JAMLIC MUNYASYA
Africa-Press – Kenya. Kenya’s current business environment is increasingly characterised by pressure, uncertainty and declining competitiveness across both small and large enterprises.
From micro and small enterprises operating in informal markets to large corporations in manufacturing, retail and services, firms are struggling to sustain operations amid rising costs, constrained demand and tightening financial conditions.
These difficulties are not merely firm-level inefficiencies but also indicate macroeconomic and structural problems that must be specifically addressed through policy intervention.
At the macro level, persistent inflation has significantly increased the cost of doing business. Energy prices, transport costs, imported inputs and food inflation have raised operating expenses while simultaneously eroding household purchasing power.
As real incomes decline, consumer demand weakens, reducing sales volumes for businesses. This demand-side compression has affected sectors such as retail, hospitality, manufacturing and real estate, leading to reduced cash flows and thinner profit margins.
Financing constraints have further exacerbated the situation. High interest rates, driven by tight monetary policy and elevated government borrowing, have increased the cost of credit for businesses. Small and medium-sized enterprises (SMEs) rely on bank funding and digital credit, and as a result, they have limited access to affordable capital.
Bigger companies, which are more capitalised, are also waiting until the economic uncertainty has been resolved by putting expansion and investment decisions on hold. The outcome is depressed investment in the private sector, slower job creation and reduced productivity growth.
Taxation and regulatory pressures have compounded these challenges. Frequent changes in tax policy, expanded tax bases and aggressive revenue collection have increased compliance costs and uncertainty for businesses.
For companies with a low margin, particularly SMEs, an increase in statutory and administrative tax will decrease the working capital and restrict their capacity to retain their staff.
As a result, retrenchments, hiring freezes and business closures have become more likely, creating a weaker stability of the employment and economic impact.
From a competitiveness perspective, Kenyan businesses are also grappling with infrastructural inefficiencies, logistical bottlenecks and currency volatility. Devaluation of the exchange rate has compounded the price of imported inputs and foreign-denominated debt services, and it has not been proportional to the manufacturing and trade-oriented companies.
Meanwhile, unstable power supply and quality electricity charges are still hindering productivity and deteriorating industrial growth.
To prevent further business closures and job losses, government policy must shift from short-term fiscal extraction to long-term economic sustainability.
First, the government must give priority to reducing the cost of doing business by subsidising energy charges on productive industries and enhancing the efficiency of transport, as well as providing impetus for investment in dependable infrastructure. These directly increase competitiveness and firm productivity.
Second, affordable credit should be regained. This can be done by targeted credit guarantee programmes, concessional lending to SMEs and by crowding-in financing by the private sector as opposed to the government’s excessive domestic borrowing.
Reduced interest rates and extended periods of payment would reduce pressure on liquidity and would enable firms to stabilise their operations without necessarily laying off workers.
Third, tax policy must be foreseeable, business-friendly and developing. The fact is that temporary tax reliefs, deferred tax payments and incentives for firms that retain employees during economic downturns can preserve jobs and prevent firm exits. The medium term is much better when the broadening of the tax base is done through economic stimulation as opposed to forced compliance.
Lastly, the government needs to enhance the open line of public and private communication in order to make sure that policy decisions are based on reality in the business dimension.
A predictable, consultative and pro-growth policy environment would be a boost in investor confidence, reinvestment and long-term economic growth.
In conclusion, Kenya needs to maintain a calculated trade-off between fiscal tightening and economic expansion to sustain the business sector. In the absence of specific measures, further business distress will undermine employment, productivity and economic performance in general.
A supportive policy framework can transform the current strain into an opportunity for recovery and resilience.
Source: The Star
