards
2.39          Billboards are to be controlled by the business licensing code under the Local Government Act. All remaining local authority licenses are consolidated into the single business permit.
Food handlers’ certificate
2.40          The food handlers license is proposed to be simplified. Local authorities and district hospitals do not have sufficient capacity for food handlers’ certification.
2.41          Private sector businesses have better facilities and are more concerned about ensuring good standards for health in their premises. Medical practitioners registered with the Medical Practitioners & Dentists Board will now be permitted to issue food handlers’ certificates.
Fire extinguishers (a type of user charge)
2.42          The requirements to inspect fire extinguishers by local authorities have been abused. The category of user charges in the single business permit is proposed to be deleted.
2.43          Inspections of fire safety – and hence its specific components such as conformity of fire extinguishers to their purpose – must be viewed as a public service provided by the local authority to the business community and the general public.
2.44          The elimination of the “user charge” for the fire extinguisher must serve as a precedent for the elimination of all other licenses, user charges and inspections (including health inspections, etc.) that should in fact be included within the objectives of the Single Business Permit.
Immigration work permits
2.45          At the central government level, businesses identified the immigration work permits, special passes (including visitor’s and dependant’s passes) and registration of aliens as annoying. This presented the Committee with the challenge of balancing the legitimate interests of businesses while at the same time safeguarding national security.
2.46          Entry permits classes A and H are proposed for simplification by the creation of an interim 6-month permit.
2.47          The registration of aliens, special pass, visitor’s pass and dependant’s pass for expatriate employees or investors, which are proposed to be deleted.
Transport Licensing Board (TLB) licenses
2.48          The private sector also took issue with the Transport Licensing Board (TLB) licenses. These should be consolidated into the public service vehicle license.
Environmental clearances
2.49          Many businesses have complained about the administration of the Environmental Coordination and Management Act. This is a matter which requires the intervention of the State to ensure that the implementation of the Act does not adversely affect businesses.
2.50          The National Environmental Management Authority is applying the Act to all projects without exception. In the meantime, it is recommended that the act be simplified by publishing standards for compliance with environmental requirements.
2.51          Only projects with high risk are to be subjected to the rigorous requirements of the license. Applicants to submit only one copy of the project and project study report. The license fee should be reduced to a fixed sum of KShs.1,000, adequate to cover operational costs.
Warehousing licenses
2.52          The Commissioner of Customs & Excise has a wide discretion to issue, suspend or renew licenses. This licence should be simplified to minimise the discretion given to the Commissioner to issue, suspend or renew licenses. The fee should also be fixed on consultation with businesses. This will lead to expansion of businesses.
2.53          A manufacturing company must have a warehouse as part of its operation. Any charge for such warehouse should be part of SBP. Therefore, the Local Government Act should be amended to exclude manufacturing activities from the requirement to obtain a separate single business permit.
Tourism enterprise licenses
2.54          The relevant licenses under this category are those which relate to tourism enterprise licenses for game ranches and safari outfitters including shopkeepers, stallholders and any other person offering garments of souvenir value for sale to tourists as a substantial part of their business. These are due for elimination.
Road service license
2.55          The license imposes a high cost of doing business not justified by the policy goal as the public service license also serves the same goal and before the vehicle can be used on the road both licenses must be obtained.
2.56          The license is not simple for businesses as the license is a duplication of the public service license apart from the conditions that may be imposed by TLB for the road service license. Therefore, there is duplication in the policy goal.
2.57          Businesses complain that the duplication and lack of real control for complying with standards encourages opportunities for bribery.

The fee collected for the license depends on the passenger capacity of the vehicle:
- For vehicles with a passenger capacity of 5 up to 7-KShs.1,500;
- For vehicles with a passenger capacity of 8 up to 18-KShs.2,000;
- For vehicles with a passenger capacity of 19 up to 25-KShs.2,500;
- For vehicles with a passenger capacity of over 26-KShs.3,000;
- For buses with standing capacity-KShs.3,000.
- Application fee is KShs.625.
- The license is valid for one year.
- The application fee of KShs.625 is not justified by costs. Application fees for licenses should cover only costs of administering the license but not for licensing authorities to make profits.

2.58          Service pickups and vans used by private businesses are also subject to this TLB license while such vehicles are mainly used to facilitate the movement of goods and services by businesses. This license is not business friendly.
2.59          It is proposed to simplify this license by amalgamating it with the public service vehicle license, while the license fee should only cover the costs of administration of the license.
2.60          Since service pickups and vans used by private businesses are not passenger service vehicles, there is no reason why they should be subjected to the TLB license.
2.61          In order to reduce the cost to businesses in complying with this license, and since these vehicles are used to facilitate the movement of goods and services by businesses, the amalgamated license should exclude the service pickups and vans used by private businesses.
Industrial registration, factories and liquor licenses
2.62          The other concerns of businesses were addressed under the Licensing Laws (Repeals and Amendment) Act, 2006. They include the industrial registration certificate under the Industrial Registration Act, certificate of registration of an existing factory as well as that of new factory and liquor licenses under the Liquor Licensing Act.

Local Government Licenses, Fees and Charges

2.63          As indicated in the foregoing sections of this report, Local Government licenses, fees and charges have been identified as significant barriers to investment in Kenya notwithstanding Central Government licenses.
2.64          The Single Business Permit was introduced by the Central Government in consultation with local authorities and businesses since 2000 so as to replace the then existing multiple business licenses. While the Single Business Permit imposes high charges and fees, it did not replace the multiple business licenses.
2.65          The Central Government did not put a stop to the multiple business licensing crisis. No legislative safeguards were enacted.
2.66          While business continue to face the high charges imposed under the Single Business Permit, they are also exposed to other charges and fees, some of them under the disguise of user fees or charges, while in reality they are license fees that should have been consolidated into the Single Business Permit.
2.67          Some of the user fees and charges should not be levied as services should be part of the public services which local authorities should provide businesses in return of the enormous Single Business Permit fees.
2.68          Local revenue sources planned for 2005/6 were KShs.9.7 billion, which is only 3% of total Government tax revenue planned for the same period (KShs.285 billion).
2.69          The Committee consulted local authorities on licenses, charges and fees. The local authorities appointed a team of 8 representatives that was ably coordinated by the Local Government Reform Program. The team of 8 argues that any revenues lost as a result of de-regulation (read regulatory guillotine) should be compensated for through increased revenues from other sources.
2.70          The team of 8 concurs with the recommendations on local government licensing contained in this report.
Cesses
2.71          A cess is a tax on a producer, normally of agricultural, forestry or fishery products. Many county councils are reliant on this as a source of income as they do not have adequate numbers of business people to make Single Business Permit a major source. This primary production cess is not a business license and should be continued.
2.72          However, local authorities are known to put up barriers on roads and to charge additional cess on transportation of agricultural, forestry, and fishery products as well as produce of other description. This transportation cess is a business licence and it is proposed to eliminate as it introduces duplication in cess and is, unnecessary.
2.73          Furthermore, there are cesses charged by urban councils at markets and are in fact taxes on the market traders. These market cesses should be eliminated as they should not be charged because the operators pay Single Business Permit to trade and market fees for the use of the council market facilities.
Licenses
2.74          The local authorities team of 8 agreed with the Committee’s recommendation to eliminate 15 absolutely. These licenses are the licenses under the Local Authority Service Charge Act, deleting transportation section in the single business permit, reforms to the single business permit generally, travelling wholesaler’s license, license of halls (music halls, public halls, concert rooms, public billiard), neon light license, registration of cowsheds, registration of dairy men, plumbers license, drain layers license, license of ice-cream makers and vendors, license for milk purveyors, registration of dairy premises and registration of milk shops.
2.75          Elimination of these licenses and the safeguards below will have a significant impact on doing business in Kenya even using the Doing Business benchmark of the procedures for building a warehouse. These improvements should continue to strengthen Kenya’s competitiveness in the World.
2.76          The team of 8 agreed that the billboard license on private properties should not be licensed, only if it is situated on public property.
2.77          The Committee still strongly recommends that the registration of schools, normally carried out by the Central Government through the Ministry of Education should not be duplicated by local authorities. If Government wishes the local authorities to undertake the exercise, then Government should not duplicate it.
2.78          Other safeguards in local authority licensing are:

Amend Section 165 of the Local Government Act limit grounds of refusal to health, safety, and environment.
To limit the grounds upon which grant of license can be refused on the ground of health, safety, and environment. This section provides unnecessary and arbitrary powers that deny the opportunity to do business. The power to refuse to grant a business license should be based on safety, health and environment.
Amend Section 148 and Section 201 of the Local Government Act to subject discretionary powers to enact by-laws to Unit as well as MoLG.
It is necessary to subject the discretionary powers of local authorities to enact by-laws to not only the MoLG but also the Business Regulatory Reform Unit, which will use internationally accepted criteria and principles to ensure that low quality business licenses are not enacted. This will be done in conjunction with the existing review mechanism of the Ministry of Local Government. This is necessary because notwithstanding the power of local authorities to license businesses through the single business permit, they have a myriad of other business licenses which have been secretly adopted on the resolution of council and approval by the Minister. Most of them have not been published in the Kenya Gazette and are actually not available for inspection by the public or even by the business people who are affected by them. This has led to a lot of confusion and misunderstanding amongst the private sector while at the same time creating rampant opportunities of corruption for the licensing and enforcement officers. One result will be that if the by-law is not duly approved and registered, it will not be in force in Kenya.
Publish business licenses and bylaws before their coming into force.
Before business licenses and by-laws are submitted to the Unit they should be published as a notification to the public for information and comments in at least two leading dailies of national circulation, then, after approval by the Unit, they will be published in the Kenya Gazette.
Local authorities to adopt a uniform code of business licensing bylaws.
In practice now local authorities use bylaws to reintroduce licenses which were intended to be eliminated by the single business permit. To ensure that the principles of the introduction of the single business permit are adhered to there is to be established a business licensing code to cover the situation. This code will apply in mandatory terms for those local authorities who have not conformed to the new situation after the expiry of a transitional period ending 30^th June, 2007 because of two reasons:
- The Unit may not have adequate administrative capacity to handle all applications by then; and
- Some local authorities might have difficulties of capacity to conform.
- Introduce safeguards against arbitrary arrest relating to business licensing offenses.
- Arrests of businesses are taking place at inconvenient times, such as Friday afternoon before the weekend. Businesses complain that this is designed to create maximum inconvenience for businesspersons and is a means to generate bribes. No public interest is served by such draconian and non-justifiable action.
- Where enforcement is necessary, it should be carried out in a humane way and a clear procedure should be worked out in consultation with the business organisations, and strictly adhered to. This includes a requirement that all business-licensing related offences would be enforced between Mondays and Wednesdays unless the following day is a public holiday and are subject to arrest warrants issued by a court of law upon service of the warrant request form on the businessperson or enterprise.
- Business offences are bailable and the enforcers are to be instructed to issue cash bail receipts within a limit of KShs.500 regardless of the offence.

Inspection
2.79          These are 23 in number. It is proposed to eliminate health inspectorate licenses, water tests, milk tests, other foods tests.
2.80          Fire section licenses are retained.
2.81          Building works and C.D.C. section are proposed to simplify by reducing fees to cut down on costs.
Fines and penalties
2.82          Fines and penalties for illegal signs and barriers and charges for collection of illegal signboards as well as penalty for non-payment of advertisement fees are eliminated.
2.83          Chain barriers removal charges are simplified by reducing the fees from Shs.3,000 to Shs.1,000. Clamping charges are reduced to Shs.200 from Shs.1,000.
2.84          Chain barriers storage are retained.
Way leaves
2.85          Way leaves are not business licenses; they are the purchase of a right to make use of public property, for which local authority is entitled.
2.86          These are 12 in number and they are retained. They will not remain in the list of licenses.
2.87          Nevertheless, they must be requirements in the Business Licensing Code that the level of fees charged for wayleaves must be agreed with the business community in the normal manner.
Hoardings
2.88          It is agreed by all parties that the cost of hoardings should be absorbed into the building permit cost. Accordingly, all 15 holding licenses are eliminated.
2.89          Elimination of hoarding licenses will have a significant impact on doing business in Kenya because they are procedures in construction. The Doing Business benchmarks the procedures for building a warehouse. These improvements should continue to strengthen Kenya’s competitiveness in the World.
Advertising
2.90          All advertisement licenses are to be eliminated except where such are on public property. All adverts will be regulated by standards on advertisement which are to be followed and observed.
Services
2.91          Conveyance fees and charges are eliminated as such services should be in return of payments under the SBP.
2.92          The various miscellaneous costs shown in the local authority license decision memos are retained.
2.93          Building works section fees and engineering reports are simplified by reducing the fees to KShs.500 and by imposing a time limit of 14 days for responses from the date of the application.
Building Plans
2.94          Building plans, structural plans, and HDD department are simplified by consolidation, reduction of the license fee to KShs.200 and imposition of 14 days time limit for responses.
Waste
2.95          Waste cleansing is retained.
2.96          However, solid waste management fees are simplified by consolidation into a single license and fees reduced to KShs.100.
Vehicles
2.97          Annual licenses for buses, exclusive use, pick ups, booking office and entry fees in bus station are eliminated.
2.98          Matatu parking, parking fees and charges, and annual license for lorries are retained.
2.99          Sales of prints are simplified and consolidated into one category for a fee of not more than KShs.50.
Sundries
2.100      Classification certificate, sports sale of soda, sports usage of public address system, sports vehicle parking, landscape scheme, business encoachment, construction site boards, roadworks, and city planning are eliminated.
2.101      Certificates international booklet, duplicates, and exemptions are retained.
2.102      Engineering survey requirements are put into the Business Licensing Code in the Local Government Act for people to comply with. The licenses are eliminated while local authorities assist people to comply without policing.
2.103      Sales of tender are consolidated and fees reduced to KShs.500.
2.104      The Table below illustrates the reduction in fees for sundries:
Table 4: Reduction of licenses fees in local government sundries

Item	Current fee (KShs.)	Reduced fee (KShs.)
Sales of tender	3,000-7,000	500
Loading bay	60,000	1,000
Way bridge	1,000	100
City engineers	750	100
Sports selling rights	30,000	2,500
Roadside activities	7,500	1,000
Estate and develment section (storm water drainage)	2,500	1,000
Estate and development section, connection fee	2,000	1,000
Estate and development section, plot accesses	2,000	1,000
Development permission	15,000	1,000

2.105 Development permission is also affected by imposing a time limit of 14 days for the local authority to respond under section 33 of the Physical Planning Act.
2.106 Regulations relating to shop hours are eliminated.

Further local government reforms

2.107      Local business permits (or their equivalents) are quite common in other countries. The purpose is often to register the types of businesses operating in a given administrative territory for planning and local tax purposes. These are generally accepted as legitimate purposes for such permits.
2.108      A common problem in many places is whether the local business permit will be recognized by other municipalities. If the local business permit is in effect the local part of a nationwide business registration system, the registration should be recognized nationwide, ideally through a centralized database.
2.109      If a centralized database is not feasible, then good practice suggests that the original certificate (or certified extract) issued in one municipality should be recognized in other municipalities. But if the purpose of the local business permit is only for local statistical purposes or for engaging in trade in a given administrative territory, then best international practice suggests that this should be a notification regime: the new business simply notifies the local authorities about its taking up business in the territory.
2.110      It is generally viewed not to be a good practice to use local business permits to generate revenue. A better practice is modifying/improving the tax system for revenue-generating purposes.
Experiences in Mexico
2.111      Mexico has tried two types of approaches to improve regulation at state (and municipal level):

Top down: Benchmarking and exposure through business associations:
Bottom up: a contract between the national government and municipalities to adhere to a new simplified ‘doing business’ system. This is the basis of the proposed business licensing code under the Local Government Act.

Top down scorecards:
2.112      There have been two attempts in Mexico to measure directly and benchmark the regulatory environment in different Mexican states in recent times. In 1996, the Instituto Tecnológico de Estudios Superiores de Monterrey, a private university, published a comparative analysis of the investment friendliness of the states. The study included criteria such as the regulatory environment and the capacity of the judiciary to ensure an adequate rule of law. It stirred much attention and controversy but helped accelerate reforms. Government should undertake a similar study for all local authorities.
2.113      A second benchmarking exercise published in March 1999 by the Mexican Business Council (CCE) compared the actual performance of regulatory environments across the 31 states, based on surveys of officials and businesses. For example, the study benchmarks the states in relation to the quality of their regulatory reform programs, their efficiency in processing licenses and permits for zoning, construction, environment, water, etc. and the time needed to comply with them and will also look at the performance of local courts in dispute resolution. KEPSA and KAM are encourages to take a similar joint approach.
Bottom up reform agreements:
2.114      All state governors consigned individual co-ordination agreements containing commitments to implement conceptually similar regulatory reform programs. These non binding agreements have, in practice, formed the basis of a considerable program of reform activity at sub-national levels in Mexico.

New licenses
2.115      These are the licenses which the Committee identified at the conclusion of phase II and were retaining pending further review. The most salient of them and their relevant decisions are discussed below.
Certificate of approved enterprise
2.116      The certificate of approved enterprise is issued under the Foreign Investments Protection Act (Cap. 518, section 3). It contains a guarantee against expropriation of foreign investment in addition to the guarantee already contained in the Constitution of Kenya. The certificate is not mandatory and its retention will not affect foreign investors as it is only available on a voluntary basis to those who wish to obtain the additional comfort. It is recommended to be retained.
Registration of companies
2.117      Reservation of name under section 19 of the Companies Act.

The license is not business friendly because it takes some time to acquire it. The current procedures are inadequate in respect of the quality of the search procedure, the lack of a proper system for reservation of a name, and the time taken to perform the check and advise the applicant whether the name is available and has been “reserved”.
The applicant is required to submit a written application; this is received at the counter with the relevant fee of KShs.100 for each name sought. A receipt is issued. In the evening, the day’s applications are batched and passed to another officer for checking. This check involves separate computer searches on the index of company names and the index of business names for any identical names and a check based on intuition and experience regarding unacceptability for other reasons.
The practice is that the registrar marks against the applicant’s letter: a tick means the name is available while a cross means that the application is declined. In practice, reservation of names takes between 2-3 days. It is unlikely to collect the result on Day1.
Although the applicant is only required to send a simple letter to the Registrar to request the reservation, international best practice demonstrates that the information can be available instantaneously on-line and is an integral part of the entire process of company registration.
Arising out of discussions between the Committee and experts engaged by the Registrar-General on the Project, Kenya-Reform of the Legal and Institutional Framework for Asset Financing and stakeholers, it is recommended to eliminate reservation of name fees. The separate indexes for company and business names should be merged in a single database, which should also include reserved names. The computer search facility should check any proposed name against the merged index, including names currently reserved, and also against a list of “sensitive” words. A computer terminal should be situated at the counter. The counter clerk should have sufficient status, experience and training to deal with applications. Applications should be dealt with immediately at the counter. A successful application should automatically result in the proposed name being noted on the database as having been reserved for 30 days (the standard period for Companies Act purposes). The result of the search should be conveyed in a document printed automatically from the computer system, noting a reservation number. These changes do not require any changes to legislation and only minimal changes to existing computer systems.
In the medium term, there is scope for providing a name-checking facility via the Registry’s website (part of the State Law Office site at www.attorney-general.go.ke). This could include a name reservation facility, thus making it unnecessary for applicants to attend personally at the Registry in order to reserve a name.
Impose a time limit of 1 day to clear names.

2.118 Stamp duties under the Stamp Duty Act

Capital duty (statement of nominal capital) and stamp duties on incorporation (memorandum and articles of association) are proposed to be eliminated as discussed below under the following title on certificate of incorporation.

Certificate of incorporation of companies under the Companies Act
2.119      The license is not business friendly because of the long periods of delay (21 days), and without the certificate the business cannot become legally established and it cannot start operations. It is necessary because the concept of corporate personality enhances business efficacy.
2.120      The procedures to be followed as well as the documents to be registered before the grant of a certificate of incorporation are onerous. They have to be prepared by an Advocate, thereafter the Advocate must sign a declaration of compliance; subscribers are also required in practice though not in law to submit a list of directors and secretary and also a notice of the situation of the registered office of the Company.
2.121      The procedures also required subscribers to get a statement of nominal capital stamped together with the memorandum and articles of association at the Ministry of Lands in Ardhi House, Nairobi, before submitting to the Registrar of Companies.
2.122      On receipt the Registrar wishes to examine these documents and in many cases returns them even if on the face of it they are complete. Members of the Committee where informed of a recent case (January 2007) where the Registrar of Companies purported to examine legally valid documents and returned them requiring additional rubber stamps as witnesses while the document had already been sufficiently stamped with xerography certificate as required under the Companies Regulations.
2.123      The Registrar is known to purport to examine contents of the memorandum and articles of association while this is the responsibility of the Advocate Incorporating, thereby wasting valuable investment time, creating delays and increasing red-tape, opening up opportunities of corruption and increasing the costs of business entry into Kenya.
2.124      The time and cost associated with starting a new business are seen as a key indicator of the investment climate and business environment. Current procedures require the applicant to:

Apply at the Companies Registry for a name search (with a fee of KShs.100) with theoretical reservation of name (though in practice nothing is done to record the name as being “reserved”;
Collect result 2 days later;
Prepare memorandum and articles, statement of nominal capital (under the Stamp Duty Act) plus Forms 201 (registered office), 203 (directors and secretary), and 208 (declaration of compliance);
Present statement of nominal capital at Lands Office for assessment of stamp duty and receive Form SD1; present Form SD1 at bank and pay fee;
Return to Lands Office for stamping of Forms;
Collect Forms from the Lands Office upon stamping;
Present documents at Companies Registry for checking;
Collect the documents;
If in order, submit to cashier with fees (KShs.2,200 incorporation fee – more if capital is over KShs.100,000 – plus KShs.200 each for forms 201, 203 and 208);
If definite, amend as necessary and re-present;
Return as advised by cashier to collect certificate of incorporation and stamped memorandum and articles;
Apply at Kenya Revenue Authority for tax ID.

2.125      According to a World Bank survey of private sector users of registration services published in the Doing Business 2007 Report, it takes 54 days and costs US$245 to start business in Kenya as a limited company. While there may be some debate about the precise figures, the clear indication is that there is scope for reduction in the timescales and costs.
2.126      There are currently many separate fees associated with registration. The registration fee is geared to the Company’s share capital and there is a fee attached to each form delivered for registration.
2.127      This complicates the procedures, with the registration processes being largely fee driven. The large number of cash transactions also results in problems of collection and accounting, with difficulties reconciling receipts with the volume of transactions. In effect, it encourages corruption.
Table: Current fees for incorporation

	KShs.
Request for approval/reservation of name	100
Form 201 (registered office)	200
Form 203 (directors and secretaries)	200
Form 208 (declaration of compliance)	200
Memorandum and articles (company limited by shares)Nominal capital up to KShs.100,000Then per KShs.20,000 Up to a maximum of	2,200120 60,000
Memorandum and articles (company limited by guarantee)Up to 20 members21 to 100 members Over 100 members	1,5006,000 See Gazette Notice

2.128      There are currently two forms of duty relating to incorporation: capital duty levied according to the company’s proposed share capital and stamp duty on memorandum and articles of association. Capital duty on incorporation amounts to a tax on investment. It does not make economic sense to have such a disincentive for people to put money into new business. Rather, new businesses should be encouraged and Government would gain by taxing them on their eventual profits. The procedures associated with the assessment and collections of capital duty and stamp duty have a significant impact on the time and effort involved in starting a business.
2.129      Capital duty and stamp duty on incorporations should be abolished. The January 2007 workshop organised by experts engaged by the Registrar-General on the Project, Kenya-Reform of the Legal and Institutional Framework for Asset Financing proposed that the issue should be implemented through the report of this Guillotine Committee as a matter of urgency so that relevant provisions amending the Stamp Duty Act accordingly may be included in the next Finance Bill.
2.130      The procedures for examination of incorporation documents should be revised to a very limited degree. This should be limited to signatures only. It should be done on the spot, to avoid delays and inefficiency as well as corruption.
2.131      There should be a single fee for incorporation and an annual return fee. Best international practice indicates that these should be set at a level sufficient to recover administrative costs but that the Registry should not be making a profit. The Committee assesses this at KShs.1,000 for all the procedures for incorporation until the certificate of incorporation is issue and a uniform fee of Shs.50 for making all annual returns, regardless of the type or size of the company.
2.132      The incorporation fee should be flat-rate, KShs.1,000 inclusive of the name reservation fee. This reflects the costs involved, which do not vary according to the company’s share capital.
2.133      Collection of registration fees should be formally delegated to KRA who have entered into arrangements with banks to handle payments.
2.134      Impose a target time limit of 3 days for issuing a certificate of incorporation.
2.135      The various forms required for incorporation should be replaced by a single one-page form, this excludes the memorandum and articles of association but includes Forms 201, 203 and 208 (stamp duty form is eliminated if capital duty and stamp duty on incorporations is eliminated).
2.136      The authorisation of the incorporation should generate an immediate notification to the KRA system, which should respond with the issue of a tax identity. This could be printed on the incorporation certificate or other notification.
2.137      These recommendations extend and apply to the procedures for registration of company debentures, charges and mortgages. The only differences are that the time limit for issue of certificates of debentures, charges and mortgages is 2 days, the fees are fixed at Shs.500, and there is no room for discretion such as it exists at the moment where the Companies Registry requires the Bank to submit the relevant Company returns.
2.138      Returns of Companies are also simplified into a one single page form regardless of the type of return (this includes the complex annual returns). This will increase compliance. The fee for filing an annual return is Shs.50. This applies to all other returns: one single page form and payment of Shs.50.
2.139      The recommendations on the issue of certificates of incorporation also extend and apply to the issue of a certificate of compliance under Part X of the Companies Act to a foreign company which establishes a branch in Kenya (without incorporating a local subsidiary). The time limit is 3 days, the fee is Shs.1,000 and there is created a one single page form for meeting all requirements under Part X of the Companies Act.
License to transact foreign exchange business
2.140      The license to transact in foreign exchange provided for under the Central Bank of Kenya Act, Cap. 491, Section 33B. The problem with the license is that it requires collosal application and license fees.
2.141      Branches are required to be licensed separated from the bank or forex bureaux. It is proposed to simplify this license by reducing the application fees from Shs.5,000 to Shs.500 and to reduce the license fees from the current range of KShs.50,000-KShs.75,000 to KShs.5,000 for forex bureaux and KShs.10,000 for banks while cancelling the license fees for branches as follows:

	By a specified bank	By a branch of a specified bank	By a foreign exchange bureau	By a branch of a foreign exchange bureau
Application fees (KShs.)	500	0	500	0
License fees (KShs.)	10,000	0	5,000	0

Restrictive Trade Practices, Monopolies and Price Control Act
2.142      The Restrictive Trade Practices, Monopolies and Price Control Act (Cap. 504) provides for five licenses namely certificate for the maximum price that has been fixed for any whole sale or retail sale of any price-regulated goods, certificate for what constitutes a wholesale or retail sale, or what is a wholesale or retail quantity, certificate for the precise amount of the overcharge invoiced in any transaction, subject to proof that such transaction has constituted an offence involving over-charge, certificate for any exemption or permission which may be given under this Act by the Commissioner has or has not been given, and certificate for the maximum service charge that has been fixed for any price-controlled service.
2.143      These licenses in the form of certificates are creating confusion among businesses on the effect of the declared Government position on liberalization in a market economy. Prices should be determined by the market forces of demand and supply. The licenses are, accordingly, proposed for elimination.
Explosives Act
2.144      Explosives licenses under the Explosives Act (Cap. 115) are required to maintain national safety. Accordingly, there is no recommendation to eliminate them. Rather, it is recommended that they are simplified by consolidation so as to achieve the policy safety objectives at a lower cost to businesses.
Merchant Shipping Act
2.145      Licenses under the Merchant Shipping Act (Cap. 389) are retained except the provisional certificate for registration of ships, which it is proposed to simplify by reducing the various fees to a one-standard and consolidated fee of KShs.200; and the shipping lines approval certificate where it is proposed to simplify by reducing the fee charged from US$2,500 to US$500.

Licenses Not Eliminated in Phase II
2.146      These are the licenses which the Committee recommended for elimination at the conclusion of phase II and which the Minister for Finance did not eliminate. The Committee took time to study the previous recommendations and the decision memos have accordingly been revised taking into account the new prevailing circumstances and international best practice. The most salient of them and their relevant decisions are discussed below.
Tourism licenses under the Tourist Industry Licensing Act
2.147      None of the tourism licenses which fall under the Tourist Industry Licensing Act (Cap. 381) is for safety, health or environment. Their goal is revenue collection. Operators are also required to submit information on their age, country of birth and present nationality which is not practical. They are also required to submit information about whether they are expecting tourists from abroad from the date of application and to give names and addresses of all the banks the enterprise deposits money. The extent of information required discourages entrepreneurs as they are unnecessarily required to disclose sensitive investment information and secrets.
2.148      The licenses is duplicated because operators are required to obtain an occupational license from local authorities.
2.149      Although Kenya is not unusual among Sub-saharan countries in having so many tourism licenses, tourism licenses are not good practice when used solely for revenue gains and when other means can be used to protect the consumer (the tourist). These include industry self-regulation or coverage by other regulations for safety, health and environmental concerns and these already exist in Kenya. The duplication is, therefore, unnecessary.
2.150      The tourism licenses have been noted as an administrative barrier to investment in Kenya through a FIAS study and also through a World Bank growth and competitiveness study and also various studies commissioned by Government and undertaken by the Government think-tank, KIPPRA.
2.151      The amount of the fees from regulated tourist enterprises during the financial year 2003/2004 was KShs.9,606,300.
2.152      It is proposed to eliminate all the tourism licenses which had been recommended for elimination in phase II. The detailed revised decision memos in respect of each of the licenses appears in the decision memos section of this report covering licenses identified for elimination and not eliminated. The licenses should be eliminated as operators should be industry self-regulated.
2.153      While the industry develops into self-regulation, Government should set up standards for the industry, which should be followed by all operators in the industry. This will spur self-regulation.
2.154      Although Kenya is not unusual among Sub-saharan countries in having so many tourism licenses, tourism licenses are not good practice when used solely for revenue gains and when other means can be used to protect the consumer (the tourist). These include industry self-regulation or coverage by other regulations for safety, health and environmental concerns and these already exist in Kenya. The duplication is, therefore, unnecessary.
Filming licenses under the Film and Stage Plays Act
2.155      The filming licenses fall under the Film and Stage Plays Act (Cap. 222). Their objectives are not health, safety or environment. None of them is business friendly. The registration and annual renewal fees are high and unjustified. This drives SMEs completely out of the filming sector.
2.156      The filming licenses have been noted as an administrative barrier to investment in Kenya through a FIAS study and also through a World Bank growth and competitiveness study and also various studies commissioned by Government and undertaken by the Government think-tank, KIPPRA.
2.157      During the financial year 2004/05, a total of KShs.571,640 was collected as revenue from licenses under Film and Stage Plays Act.
2.158      Accordingly, the licenses should be eliminated because they are unnecessary. Instead there should be established standards for agents to comply with and in default sanctions are applied.
2.159      The licenses act as an unnecessary hindrance to businesses including SMEs and does not serve any useful purpose. They increase the cost of doing business in Kenya unnecessarily. KIPPRA and FIAS have also identified these licenses as unnecessary and long overdue for elimination.
Wildlife (Conservation and Management) Act
2.160      One of the licenses of concern under the Wildlife (Conservation and Management) Act is the authorisation to make a film. It is to be eliminated because the purpose of the license, to protect flora and fauna in the National Parks, can be achieved through straightforward rules of conduct which can be issued by the management of various parks. The license has been also been noted as an administrative barrier to investment in Kenya through a Foreign Investment Advisory (FIAS) study and also through a World Bank growth and competitiveness study and the Government think-tank, KIPPRA.
2.161      The other license under this Act is the consent of Minister to prospect and mine although this is already regulated under the Environmental Management and Co-ordination Act and the Mining Act. The consent is issued after the Minister consults with the Minister of Environment. This is to protect the environment and the natural fauna and flora. It is proposed to eliminate the consent. This is because the license unnecessarily duplicates the provision of and the requirements under the National Environment Management and Co-ordination Act and the Mining Act.
Adhesive revenue stamps under the Stamp Duty Act
2.162      The requirements to affix revenue stamps on receipts under the Stamp Duty Act (Cap. 480) are not business friendly because it causes a waste of time when sticking especially if one has to stick many stamps. Furthermore, the licking and sticking of revenue stamps is unhealthy. It is also necessary for an enterprise to queue for the revenue stamps in the Kenya Revenue Authority or the Ministry of Lands in order to obtain them.
2.163      Businessmen have also to obtain the stamps in large quantities to avoid queuing for a long time when obtaining them. This causes loss of working capital and unnecessarily increases the cost of doing business in Kenya.
2.164      It is recommended to eliminate the provision requiring adhesive revenue stamps under the Stamp Duty Act. Delete section 86 of the Stamp Duty Act because the provision for adhesive revenue stamps on receipts is unnecessary, unfriendly to businesses and the struggle to obtain them, the health risks of affixing them manually.
EIA practising license under the Environmental Management and Coordination Act
2.165      The objective of the license as stated by the National Environmental Management Authority (NEMA) is to vet and approve experts involved in environmental audits or environmental impact assessments. The goal of the license is not environmental protection, health or safety but revenue because these experts are trained and accredited by their core professional bodies.
2.166      It is proposed to eliminate the EIA practising certificate as NEMA does not provide examinations or qualification standards. The experts are already registered and approved by the core professional bodies and the existence of the NEMA practising license is, therefore, an unnecessary duplication consequently unnecessarily increasing the cost of doing business in Kenya.
Weights and Measures Act
2.167      The objective of the repairer’s license under the Weights & Measurers Act (Cap. 513) is to additionally vet those who are qualified and are engaged by industry to repair, assemble or over-haul weighing and measuring instruments in addition to the requirement by the Act that weighing and measuring instruments be inspected by the Director or his appointed agents.
2.168      It is proposed to eliminate because repairs, assemblers and over-haulers of weighing and measuring instruments do not need to be vetted as they are trained and the Director nevertheless has the reserved power to inspect the instruments regardless of who repairs, assembles or overhauls them.
Motor Vehicle Components and Accessories Act
2.169      Licenses issued under the Motor Vehicle Components and Accessories Act (Cap. 520) are two: the motor vehicle components and accessories license and consent to transfer the license.
2.170      The objective of the license as stated in the Act is to control and regulate to ensure criminals do not deal in motor vehicle components and accessories and any such dealings are brought to book. However, this is already covered under the criminal laws of Kenya; the Penal Code, the Criminal Procedure Code, and the Police Act.
2.171      The license creates unnecessary barriers to trade and restricts the number of dealers in motor vehicle components and accessories, which is inappropriate in a liberalized economy.
2.172      The license has been noted as an administrative barrier to investment in Kenya through a FIAS study and also through a World Bank growth and competitiveness study and also various studies commissioned by Government and undertaken by the Government think-tank, KIPPRA.
2.173      During the financial year 2004/05, a total of KShs.1,247,216 was collected under the Motor Vehicle Components and Accessories Licenses. The regulator did not provide to the Committee the amount collected as revenue on account of this license.
2.174      Accordingly, it is proposed to eliminate. International best practice suggests that there should be no policing of business where criminal regulations exist. Business people must not be required to obtain licenses from the police. Duplication of criminal law under the disguise of licensing is inappropriate and must be eliminated at all costs.
2.175      Criminal dealings in motor vehicle components and accessories are already controlled and regulated under the Penal Code and the Criminal Procedure Code. The Police Act also gives police officers adequate powers to search and arrest. This license is an unnecessary duplication of the controls that are provided for under law. In practice, the provisions are honoured more in breach than in observance due to the cumbersome and unclear provisions both to regulating officials and the businesses which are subject. KIPPRA and FIAS have also identified this as unnecessary and long overdue for elimination.
Scrap Metal Act
2.176      The scrap metal licenses are provided for under the Scrap Metal Act (Cap. 503). The objective of the license was established to control and regulate dealings in scrap metal. The license was introduced during the colonial period and was aimed at controlling the market for scrap metal in order to prevent dealing in stolen scrap metal.
2.177      The Act serves no purpose in Kenya today and the conditions attached to the license are mainly criminal in nature that can be dealt with under the Penal Code (Cap. 63) and the Firearms Act (Cap. 114).
2.178      The licenses have been noted as an administrative barrier to investment in Kenya through a FIAS study and also through a World Bank growth and competitiveness study and also various studies commissioned by Government and undertaken by the Government think-tank, KIPPRA.
2.179      It is, therefore, proposed to eliminate. International best practice suggests that there should be no policing of business where criminal regulations exist. Business people must not be required to obtain licenses from the police. Duplication of criminal law under the disguise of licensing is inappropriate and must be eliminated at all costs.
2.180      Criminal dealings in scrap metal are already controlled and regulated under the Penal Code, the Firearms Act and the Criminal Procedure Code. The Police Act also gives police officers adequate powers to search and arrest. This license is an unnecessary duplication of the controls that are provided for under law. In practice, the provisions are honoured more in breach than in observance due to the cumbersome and unclear provisions both to regulating officials and the businesses which are subject. KIPPRA and FIAS have also identified this as unnecessary and long overdue for elimination.
Transport Licensing Act
2.181      The transport licenses specifically discussed in the decision memos are made under Transport Licensing Act (Cap. 404). They include the public carriers license (“A” license), limited carriers license (“B” license), and the private carriers license (“C” license).
2.182      The goal of these licenses is safety as it a condition that the authorized vehicle is maintained in a fit and serviceable condition although safety issues are already covered by the requirements of motor vehicle inspection.
2.183      Businesses complain that the license imposes high costs on businesses which are not justified by costs especially for small businessmen or farmers who own utility vehicles such as pick-ups. Accordingly the license is not business friendly and is not simple for businessmen. The license is neither simple nor business friendly. In addition, the information the applicant is required to submit to TLB is cumbersome. A separate application is made in respect of each permanent base or centre from which it is intended that the authorized vehicle will normally be used.
2.184      The license fee charged is as follows:

For vehicles under 3048Kg-KShs.1,500;
For vehicles over 3048Kg-KShs.1,500;
Application fee is KShs.625.

2.185      The application fee of KShs.625 is not justified by costs. The application fee for the license should only cover only costs of administering the license but not for licensing authorities to make profits. The regulator did not specify the amount of revenue generated from these three licenses.
2.186      Accordingly, it proposed to eliminate the three licenses. It is an unnecessary duplication. Pickups and other public transport vehicles are already required to be inspected for road-worthiness. This is adequate and it is unnecessary to load other licenses. Elimination of this license will contribute to the exercise of reducing the cost of doing business and red-tap in Kenya.
Agricultural Produce Marketing Act
2.187      The permit for regulated trade is revisited. It is imposed under the Agricultural Produce Marketing Act (Cap. 320). The objective of the permit is to ensure that all regulated produce within that area is sold to the Board or through such agency as the Board may direct although this goal of the permit is invalid in a liberalized market.
2.188      No fee is prescribed.
2.189      It is proposed to eliminate. The permit is eliminated in order permit to allow free movement of agricultural produce. Its existence is inconsistent to the principles of market economy to which Government is committed.
Civil Aviation Act
2.190      A number of civil aviation licenses were identified as illegal and recommended for elimination in phase II, all of which fall under the Civil Aviation Act (Cap. 394). These are re-submitted with additional information and following further consultation.
2.191      They are the flight maintenance engineers license, cabin crew license, flight navigators license, flight engineer’s license and various aviation licenses, pre-licensing procedures, examinations and other procedures.
2.192      The flight maintenance engineers license is illegal as it is not provided for under the Civil Aviation Act. There are other regulations and licenses governing the safety and maintenance of aircrafts under the Civil Aviation Act. This license should, therefore, be eliminated.
2.193      The cabin crew license is redundant as there are adequate safety provisions in the Act. It should also be eliminated.
2.194      The flight navigators license seeks to regulate examination and control of standards of training for flight engineers, clearly not a matter for licensing. In fact, both the industry and the regulator (Directorate of Civil Aviation) agree with this recommendation as it has not been enforced for the last 10 years. The license should be eliminated. Government publishes examination standards. Only those who pass internationally accepted examinations and tests are absorbed into the aircraft industry. Industry must be encouraged to come up with self regulation along the same lines as other professional bodies. This also applies to the flight engineer’s license.
2.195      The other various aircraft licenses, pre-licensing procedures and examinations are not legal. The objective of these various aviation licenses, procedures and examinations are not provided for although they appear to be aimed at ensuring examination and control of standards of training of aircraft technical staff. This is not a matter of licensing. They should be eliminated. Government publishes examination standards. Only those who pass internationally accepted examinations and tests are absorbed into the aircraft industry. Industry must be encouraged to come up with self regulation along the same lines as other professional bodies.
Meat Control Act
2.196      In phase II, we recommended that the permit to clear imports of meat and meat products under the Meat Control Act (Cap. 356) should be eliminated.
2.197      We resubmit this proposal on the grounds that the objective of the permit (to ensure that the meat being imported has been inspected and passed on arrival as fit for human consumption) is already covered by existing rules and regulations for the import permit as well as the clearance at the Customs Department.
Plant Protection Act
2.198      The relevant license under the Plant Protection Act (Cap. 324) is the certificate to import part of a plant, seed, grain or crop from Zanzibar. The objective of import license is to ensure that part of a plant, seed, grain or crop from Zanzibar imported are free from diseases although there is no reason why Zanzibar and not other countries is singled out. Government has power under existing laws and regulations to ban the importation of products, plants, seeds, grains or crops from countries on account of disease control.
2.199      There are in place phytosanitary rules and regulations at the disposal of Government for this purpose. Accordingly, this license is redundant and should be eliminated.
Industrial Alcohol (Possession) Act
2.200      The license in issue under the Industrial Alcohol (Possession) Act (Cap. 119) is the permit to possess industrial alcohol. This license is to be eliminated because it unnecessarily duplicates existing provisions of Kenya law, to wit, the Compounding of Potable Spirits Act and the Methylated Spirits Act and adds to the costs of doing business in Kenya.
Irrigation Act
2.201      The problematic license here is the license to occuping holding under the Irrigation Act (Cap. 347). The aim of the license is to obtain data. It is to be eliminated because the license is outdated and is not, in fact, enforced in practice. It is redundant. Data can easily be obtained under the Statistics Act.
Mining Act
2.202      There five licenses under the Mining Act (Cap. 306) to be considered in this section. These are the mineral export license, the mineral dealer’s license, the protection notice, the certificate of registration of lode location, and the certificate of registration of alluvial location. These licenses should be eliminated because their objectives are covered by existing Government regulations. They unnecessarily add to the costs of doing business in Kenya.

Simplifications
2.203      The Committee took additional time and responsibility to consult further on the licenses to which the Government has committed to simplify by the beginning of the financial year 2007/8 i.e. with effect from 1 July, 2007. The Bill to achieve this noble goal and promise should be published by end of March, 2007.
2.204      Licenses are simplified generally because they are necessary from a health, safety or environment consideration or a mix of the three. Simplification becomes necessary so as to address the concerns of the policy objectives and also to ensure that these concerns are met at lower costs to businesses.
2.205      The various ways in which a license is simplified is by conversion into a notification, amalgamation or consolidation, reducing the target group, reducing the reporting frequency, applying silence is consent rule or by establishing time limits for responses.
2.206      It is important to point out that the original 725 licenses identified by the Committee for simplification in phase II and which the Government wishes to simplify by 1 July, 2007 have now been spreadout across the various decision memos. For example, there are some which are now dealt with under the business priorities, local government (including the single business permit and advertisement licenses) and the remainder are the ones now indicated under the decision memos for simplications. This was achieved in order to avoid confusion.
2.207      In implementing the promise by the Minister for Finance to the business community of simplifying 700+ licenses by 1 July, 2007 then reference must be made not only to the decision memos now shown under simplifications but also for those decision memos appearing in the other categories e.g. business priorities and licenses recommended for elimination and not eliminated.

General observations and comments
Agriculture
2.208      The growth and development of the agricultural sector including horticulture and livestock has also been adversely affected by licensing in Kenya.
2.209      The Committee studies have shown that the agricultural sector is heavily licensed. The agriculture licenses are compounded by peripheral licensing from local authorities.
2.210      The agricultural sector licensing is based primarily on Government controls and not through self-assessment. This is due to lack of properly documented Standards or Codes of practices. The current system in the world is for business to embrace the International standards or Sector-specific Codes of Practices that are accredited by internationally recognised bodies which have traceability to the Governments. However in Kenya the newly created Kenya Accreditation Services (KENAS) approval/nomination of the Board has been pending with the Minister for Industry for the last one year.
2.211      Self assessment against International Standards and Codes of Conduct/Practice puts the onus of proof of conformity on the business and reduces the extent of control by Government. In so doing the businesses are left to do business while the Government sets the policy frameworks.
2.212      Kenya Bureau of Standards (KEBS) has, through the Standards Act, brought in the Standards Levy of 0.2% or Shs.400,000 to most of the agricultural sectors. This levy is now charged to horticulture farmers and coffee producers amongst others. These sectors are not in processing and KEBS do not have any standards for the respective agricultural outputs from these sectors. This levy is seen as purely revenue earning for KEBS. Accordingly, it should be abolished to reduce the cost of doing business in these sectors and also to enable their growth and development.
Environment
2.213      NEMA must be required to ensure that they use investor friendly compliance techniques of encouraging compliance and facilitation without policing investors. They should publish clear standards and requirements on the preservation of the environment which distinguish between operations with a high risk to environment conservation and those with a minimal risk: the standards of compliance must never be the same. NEMA should also stop using lead agencies to issue environmental clearances. The use of lead agencies is clearly contrary to the business licensing principles discussed in this report.
2.214      It is recommended that a wide-ranging review should be completed of the procedures involved in determining land ownership, land use planning, and environmental protection in Kenya, as a whole. This should address the interfaces at all geographical levels and should fully clarify the required process where new developments are contemplated, or in cases of proposed changes to pre-existing developments (which can also trigger a demand for an EIA). Such a review is well outside the scope of the present assignment of the Working Committee, but it is clear that the present confusion relating to overlapping remits and the duplication of licensing and permitting requirements should be clarified.
2.215      It is strongly recommended that a key outcome of this process should be the retention by the NEMA of the powers invested in them through the EMCA for determining the outcomes of EIAs. Without the retention of these powers by the NEMA, coherent environmental protection in Kenya will not be possible. As noted in Section 3.3 of this report, the EIA process is the primary tool used for environmental protection in Kenya at present (in part, because many of the other provisions within the EMCA have not been implemented in full, and subsidiary legislation in other areas is either lacking or insufficient). This tool should under no circumstances be blunted through the dilution of the powers invested in the NEMA through Part VI of the EMCA.
2.216      In very general terms, Kenya may be said to possess quite strong environmental legislation of a framework type, and this extends to a number of other subjects also, including the agricultural sector. However, by comparison to international best practice, three important problems exist in Kenya:
2.217      Subsidiary legislation under the framework laws has been inadequately developed to date, and this constrains the effect of the legislation as a whole. On the environmental side, the only area which has been reasonably well developed through subsidiary legislation is that addressing Environmental Impact Assessments and (as noted above) this is threatened by an uneasy interface between the environmental and land use planning legislation and practices.
2.218      The degree to which any of the legislation is implemented and enforced is generally poor in Kenya. This is partly a function of the paucity of subsidiary legislation referred to above, but also reflects the underdeveloped capacity of some of the national, regional and local entities (extending from the NEMA to the local authorities, in the case of the environmental sector). This problem is by no means restricted to Kenya, and can be seen in different forms in most developing nations and also in some developed countries.
2.219      In Kenya, it is exacerbated by the desire to decentralize powers and responsibilities for some services, for example in water supply and wastewater treatment/disposal.
2.220      Significant overlap exists between the remits of specific institutions in Kenya, and this has largely been created through the legislation. Thus, very few Acts have successfully repealed or modified pre-existing demands, and this is the fundamental reason that the licensing requirements are so complex and duplicative in Kenya. However, the problem extends beyond licensing to the remits of the institutions themselves, and relates also to the proliferation of Ministries and regulatory bodies, with little or no coherent planning as to their precise interfaces in specific areas of regulation.
2.221      These three types of problems can be seen clearly in the interface between the environmental and the agricultural sectors. Indeed, in some cases, the problems extend beyond these two sectors into other areas also, such as public health, occupational health, and trade. The registration and use of pesticides affords a good example of a topic of considerable importance to Kenya (especially given its heavy reliance on agricultural trade), where responsibilities are duplicated in several statutes and also by different agencies.
2.222      There is a need for the clarification of institutional responsibilities in this regard, and for clear and unambiguous statements from the public sector as to where the responsibility lies for specific issues. It may be noted again here that Kenya is not alone in facing problems of this type. Thus, for example, many countries have experienced difficulty in deciding where controls on toxic substances in agricultural products should lie – the choices usually ranging between the environmental, agricultural, public health, and trade-related authorities. If the Kenyan economy is to be allowed to grow (no doubt continuing to involve a heavy reliance on the agricultural sector, at least in the near and medium terms), such interfaces should be clarified as a matter of urgency.
2.223      Rules of Origin are especially important in circumstances where a Free Trade Agreement exists between separate States, as import restrictions on countries outside the Free Trade Agreement can be circumvented in the absence of Rules of Origin.
2.224      Decisions on Rules of Origin per se are generally defined by internationally-accepted rules and are relatively simple in the agricultural sphere, usually relying on the so-called “wholly obtained” principal, who amounts effectively in the case of agricultural products to a demand for the growth/harvesting of the primary product in the country of origin. This becomes somewhat more complex when the primary product is subject to processing or other types of manufacturing-style activities outside the country of origin, but this is generally quite rare, and the rules relating to ‘substantial transformation’ and added value can then be considered. The key issue concerning Rules of Origin in the agricultural sector therefore relates to verification processes that are available to track the products, rather than in-principle decisions on where they originate.
2.225      Studies elsewhere by the Environmental Expert engaged by the Committee have concluded that international standards and approaches should provide the key platform for agricultural trade in developing nations. The primary rationale for this is that the Sanitary and Phytosanitary (SPS) Agreement[4] in particular lays down a basis for international trade in foodstuffs which should apply world-wide. The SPS Agreement cites key international entities and approaches to international trade, including the Codex Alimentarius Commission and the Office International des Epizooties[5], as well as the International Plant Protection Convention (which is relevant to phytosanitary measures in the specific). In certain areas, the extensive documentation produced by the Food and Agriculture Organization is also of considerable utility.
2.226      It is noted here that there is a very strong argument for a reliance by Kenya on the international bodies, standards and approaches as laid down by the SPS Agreement (and indeed, the TBT Agreement as this relates to Genetically Modified Organisms), as this should protect international trade in agricultural products.
2.227      In addition, there are implications of such an approach for protecting national trade in agricultural products, as any attempt to normalize international trade would have knock-on effects internally. Further, there is a strong interface between the agricultural sector and the environmental sector here, in that the internationally-sanctioned approaches take account of potential impacts of toxic substances on the environment (for example).
2.228      It may therefore be concluded that there is a strong rationale for the Kenyan authorities to espouse the international platform provided by the SPS and TBT Agreements, and to resist attempts by any external entities to draw Kenya into trade agreements which do not comply specifically with such platforms. The implications for licensing demands within Kenya are clear (at least in general terms), if such international standards and approaches are to be espoused. This should reduce the unnecessarily high reliance on licensing in the agricultural sector.
2.229      The recommendations on the environment sector are restricted to the consideration of licences (and connected types of permits, approvals, authorizations, etc.) provided for by the primary and subsidiary legislation on the environment, water-related topics, and connected peripheral legislation in Kenya. The licensing requirements have been reviewed in an attempt to streamline the overall demands placed on private sector businesses in Kenya, and it is anticipated that this will contribute to an improvement in the investment climate nationally.
2.230      The requirements under Section 42[1] of the EMCA should be consolidated with those in Section 25 of The Water Act 2002. This will significantly reduce the present duplication between the two statutes, although the NEMA should retain the right to require the completion of EIAs, where relevant.
2.231      The most important requirement concerning the environmental/ land planning interface involves the retention of the powers of the NEMA to require and determine EIAs. These should not be diluted by local authorities, as recommended in this report.
2.232      In relation to this interface, it is once again suggested that the institutional responsibilities should be clarified in detail, and this would assist in removing confusion and duplication of effort. In relation to Rules of Origin, it is suggested that verification is of primary importance. Finally, a strong reliance on international standards and approaches is recommended as the basis for trade in the agricultural sector, with the Sanitary and Phytosanitary Agreement providing the key platform for this.

Imports and exports
2.233      The haphazard manner in which imports and exports of goods are handled in Kenya is a matter of concern to all. There is an export or import permit, license or certificate in nearly each Act of Parliament. They run from sector to sector and if you are exporting or importing goods, you will have difficulties finding out the relevant Government department handling the issue as the requirements are scattering in all laws of Kenya.
2.234      Accordingly, it is strongly recommended that Government immediately addresses this problem by creating a one-stop shop for clearance and permission of exports and imports in order to comply with international standards on traceability and rules of origin. The information obtained in the process will also assist in ensuring that in the event of necessity it is possible to trace the origin of the imported or exported goods.
2.235      The appropriate point for this is under the Standards Act with the supervision of the Kenya Bureau of Standards (KEBS). KEBS Expand the scope of section 4(1) (i) relating to the functions of the Bureau to include testing by KEBS of all locally manufactured and imported commodities to ensure compliance with standards of quality or description and to issue import or export permits on compliance; publish all those standards of quality or description for all eligible commodities to ensure compliance.
2.236      Government should also ensure that KEBS engages investors in a facilitation as opposed to a policing function; the fee should be an amount equal to recovery of actual costs of processing the permits without any profits whatsoever; the period of processing should be on the spot so as to ensure that there are no delays or inefficiencies in compliance with the required formalities which will have been published in the statute.
2.237      Furthermore, the issue of the permits should be handled in an efficient manner. Government should build adequate capacity in KEBS so as to achieve this with effect from 1st January, 2007.
2.238      In the meantime, it is recommended that relevant Government departments with expertise should second skeleton qualified and pro-reform staff to KEBS to ensure there are no delays in clearing permits.
Transport policy
2.239      The Committee’s research and outcome of consultations with the public and private sectors established that there is no clear cut Government policy on transport.
2.240      The Matatu Welfare Association (the leading and vocal association of owners of most providers of road transport in Kenya) have acknowledged the many bottlenecks in acquisition of seven licenses for public service vehicles (PSV) which include, the road service license, motor vehicle inspection certificate, registration of motor vehicles, public carries licenses (A, B & C licenses).
2.241      The hassles in road transport licensing include the long queues to meet the 31st December deadline each year, the requirement of an advance income tax and the fee of Shs.720 per passenger for public service vehicles which must be paid before the PSV licence is issued. In addition, there are hassles caused in the motor vehicle inspection Units because of the rush to meet deadlines, few inspection Units, and generally the manner in which the inspection is conducted. The Association is of the opinion that the inspection Unit be privatised to reduce hassles by making it more efficient.
2.242      The Association has also expressed concern over the car parking license fees which are charged by each local authority regardless of whether someone has paid parking fees in a different local authority which has greatly increased the cost of doing business. It is proposed to introduce one common sticker for all local authorities to avoid multiple payments to the different local authorities one parks a vehicle.
2.243      The Government agencies involved in road transport licensing are the Kenya Revenue Authority (KRA), the Registrar of Motor Vehicles, the Transport Licensing Board (TLB) and the Road Inspection Units.
2.244      The Registrar of Motor Vehicles presented to the Committee’s consultative forum that Department is responsible for collection of revenue from motor vehicle businesses. The Registrar indicated that forthcoming reforms in the road transport sector include the decentralization of the issue of licenses to KRA and creation of road transport licensing centres at KRA offices countrywide. In addition KRA is going through computerization to make the process of issuing licenses more efficient.
2.245      It is recommended that Government fast tracks through the budgetary process the transport industry licensing reforms as well as the immediate formulation and dissemination of a transport policy to include air, road and water transport as a matter of urgency.
2.246      Furthermore, it is necessary to create a one-stop road transport licensing centre where all the road requirements are assessed and a single sticker issued. This assessment will include examination of the motor vehicle for road safety, insurance, assignment of route where it is a public service vehicle and the road license is then issued at that point upon payment of a single fee which is commensurate with a reasonable cost of processing the application.
2.247      In the meantime, all licenses including TLB licenses should be valid for a year from the date of issue: this will reduce congestion at KRA and TLB offices.
2.248      Like the Single Business Permit, transport industry licenses were a matter of concern to most business enterprises across the board going by representations made during the Committee’s consultative forums. Accordingly, the Committee recommends that the reforms observed by the Committee in this sector should be fast-tracked as they will have an impact on businesses across many sectors.
2.249      In fact, the tourism expert recommends that while the annual motor vehicle inspection requirement is maintained for safety purposes, the separate speed governor certification should be consolidated with the vehicle inspection requirement to remove duplicity. This will go a long way in the creation of a single Unit for the issue of transport licenses including those currently under the KRA, Registrar of Motor Vehicles and the TLB so as to reduce the number of stickers from 7 to 1 small sticker which is issued at a small cost to cover processing upon inspection for safety.
Communications
2.250      Service providers in the communications sector have complained of uncertainty and high handedness on the part of the Communications Commission of Kenya (CCK) which is untenable for business operations. Where an operator applies, negotiates licensing conditions and the CCK issues the license, CCK has been reported to change the underlying conditions due to changes of management.
2.251      Changes of licensing conditions or interpretations of the conditions are made which are different from original understanding. This only causes confusion and confrontation between the regulator and the enterprise.
2.252      In one particular case, the new interpretation meant that the operator had to change its business conception so that they were no longer able to provide services to customers or end users. They had to appoint internet service providers to sell the service. This compelled the operator to terminate 10 professional staff and put the future of their business into the trust of their agents who are providing low quality services for high prices without service guarantees.
2.253      The change of conditions and interpretation increased the cost of doing business by some US$300,000 (not anticipated on location in Kenya) and the internet service providers will get their act together to compete with the CCK licensee.
2.254      If Kenya wishes to attract foreign direct investment and also to encourage local entrepreneurs to locate in Kenya (instead of Tanzania or Uganda), it should be realised that there will be competition and the principles of competition must be embedded in all licensing standards and conditions.
2.255      There must be created a level playing ground for all operators regardless of origin, in tandem with international obligations under the World Trade Organisation to which Kenya have voluntarily submitted.
2.256      The creation of a level playing ground goes with the creation of standards and conditions which are clearly published in the law and regulations so as to prevent licensing officers from unilaterally amending licensing standards and conditions. This will create certainty, a pre-condition for any investment (local or foreign).
2.257      A level playing ground is the outcome of liberalisation whereby the regulator abandons policing and embraces positive facilitation. It will create competition leading to more competitive prices and value for money and attraction of more investors. In the context of this industry, it means lower prices for telecommunication services.
2.258      The level of license fees in the communications sector is arguably exorbitant. During the consultative forums, most operators reported that they should be significantly reduced so as to observe the business licensing principle that license fees should be fixed and should reflect only costs for processing and keeping documents while application fees are kept at the bear minimum of recovering the cost of paper.
2.259      The CCK reported during the consultative workshop held on 1st and 2nd February, 2006 at the Kenya School of Monetary Studies that they have made profits from licensing revenues while in fact regulators are not eligible to make profits because such profits are made at the pain of the business enterprise and unnecessarily increase the cost of doing business.
2.260      The CCK said that in the 2005 financial year they collected revenues worth about Shs.1.2 billion and while their budget is about Shs.0.8 billion, their profits were Shs.0.4 billion that year. Regulators who make profits end up engaging in non-core activities such as acquisition and development of land. This tends to distract them from concentrating in regulation and it also makes them to unnecessarily engage in policing business enterprises instead of providing services to assist industry to comply.
2.261      No wonder CCK base license fees on percentages of audited annual gross turnovers of enterprise instead of assessing them based on the costs of processing applications. This imposes a high cost of doing business and when it is added to the Single Business Permit and the Bylaw licenses to which enterprises are subject, it presents a difficult operating environment which is not tenable to business growth and development.
2.262      Telkom Kenya Ltd has to pay 0.5% of its audited annual gross turnover to CCK, in addition in this calendar year 2006 alone it has paid a total of about Shs.5,466,991 towards the purchase of “single” business permits in various local authorities. Notwithstanding this, Telkom is required by local authorities across the country to purchase way leaves, rentals and also meet other user fees and charges. If all local authorities were paid these way leaves, rentals and user fees and charges, the cost exposure to Telkom would be over Shs.140,000,000.
2.263      Kenya must adopt and immediately apply the business principle which requires that a license is valid throughout the territory of the State, liability for licensing obligations lies with the company and not branches. The other principle against duplication must be enforced strictly while regulators must be told to adhere to the new fee levels and to ensure that future appraisals are subject to the principle that application fees are commensurate to the recovery of paper cost while license fees are the minimum required to process applications.
Communicating results
2.264      The media is becoming increasingly interested in the reform as the guillotine proceeds. The Working Committee is increasingly able to capture the attention of the media as a strategic tool. This means that the scheduling of press conferences and issuance of press releases will be an important part of the strategy to keep the guillotine moving in the face of any opposition. Completion of the Working Committee’s work and official handover to the Minister will be a good time for a press conference describing the Committee’s work and summarizing its conclusions.
2.265      Packaging the Bill into the current priorities of Government will be important to the media message. Competitiveness concerns should be emphasized, as well as the Bill’s importance as an anticorruption measure.
2.266      A media campaign must continue as the Business Regulatory Reform Unit and the e-Registry becomes operational, and as the medium-term strategy is developed following the input of this report.
2.267      The communications strategy should stretch beyond the media to inform and gain the support of important stakeholders.
Financial implications
2.268      The actual financial implications of each license are included in the relevant decision memos although regulators did not want to share with the Committee information on the actual amount of revenue collected on account of each license.
2.269      There have been arguments that implementation of the guillotine reforms might lead to loss of jobs. This is not true. Once the license reforms are implemented business activities will increase through new start-ups and expansion of existing businesses. This will create employment. There are some regulators who would become redundant as a result of license reforms. Employees in these regulators will need to be absorbed in Government core functions of service delivery in exchange of taxes paid. Nevertheless, it is not justified to float an unnecessary regulator at the expense of businesses who must pay taxes in any event!
Legal implications
2.270      There are three basic legal texts which have been or are in the process of preparation:

Legal notices to be signed by Ministers or regulators in respect of which only administrative action is required. This applies where specific provisions of an Act of Parliament do not require to be amended.
The Business Regulation Bill, 2007 to create and give legal effect to the Business Regulatory Reform Unit as well as the Electronic Registry;
The Licensing Laws (Repeals and Amendments) Bill, 2007. This bill has a number of activities associated with it:
- It addresses the legal changes which are required to effected Government’s recognition of the business licensing priorities;
- It deals with the new licenses which have been identified since phase II;
- It faces the issue of licenses required to have been implemented in phase II (they were identified as due for elimination either because they were illegal, or unnecessary and also not friendly to businesses);
- Local government licenses, fees and charges and associated reforms; and
- The other licenses (not covered above) and which require simplification.

2.271 Government requires to ensure that these legal texts are activated in order to sustain the momentum of regulatory reform in Kenya and to satisfy the wishes of an expecting business community.

3                  Establishment of an electronic registry
3.1       In the Budget Speech for 2006/2007, the Minister of Finance committed the Government of Kenya to establish an Electronic Consolidated Regulatory Registry for all valid business licenses
3.2       It is part of the Committee’s mandate to propose the design and implementation of the E-Registry.
3.3       FIAS, in support of this work and in continuous dialogue with the Committee, has prepared the interim report “Design and Establishment of an Electronic Register for Business License Requirements and Fees in Kenya”. This is attached as Annex F.
3.4       The Committee endorses the findings and recommendations of the interim report.

4                 Input to a medium term regulatory reform strategy
Introduction and summary
4.1              The 2006-2007 Budget Speech announced the Government’s intention to develop and implement a medium-term regulatory reform strategy, including monitoring the quality of new licenses. The Licensing Committee is charged with providing input to the strategy.
4.2              This part of the report proposes a framework and key components of a regulatory reform strategy. The recommendations and considerations set out below are based on the Committee’s observations throughout its almost two years of operation, including extensive input from FIAS of the World Bank Group.[6]
4.3              The Committee strongly supports the government’s intention to develop a regulatory reform strategy. A regulatory reform strategy is useful means to consolidate, prioritize and implement initiatives aimed at reducing regulatory costs and risks in Kenya. The strategy and its recommendations should be an integral part of the Government’s Private Sector Development Strategy. In line with international best practice, the Committee recommends that the Regulatory Reform Strategy provides an implementation and policy framework for the following topics:

Developing principles of regulatory quality: When to regulate and how?
Establishing transparent and efficient processes for regulatory policy-making: Piloting and adapting a system for Regulatory Impact Assessment (RIA);
Identification and streamlining of high-priority regulatory problems;
Building regulatory reform capacities in ministries and the private sector;
Setting targets for improvements in regulatory quality and performance.

4.4              Within this framework, the actual content and priorities of the strategy should be subject to further preparation and a consultative process within government and with private sector stakeholders in the months to come. The strategy should be endorsed at the highest political level to underline the cross-cutting and high-priority nature of these reforms. The general principles of “good regulation” as well as the core institutions responsible for implementing the regulatory reform strategy should be set out in law (i.e. in the Business Regulation Bill) to emphasize the permanent and public-good nature of high quality business regulation.
Why a regulatory reform strategy?
4.5              Reform of business regulation is notoriously difficult, in Kenya as in the rest of the world. Vested interests in public and private sectors, fears of the consequences of change, and the complexity and uncertainty of reform in dynamic economic and social environments make successful regulatory reform a rare commodity. Isolated and one-off reforms usually do not produce concrete, lasting benefits for the private sector. Reforms aimed at single processes and rules will never catch up with the productive capacities and incentives of governments to create regulations and controls. The issue is clearly a systemic one.
4.6              Some governments do meaningfully reform, and have reaped the fruits of success. Countries that have succeeded in managing a broad reform program over several years – even over several governments — have shown the fastest transitions and the greatest gains in economic development. A medium-term reform strategy sustains the reform, provides a focus and rallying point for reform, and provides a basis for monitoring the reform progress.[7]
4.7              The objective of a regulatory reform strategy is to define clear and operational targets for the improvement of the regulatory business environment and to establish the institutions and processes required to implement the strategy in an efficient, transparent and accountable manner. A regulatory reform strategy must focus on organizing, prioritizing and ensuring the implementation of well-identified major regulatory problems.
4.8              A consolidated and focussed regulatory reform strategy or program is not in any way a guarantee for successful reform. However international experience suggests that successful reforms are often started with a clear and well-designed medium-term reform strategy that has room to evolve over time.
4.9              In Kenya, a regulatory reform strategy and its components must be an integral part of the Private Sector Development Strategy, and must also be coordinated with Programs for governance reform, public sector reforms and anti-corruption.
Key components of a regulatory reform strategy
4.10          This section explores in further details possible main components of a regulatory reform strategy.
1. Principles of regulatory quality

Most regulatory reform strategies (and policies) have a set of “fixed” key principles or standards for regulatory quality. Usually these principles emphasise good governance standards such as transparency, necessity, proportionality, accountability, and efficiency, for example. These are then backed up by more tangible guidelines about what this means in practice. Government departments and independent regulators alike should use principles of regulatory quality when considering new regulation and evaluating existing regulation

Box: Example of principles of regulatory quality: The case of the United Kingdom[8]

Proportionality: this means that regulators should only intervene when necessary. Policy solutions or enforcement regimes must be proportionate to the perceived problem or risk and justify the compliance costs imposed. All the options for achieving policy objectives must be considered since alternative measures may be more effective and cheaper to apply. Enforcers should therefore consider an educational, rather than a pUnitive approach where possible. Further, it is important that regulations do not place a disproportionate impact on small businesses, which account for most of Kenyan businesses.Accountability: Regulators must be able to justify decisions, and be subject to public scrutiny. To achieve this, regulators should publish proposals and all those affected consulted before decisions are taken. Further, regulators should clearly explain how and why final decisions have been reached. Regulators and enforcers should establish clear standards and criteria against which they can be judged. There should be well-publicized, accessible, fair and effective complaints and appeals procedures. Regulators and enforcers should have clear lines of accountability to Ministers, Parliaments and assemblies, and the public.Consistency: this means that government rules and standards must be joined up and implemented fairly and consistently across the country. All regulators should consult to ensure their regulations work together in a joined-up way. Further, new regulations should take account of other existing or proposed regulations, whether of domestic or international origin. Regulation should be predictable in order to give stability and certainty to those being regulated.
Transparency: Regulators should be open, and keep regulations simple and user-friendly. Policy objectives, including the need for regulation, should be clearly defined and effectively communicated to all interested parties. Effective consultation must take place before proposals are developed, to ensure that stakeholders’ views and expertise are taken into account. Stakeholders should be given enough time and information to respond to consultation documents. Regulations should be clear and simple, and guidance, in plain language, should be issued before the regulations take effect. Those being regulated should be made aware of their obligations, with law and best practice clearly distinguished while those being regulated should be given the time and support to comply. The consequences of non-compliance should be made clear.
Targeting: Regulation should be focused on the problem, and minimize side effects. Where appropriate, regulators should adopt a “goals-based” approach, with enforcers and those being regulated given flexibility in deciding how to meet clear, unambiguous targets. Guidance and support should be adapted to the needs of different groups, and particularly, enforcers should focus primarily on those whose activities give rise to the most serious risks. Regulations should be systematically reviewed to test whether they are still necessary and effective. If not, they should be modified or eliminated.

The Medium-Term Regulatory Reform Strategy will need to identify the key principles for regulatory quality in Kenya and provide guidelines for their implementation. In implementing the principles in real life, it is necessary for the Government to identify which ones can be implemented as a matter of priority, and which ones will still need to be aspirational during the initial stages of the regulatory reform strategy.

Establishing transparent and efficient processes for regulatory policy-making: Piloting and adapting a system for Regulatory Impact Assessment (RIA)

Regulatory Impact Analysis[9] (RIA) is a broad tool now used in most developed countries and an increasing number of developing and transition countries to improve the understanding of economic and social welfare impacts of regulation. It is widely recognized as an important mechanism, which can contribute to improving the business environment, and to promote regulatory efficiency and effectiveness. RIA allows policy makers to assess trade-offs, consider new ways to regulate and identify the most suitable alternatives to regulation. In essence, RIA is a method of: systematically and consistently examining the positive and negative impacts arising from proposed government actions; and communicating the information to decision makers and other stakeholders.
Experience suggests that a more rational approach to policy-making embodied in RIA can bring benefits to countries even where levels of government capacity are relatively low. Indeed, a number of countries beyond the OECD have adopted, or are in the process of adopting, a RIA system. In Africa, Uganda has established a RIA Unit and efforts are being made for broad implementation of RIA in the policy making process. Tanzania has also launched a number of RIA initiatives.
The Committee believes that introducing RIA in Kenya, and regulatory streamlining generally, would be a useful element of a structural, sustainable growth strategy. Together with other initiatives, introducing RIA in Kenya would enable the government to begin to address the excessive number of regulations, the lack of transparency of the regulatory environment and the difficulty of understanding which regulations are in force. A RIA system would tend to decrease opportunities for corruption and at the same time create a regulatory environment for more rational and evidence-based policy-making.
It is essential however, that RIA is introduced gradually and based on pilots in selected areas. The Committee recommends that the Government’s regulatory reform strategy explores in further detail how a RIA system can be developed in Kenya.[10]

3. Identification and streamlining of high-priority regulatory problems

It is not realistic for any PSD or Regulatory Reform Strategy to cover all issues of concern for businesses. A regulatory reform strategy should identify and work out methods for prioritising review and reform activities, and provide a platform for the streamlining and/or elimination of these regulations.
There exist many regulatory problems that are already well known in Kenya. There is a risk that, without a clear vision of reform, the efforts will be over-ambitious and it will not be possible to address any of them in a satisfactory manner. Therefore there is a need to be selective in what the strategy should endorse at the various stages of its implementation.
In the initial stages, it will be necessary to cut red tape in certain high priority areas. Inspired by the PSDS and ICAP and based on findings from the FIAS administrative barriers report, the Doing Business indicators, the Committee’s own work and consultations with stakeholders, other investment climate surveys, etc., possible targets could include: business registration, tax administration, local government business regulation, regulation in the tourism industry, inspection and enforcement practices. By targeting an improvement in Doing Business indicators, this would permit a focus on improving the underlying problems that the indicators reflect. The goal should be identifying 3-5 priority areas for review and action over the next 1-2 years.

4. Building regulatory reform capacities in ministries and the private sector

Sustainability of the Regulatory Reform Strategy requires systematic capacity-building for government officials, private sector representatives and others. A regulatory reform agenda broadly, and a RIA system more specifically, will collapse or remain purely paperwork if it is not well understood and supported by the ministry officials responsible for preparing and reviewing regulation. Guidelines and training are essential to make any regulatory management system operate and capable of producing low-cost and low-risk regulation to the highest benefit of all citizens.
The Committee proposes that the Regulatory Reform Strategy explores in further detail how sustainable regulatory reform in Kenya can be supported by gradual capacity building of all involved stakeholders in the regulatory process, including regulators, business associations and parliament. [11]^,[12]

5. Setting targets for improvements in regulatory quality and performance

Without targets it is difficult to measure success and claim victory, or determine shortcomings and re-focus efforts – as the case may be. It is also a transparent means of calling policy makers and implementers to account. The Committee recommends that the regulatory reform strategy sets a tangible and easy-to-communicate target for regulatory improvements of the coming years. A possible target could be 25% reduction in business’ costs of compliance with selected high-priority areas. A prerequisite for establishing targets is identifying a good baseline measurement. One of the priorities in the short term, therefore, must be establishing relevant baseline measurements.

5                  Institutional issues – building drivers of regulatory reform
5.1              In the 2006/2007 Budget Speech the Minister for Finance proposed to set up in the Ministry for Finance a Business Regulatory Reform Unit to permanently keep track of all regulatory regimes and licensing in Kenya and ensure that new regulations, licenses, fees and charges do not create unnecessary burdens on business and meet international best practices. The Minister of Finance also announced that the Unit will “liaise with the Regulators to ensure that all future regulations with respect to licensing conform to international best practices”.
5.2              Important first steps have already been undertaken to institutionalise this entity. At present the Business Regulatory Reform Unit has been set up by administrative order within the Ministry of Finance. Officers have been designated and office space has been allocated. The Unit is currently taking a leading role in identifying short-term measures aimed at improving Kenya’s ranking on the Wold Bank’s Doing Business Indicators.
5.3              The fact that the Unit has been set up in the Ministry of Finance is in accordance with best international practice, and it would be good to ensure that the Unit remains in this central position (another successful alternative applied in other countries is with the Prime Minister’s office). International experience suggests that the location of the Unit is expected to have a great impact on the effectiveness and sustainability of the institution. This location places the Unit firmly within government structures, ensures it has high visibility and political backing, as well as (some) authority and cross-cutting policy leverage over line ministries. Authority and a high-level political mandate are regarded to be crucial for successful operation of the Unit. The ease of establishment and recruitment of qualified staff may also depend on the Unit’s location. At the same time, location in the Ministry of Finance would ensure that the Unit is independent from line ministries, yet an integral part of important regulatory policy decisions, and open to relevant business and public sector concerns.
5.4              This Section provides input and suggestions on how to address key challenges in establishing and developing the Unit and its relations to other key drivers of regulatory reform, such as:

Functions of the BRRU;
Legal basis of the BRRU;
Staffing structure of the BRRU;
Establishment of a Regulatory Reform Committee;
Relation to a private sector advisory council.

5.5 The E-Registry, which jointly with the Unit ensures scrutiny and transparency of license requirements, is described in detail in a separate annex to this Report.

Functions of the Business Regulatory Reform Unit[13]

5.6 Most regulatory reform Units are charged with three core functions and an extended number of closely related policy and review functions. The core functions are:

Support and advice to regulators on regulatory management and reform. This involves assisting regulators with preparing regulatory impact assessments (RIA), and with leading efforts to develop regulatory training and capacity-building.
The challenge function: Here, the focus is on reviewing the quality of new regulatory proposals and RIAs during the policy development process. The central mechanism for adopting this role is the undertaking of a quality review of RIA. In addition to the advisory and capacity-building role mentioned above, this function involves vetting the draft RIAs before policy proposals go to Cabinet or before enactment by ministries. The dominant trend internationally is not to give the BRRU (or equivalents) powers to approve regulatory proposals. Rather, the trend is to give BRRUs exclusive access to providing an opinion on the quality of the proposed RIA, which is then mandatorily presented to the political decision-making authority as an integral part of the documents required for any regulatory policy decision within the executive.
Advocacy: The function involves promoting the use of RIA and good regulatory practices across government and in the private sector. Often this involves being charged with developing the national regulatory reform strategy and overseeing its implementation, on behalf of a high-level ministerial Committee.

5.7 It is recommended that the Unit in Kenya takes up functions similar to the above. The Committee suggests that the medium term strategy in further details develops the functions of the Unit, and that these functions, at a general level, are specified in an Act of Parliament.
5.8 In the initial phases of operations (before the coming into force of the Business Regulation Bill), it is proposed that the Unit is mandated to:

Ensure successful implementation of the Business Licensing Reform, most importantly;
Establish as soon as possible procedures to scruitinize proposed new licenses;
Serve as Secretariat for the Task Force on Doing Business Indicators;
As soon as possible, submit a proposed action plan further entailing the institutional arrangements and organization structure (e.g. staffing and tasks) of the Business Regulatory Reform Unit, including identification of staff from other ministries and means of hosting seconded staff;
Lead work on preparing the Medium-Term Regulatory Reform Strategy, including the development of principles of regulatory quality, identification of about 3-5 priority areas of regulatory streamlining
Develop, implement and maintain a system for Regulatory Impact Assessment (RIA) in Kenya; as soon as possible, initiate procedures to scrutinize proposed new licenses;
Develop a plan for training and capacity building of the Unit, and shortly thereafter of other regulatory reform stakeholders, including other business regulating ministries, private sector organisation, parliament;
Support the establishment of the Electronic Regulatory Registry;
Identify and apply baseline and other indicators for licensing review as well as future regulatory reform efforts.

5.9 In would be appropriate to include in the proposed Business Regulation Bill that the Unit also will serve as Secretariat to the Regulatory Reform Committee (which is described in a subsection below).
5.10 FIAS has prepared a draft Action Plan for a sustainable regulatory reform strategy for Kenya (see Annex G). The Committee is in agreement with Action Plan and suggests that it constitutes the basis for further clarification of the Unit’s specific short-, medium- and long-term tasks.

Legal basis of the Unit

5.11          To be sustainable, it is important that the new Unit has a clear, strong and preferably legally-constituted basis. Without legal underpinning, establishment of the Unit could more easily be stalled, and its operations could be more vulnerable and run the risk of being subject to cutbacks or elimination as political attention shifts. It is recommended that the role of BBRU is formalized through an Act of Parliament (the Business Regulation Bill).
5.12          And in the meantime it is critically important that the Unit has sufficient mandate to begin operating and developing its functions, as well as to address the challenges listed. In the short-term, one option could be to change the organic legal act governing the structure of the Ministry of Finance to give the Economic Affairs Department explicit responsibility for regulatory reform. This may be a means to provide the legal mandate not only for internal staffing purposes, but also for other ministries to understand and acquiesce to this role.
5.13          Another option that has worked in other countries which have set up a RIA Unit is for it to be initially set up by Prime Ministerial or Presidential Decree, Cabinet conclusion, Gazette notice or similar appropriate legal device. This action would provide the Unit with sufficient authority to operate in the short run, and would give time to pass legislation that establishes it legally once its responsibilities have been tested in practice.
5.14          If limited time or legal tradition prevent a fully detailed specification in the proposed Bill of the function, staffing, processes, authority under which the Unit must work, one feasible solution may be to include in the Business Regulation Bill a decision to establish the Unit, but to require the Minister of Finance to prepare a more detailed proposal for Government approval at a later stage.

Staffing structure of the Unit

5.15          It is essential that the Unit is set up on a sustainable resource base. Only if Unit management and staff consist of high quality officials (possibly supported for some time by external experts) with relevant educational backgrounds and work experience will the Unit be able to perform its functions in an effective manner.
5.16          The Business Regulatory Reform Unit staff should be drawn from the Ministry of Finance as well as other staff who are seconded initially from the Ministries who have been involved in the regulatory reforms from 2005 until 2007. This would include in particular the Ministry of Trade and Industry, the Ministry of Local Government, the Law Reform Commission and the State Law Office. Gradually, secondment will be extended to other Ministries engaged in the creation of regulation affecting business activity. Accordingly, it is necessary for the Ministry of Finance to involve Permanent Secretaries in the relevant Ministries so as to appraise them on the Government regulatory strategy and to obtain their agreement to second staff as and when required. This may involve negotiation, or presentation of persuasive reasons. The staff of the Unit should have experience of both planning and execution, have capability and integrity and ideally have economic or legal background and experience. The Unit could also host more junior staff, who – although not fully skilled in regulatory management – are often very motivated and capable of absorbing the rapidly developing regulatory reform agenda in Kenya
5.17          It is important that the day-to-day leadership of the Unit and its regulatory reform work have sufficient seniority and leverage to engage with other ministries at a high level. Without dedicated leadership and seniority, there is a risk that occasionally controversial reform proposals and views will be short-cut around and above the Unit. The Committee recommends that the head of the Unit has a sufficiently senior rank to execute these functions, preferably no less than the rank of Deputy Director.
5.18          Another challenge is to develop and offer the required training and mentoring to the recruited staff. The option of initially supplementing Kenyan staff with temporary specialized external expertise not available within government should be considered. International staff could be recruited on an explicit skills transfer and mentoring basis and could be gradually phased out as capacity is developed in the Kenyan Unit. External advisors have often been made available as part of donor contributions to PSD-support.

Establishment of a Regulatory Reform Committee

5.19 Internationally, responsibilities for regulatory policies are usually established both at the political and administrative levels. The Business Regulatory Reform Unit described above covered the administrative level. At the political level, two common alternatives are the nomination of an individual minister as responsible for regulatory reform or the establishment of a Ministerial Committee to take collective responsibility. A Committee has the advantage that the degree of authority exercised is likely to be greater than that which any individual minister can bring to bear, while there is necessarily a large element of “buy in” to the reform policies by a significant subsection of the Cabinet.
5.20 Partially reflecting the functions of the Business Regulatory Reform Unit at the administrative level, the functions of high-level Regulatory Reform Committees are usually three-fold:

Political leadership of the regulatory reform agenda. This involves taking ownership of (and accountability to) the country’s regulatory reform strategy’s development and implementation, i.e. setting goal and priorities for regulatory reform;
Policy advocacy and dialogue. Related to the above, advocacy in this context refers to the promotion of long-term regulatory policy considerations, including policy change, development of new and improved regulatory tools and institutional change. It also involves being a platform for dialogue with key stakeholders such as private sector business organisations, i.e. through frequent joint meetings with business advisory councils;
Government decision-making body for regulatory reform. This involves taking final decisions on regulatory proposals in cases of disagreement between the Business Regulatory Reform Unit and a regulating ministry about the quality of the proposed regulation. (This function would be an integral part of a well-functioning RIA system).

5.21          In other words, a high-level government regulatory reform committee is the formal decision-making body that should make the final decision on adopting a draft regulation based on all available information, including regulatory impact assessments prepared by the regulator and reviewed by the Unit, which provides its opinion. It should also meet with and receive advice from the private sector, as well as the findings of the Unit and other stakeholders on monitoring and evaluating results and business priorities. The precise structure and role of the regulatory reform committee must be based on the normal decision-making structures of the Kenyan government, such as the Cabinet, a Cabinet committee, or at the level of Permanent Secretaries.
5.22          International experience could be helpful in guiding these considerations. In the U.K., for example, all regulatory proposals likely to impose a major new burden on business require clearance from the Panel for Regulatory Accountability, chaired by the Prime Minister. Only in special cases is it necessary to have collective ministerial agreement.
5.23          The Committee recommends that the considerations above are explored in further details by the BBRU as part of the preparation of the Regulatory Reform Action Plan.

Relation to a private sector advisory council

5.24          In order to carry out its functions most effectively, a central Business Regulatory Reform Unit as well as the Regulatory Reform Committee must be actively engaged in consultation with the private sector.
5.25          An impartant part of the consultation will take place on a day-to-day basis as part of the preparation of regulatory proposals under a new RIA system.
5.26          It is just as important that it develops working relations with key private sector stakeholders. Direct advice and other inputs from a body of business representatives can serve as an essential source of knowledge, which leads to a better understanding of the regulatory conditions and concerns of businesses and a more developed platform for regulatory reform policy-making.
5.27          However, it is equally important to have frequent dialogue with a high-level body of business representatives. Many countries have benefited from advisory bodies composed of private sector representatives acting as a watchdog and advocate of the better regulation agenda. An advisory body’s role is most often to act as a critical advocate, overseer and guide to regulatory reform, most often with a formalized reporting or communication structure between itself and the government.
5.28          For instance, in the United Kingdom, the Government has established a Better Regulation Commission consisting of business representatives and other external stakeholders. This Commission’s function is to provide independent advice to government about new regulatory proposals and about the Government’s overall regulatory performance. The Business Regulation Commission regularly prepares reports for submission to the Government. Similar high-level consultative or advisory bodies are in place in a range of other countries.
5.29          The establishment of a Kenyan Business Advisory Council (or strenthening of an exisiting body) could institutionalize consultation with business stakeholders on regulatory reform issues. A basic option is that the primary function of the Council would be to advise the Government and the Regulatory Reform Committee on issues of major regulatory concern (or broader PSD issues). To do this effectively, the Council and the Committee should have frequent joint meetings.
5.30          The input and advice from the Council would help clarify what it means for regulations to be designed and implemented in a business-friendly manner. Furthermore, the Council could be helpful in providing information potentially used in relation with RIAs. The Council could also be charged with “watchdog responsibilities”, e.g. assisting with the monitoring of the government’s regulatory reform performance. However, the Business Advisory Council should not play a role in day-to-day regulatory matters, such as review of all submitted RIAs.
5.31          It is important that a Business Advisory Council be composed of a larger group of private sector representatives, not just one individual.
5.32          The government would be expected to identify the relation and reporting structure between Unit and the council, funding, and staffing. One suggestion could be that the Unit staff could act as supporting staff for the BAC, but a better solution, depending on financing and other existing structures, would be for the BAC to have its own, independent staff. Again, this is an issue that needs to be coordinated with developments regarding implementation of the Private Sector Development Strategy.
5.33          In Kenya, the Private Sector Development Strategy may lead to the establishment of one or several business advisory councils, which could de facto cover the advisory functions described above. It is obviously important to avoid overlap and duplication, also in this area. The Committee recommends that the GoK, as part of the preparation of the Regulatory Reform Strategy, investigates whether appropriate business advisory councils will be established under the PSD strategy, and on that basis decides whether or not to establish a Business Advisory Council as part of the Business Regulation Bill.

6                  Conclusions and the way forward
Implementation status
6.1              In Budgets for 2005/6 and 2006/7, the Government has implemented Committee recommendations by eliminating 37 licenses and simplifying 8. 45 licenses have, therefore, been dealt with.
6.2              Under the Licensing Laws (Repeals and Amendment) Act, 2006, 73 licenses are eliminated. The elimination of these 73 licenses will be effective upon the issue by the Minister for Finance of a legal notice providing for the commencement date of the Licensing Laws (Repeals and Amendment) Act, 2006. This Act was passed by Parliament during its last session for 2006. The Act is not effective until the Minister for Finance publishes a commencement date.
6.3              The results of the regulatory guillotine are that the Committee has listed 1,325 licenses applicable to businesses in Kenya on the assumption that the Minister for Finance will provide for the commencement of the Licensing Laws (Repeals and Amendment) Act.
6.4              The effect is illustrated in the table below:
Table 5: Summary of the Working Committee’s results and recommendations

	Number of licenses
Licenses identified and reviewed	1,325
Recommended for elimination	424
Recommended for simplification	607
Recommended to be retained	294
Total number of licenses	1,325

Institutional components
6.5              The results of the licensing review may quickly be eroded by creeping re-regulation. New institutions, processes and capacities should be put in place to ensure that the results of the reform are safe-guarded, and that new licenses are subject to scrutiny because the existing licenses have been.
6.6              The licensing review is addressing only one particular aspect of regulatory obligations imposed on business, business licenses. Therefore, the licensing review and the institutions set up to safeguard the results should gradually expand their scope and function to cover all types of regulation.
6.7              The Committee has been charged to look at three major institutional components: the Business Regulatory Reform Unit, the E-Registry, and the medium-term Strategy. Together these three components if implemented will ensure that the gains of the licensing review and attendant reforms are not eroded by creeping re-regulation.
6.8              The medium-term strategy ensures that not only are the E-Registry and the Business Regulatory Reform Unit established with effective force of the law but also there is capacity building in line Ministries and regulators on good and effective regulatory policies.
6.9              Regulators proposing a law or regulation with impact on business activities are required to carry out an advance Regulatory Impact Assessment (RIA) before submitting to the Business Regulatory Reform Unit. If a license is admitted by the Unit, it is deposited in the E-Registry.
6.10          In the long-term and following effective capacity building, there is gradual application of “silent is consent” rule, regulators are transformed from policing agencies to proactive assistants of business operators on compliance with environmental, safety and health standards and licenses are gradually replaced by notifications.
Way forward
6.11          The way forward for Government is to factor the results of this exercise in the Budget 2007/8. This is done through the following manner:

Official endorsement of the report by the Government.
Ministries and other Government agencies to issue relevant legal notices to implement the recommendations where Parliamentary legislative action is not necessary.
Ministry of Finance issues a Circular formally establishing the Business Regulatory Reform Unit and authorizing the Unit to review all new licenses as well as draft laws and regulations establishing authority to issue licenses, and to take the lead on the continued development of the government’s regulatory reform strategy. This will ensure that the gains of the licensing review and attendant reforms are not eroded by creeping re-regulation.
Submit the draft Business Regulation Bill, 2007 and Licensing Laws (Repeals and Amendment) Bill, 2007 as part of Budget 2007/8 to Parliament.
Work actively to assure the Business Regulation Bill, 2007 and the Licensing Laws (Repeals and Amendment) Bill, 2007 are on the Parliament’s agenda for the 2007 session and is passed alongside the Finance Bill, 2007.

6.12 Once the Bills are enacted, relevant commencement notices issue and operations continue while the medium term strategy is implemented.
6.13 The overall impact of implementation in Kenya is streamlined business environment, reduced opportunities of corruption, lower cost of doing business, initiation of new businesses, and expansion of existing investments. These results lead to new employment opportunities, reduced crime, higher economic growth rate, higher tax base, more revenue for social services, and less dependence on licensing revenue.

Annexes to the Report

A    Mandate and composition of Committee
The Working Committee on Regulatory Reforms for Business Activity in Kenya was established in March 2005 through Gazette Notice No. 7521 of 23^rd September, 2005 to improve on the private sector growth and competitiveness in Kenya through elimination of unnecessary, inefficient and costly licenses, permits and certifications of businesses. The Committee mandate was extended from 1^st April 2006 to 31^st December 2006 through gazette Notice No.9027 of 10^th November, 2006.
The Committee comprised of members drawn from the Ministry of Trade and Industry, Ministry of Finance, Ministry of Local Government, Kenya Law Reform Commission, Kenya Investment Authority and State Law Office and headed by a Private Sector Legal Reform Expert.
Ben Musau a Private Sector Legal Reform Expert and a Senior Partner of the law firm of B M & Co., Advocates led the Committee throughout the three phases.
Hezekiah Okeyo acted as a Joint Secretary in Phases I and II and in phase III acted as Vice-Chairman.
Members
Christine Agimba                                State Law Office
Valeria Onyango                                 Kenya Law Reform Commission
Catherine Munyao                  Kenya Law Reform Commission
Isaac G. Kamande                  Ministry of Youth Affairs
Anthony Muriu                       Office of the Vice-President
Josephine Kanyi                                  Ministry of Finance
Gad Awuonda                                    State Law Office
Peter Kiarie Ng’ang’a                         Ministry of Local Government
Micah Kilonzo                                    Ministry of Local Government
Peter Biwott                                        Ministry of Trade and Industry
Richard Gakunya                                Ministry of Finance
Robert Nyaga                                      Ministry of Finance
Andrew Mwaura                                 B M & Co., Advocates
Moris Kimuli                                       B M & Co., Advocates
Jacob Gumba                                      Ministry of Finance – Joint Secretary
Joshua Kimulu                                    Ministry of Trade & Industry – Joint Secretary
The following were members of the Committee in its first and second phases:
The Mandate of the Committee in its first phase was to:
(a)                Review laws, regulations and other legal instruments relating to business licenses;
(b)               Identify individual licenses which are required for carrying business in Kenya;
(c)                Review and carry out an assessment on the justification of the continuation of individual business licenses;
(d)               Identify business licenses to be phased out through the budgetary process in the fiscal years 2005/2006 and others to be dealt with in the successive financial years;
(e)                Assess the implications on Government revenue of the phasing out each business license;
(f)                Make specific recommendations as to which licenses should be retained, have their issue amended, or abolished, taking into account their necessity, efficiency of the licensing process and budgetary effects; and
(g)               Prepare draft legislative instruments based on the recommendations made and submit them to the Ministry of Finance for consideration of inclusion into the budgetary process.
The Committee was also mandated to:
(a)                Liaise and consult with Government Ministries, public bodies and the private sector in order to collect the required information; and
(b)               Carry out or cause to be carried out such studies or research as may inform the committee on its mandate.
The extension of the Committee’s mandate from 1 April, 2006 to 31 December, 2006 (and with the Committee’s request ending on 28 February, 2007) the Committee was mandated to:
(a)                Complete the business licensing review including review of submissions from Local Authorities to assess justification of the continuation of those licenses;
(b)               Prepare a medium term regulatory reform strategy to co-ordinate the reform program by:
(i)                 Developing a proposal for the establishment of a Business Regulatory Reform Unit charged with assuring quality of all new licenses; and
(ii)               Designing a database infrastructure for the creation of a central electronic registry of all valid business licenses.
(c)                Prepare draft legislative instruments based on the recommendations made and submit to the Minister of Finance by 31 December, 2006
In the performance of its functions, the Committee was mandated to:
(a)                Liaise and consult as time may permit, with Government Ministries, other public bodies and private sector in order to collect the required information;
(b)               Hold consultative seminars, workshops or meetings to ensure transparency in its work; and
(c)                Co-opt such additional expertise as may be required from time to time.

B Decision memos (attached)
B1 Decision memos on Business Priorities
B2 Decision memos on New Licenses
B3 Decision memos on Licenses Not Eliminated
B4 Decision memos on Local Authorities Licenses, Fees and Charges
B5 Decision memos on Simplified Licenses

C Consultative meetings held by Committee
The consultative meetings held by the Committee were as follows:

Breakfast meeting held on 19^th April 2005 focused on initial implementation of phase I recommendations of the Working Committee in the budgetary process for the financial year 2005/06;
Breakfast meeting held on 7^th October 2005 where the 86 licenses including the film industry, hotels, export and import and dairy were discussed;
Workshop held on 8^th December 2005 where the participants discussed the Single Business Permit and other business licenses imposed by Local Authorities through their by-laws;
Workshop held on 11^th January 2006 where licenses under agriculture and environment sectors we discussed;
Workshop held on 25^th January 2006 where hotels and restaurant licenses and those under the Tourist Industry Licensing Act were discussed inter alia;
Workshop held on 1^st and 2^nd February 2006 in which licenses under the “Others Sector” were discussed; and
Workshop held on 23^rd November 2006 where Local Authorities licenses were discussed. Further, a subsequent meeting by a committee selected by Local Authority’s representatives during the workshop met on 8^th December 2006.

D Proposed tasks for Business Regulatory Reform Unit: Short-term, medium-term and long-term regulatory reform actions

	Short-term, medium-term and long-term table The proposed short term tasks for the Unit are presented in this table, which also reflects regulatory reform actions in the short, medium and long term. Proposals for responsible teams/institutions are in italics – these proposals still require discussion among Government of Kenya and development partners.
	Action category	Short-term Activities (Feb. 2007 – June 2007)	Medium-term activities (With coming into force of Business Regulation Law)	Long-term activities and outcomes (5 years from now)
1.	Strengthening institutions for regulatory reform	Establishment of Unit within MoF, to be staffed with MoF representatives representatives of MoTI, MoLG, KLRC, State Law Office, as available, until coming into force of Business Regulation Law. (This may be part of the circular, see below.) Setting up of E-Registry with pilot activities and subsequent assessment of lessons learned. Unit, with assistance from FIAS. Agreement on role of regulatory reform activities within overall PSDS framework. These involve discussions with MoTI and development partners. Assistance from FIAS. Agreement on a high-level Government Regulatory Reform Committee, meetings held with decisionmakers. Led by Unit, assistance from FIAS, work with MoTI and development partners. Decision on a Business Advisory Council, utilising to the extent possible the PSDS structures, or the Public-Private Forum (recently announced by the President), meetings held with potential members. Led by Unit, assistance from FIAS, work with MoTI and development partners. UNIT established by Law. UNIT staffed by formal secondment of officials from other ministries. RIA-experts staffed in other ministries and institutions. Formal inclusion of regulatory reform activities into PSDS framework. Formalisation of role of high-level Government Regulatory Reform Committee. Establishment of Business Advisory Council, or equivalent in the short term (to be determined). Formal establishment of E-Registry. UNIT, Committee and Council strengthened as necessary. All institutions aware of and participating in regulatory reform activities.
2.	Building capacities in ministries and the private sector	Training of Unit staff on regulatory governance and reform and reform tools, train-the-trainers programmes. Provided by FIAS and other development partners to Unit staff and, if possible, representatives of other institutions. Preparation of a training plan. Unit, with assistance from FIAS. Initial outreach to other ministries and private sector, organising an awareness conference. Unit with assistance from FIAS and other development partners. Mandatory training led by Unit staff and international experts to officials throughout government and at the local authority level, including on the e-register. Training programmes for private sector. Regular rotation of officials from ministries to Unit. Ongoing training and capacity-building to disseminate concepts of good regulatory governance throughout government, local authorities and the private sector.
3.	Public consultation and stakeholder participation, other transparency measures	Consultations among Unit, Licensing Committee and MoF Budget Team regarding decision memos and licensing review. Licensing Committee, Unit, Budget Team. UNIT holds consultations with stakeholders and tests various feedback mechanisms. Unit, with assistance from FIAS and development partners. Regular consultations held with stakeholders, covering policy development, preparation of RIAs and other measures. Consultations with stakeholders are institutionalised and become a regular input into the decisionmaking process.
4.	Prioritising review, including setting up a Doing Business review system.	Setting up of Doing Business Task Force, supported by Unit staff. Work has already begun, assisted by Unit, with support from FIAS. Identify 3-5 priority areas for immediate work. Done, 3 priority areas selected by Doing Business Task Force. Receiving and managing international expertise for improving specific DB indicators. DB Task Force, Unit, with assistance from FIAS. Recommendations for methodology on prioritising review in the medium and long term. Unit, Doing Business Task Force. Mechanism in place to ensure ongoing review of various indicators (such as DB) relating to Kenya’s international competitiveness, Unit regularly reports results and recommended actions to Council and Committee. Council provides advice and Committee provides guidance to Unit. System in place for prioritising regulatory review.
5.	Successful implementation of licensing review	Consultations among Unit, Licensing Committee and MoF Budget Team regarding decision memos and licensing review (see also above). Pilots with the e-register, including gathering of additional information and posting on the database a target number of licenses (with requirements). Led by Unit, with assistance from FIAS. Agree on deadline for licenses to be submitted to e-register with the coming into force of the Business Regulation Bill. Unit, with assistance from FIAS. More detailed review of licenses identified as burdensome but which required further review. Unit, with assistance from Licensing Committee members. Identification of measures to avoid mushrooming of new, cumbersome licensing procedures. Initial implementation of those measures (see “legal safeguard” in box below). Unit, with assistance from FIAS. Licensing review formally integrated into regulatory reform activities. Licenses posted in e-register by a specific date. Regulatory review covers licensing too.
6.	Assessing impacts of new regulation	Legal safeguard like ministerial circular requiring all new licenses to be reviewed by MoF Unit. To be drafted by Unit and adopted by March 1, 2007. Review of new licenses. Unit, with assistance from FIAS. Design and piloting of RIA models and agreement on overall RIA format. Unit, with assistance from FIAS. Formal approval of RIA format. Introduction and use of simple RIA questions based on approved RIA format. Possibility to develop more detailed RIA questions based on approved format. Regulations constantly reviewed to ensure no mushrooming of burdensome regulations.
7.	Advocacy and regulatory policy development	UNIT and other stakeholders assess regulatory reform activities to date, incorporate advice into Medium-Term Strategy. Unit, with assistance from FIAS. Coordination with PSDS. Work with MoTI and development partners. Testing and introduction of international concepts like “sunset clauses” and “forward planning”, also through training. Significant role established and fostered for Business Advisory Council in providing advice on policy development. Coordination with PSDS. Kenya has a state-of-the-art workable regulatory reform programme, appropriately crafted for Kenya.
8.	Monitoring and evaluation	Identification of baseline indicators (based on DB, SCM and other quantitative and qualitative indicators). Unit, with assistance from FIAS. Identification of resources needed for gathering future data. Unit, with assistance from FIAS. Monitoring system set up, Unit begins to track indicators over time. Ongoing monitoring and evaluation, regular reports prepared by Unit to Council and Committee. Target of, e.g., 25% reduction in regulatory costs is achieved.
9.	Communicating results and increasing public awareness	Setting up of public awareness-raising programme, initial outreach. Licensing Committee and Unit, with assistance from FIAS. PR on regulatory reform becomes inherent function of government. Ongoing communications to provide symmetric information for public and private sector stakeholders, as well as PR to support reform efforts.

E          Final list of licenses in Kenya, Edition February 2007 (attached)
F          Design and Establishment of an Electronic Register (attached)
G         Action Plan for sustainable regulatory reform strategy (attached)

[1] Doing Business Reports 2002-2006, IFC and World Development Reports, World Bank.

[2] FIAS: Kenya, Accelerating Reforms to Improve the Commercial Legal Frame and Remove Administrative and Regulatory Barriers to Investment, June 30, 2004

[3] Report No. 31387-KE, Growth and Competitiveness in Kenya, January 27, 2005, Private Sector Unit, Africa Region, the World Bank

[4] In full, The WTO Agreement on the Application of Sanitary and Phytosanitary Measures (usually termed the SPS Agreement). Both this and its partner Agreement on Technical Barriers to Trade arose from the Uruguay Round of Multilateral Trade Negotiations (1986-1994), under the World Trade Organization and GATT.

[5] This body was recently renamed the World Organization for Animal Health. However, the former name and the acronym OIE are still generally used, and are adhered to in the present text.

[6] Large parts of this section is based on extracts from FIAS’ “Kenya – Building Institutions for Regulatory Reform – Preliminary Design Document, September 2006

[7] FIAS (2007 – forthcoming): Synthesis of Regulatory Reform Case Studies.

[8] The box is based on guidelines for regulators in the United Kingdom. See www.brc.gov.uk.

[9] The synonymous term “Regulatory Impact Assessment” is also often used.

[10] For further suggestions for the introduction of RIA in Kenya, see FIAS’ “Kenya – Building Institutions for Regulatory Reform – Preliminary Design Document, September 2006

[11] For further suggestions, see FIAS’ “Kenya – Building Institutions for Regulatory Reform – Preliminary Design Document, September 2006

[12] An essential part of capacity building involves the establishment or strengthening of appropriate institutions to implement the regulatory reform agenda. Institutional issues are dealt with separately in chapter 5 of this report.

[13] This section does not discuss the internationally recognized rationales for establishing a Unit. For a discussion of this issue, see FIAS’ “Kenya – Building Institutions for Regulatory Reform – Preliminary Design Document, September 2006

Dr. Benjamin Musau

I am a Kenyan Advocate and the Managing Partner of B M Musau & Co., Advocates, a position I have held since 1999. My work encompasses regulatory reforms, reduction of administrative burdens, the structure of business entities, joint ventures, acquisitions, banking, foreign investment and other general corporate areas

Kenya Regulatory Reforms Report (2008)

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