Kenya has the largest and most diverse economy in East Africa. The country is currently growing at a rate of over 5 percent a year and has a huge potential. Though the size of the economy is much bigger than that of Nepal, it faces many similar developmental challenges like poverty, inequality, social diversity, impacts of climate change, fragile politics, high level of corruption and impunity. The key constraints that the private sector faces in Kenya include, among others, taxes, poor infrastructure, insecurity, lack of skills in the labour market, bureaucratic regulations and procedures and limited access to capital, which are very identical to the problems that Nepal’s private sector is currently struggling against.
The Private Sector Development Strategy (PSDS), 2006-2010, was prepared, after extensive consultations with a wide range of stakeholders by the Ministry of Trade and Industry (MOTI), the Government of Kenya (GoK). It had two main strategic objectives: to create a conducive business environment for private sector growth by alleviating major constraints and to enhance the growth and competitiveness of private sector, especially the Micro, Small and Medium Enterprises (MSMEs). To achieve them, the following five-point strategies were identified:
1. Improving Kenya’s business environment by providing adequate and good quality infrastructure; designing additional measures to combat crime and insecurity; enforcing anti-corruption measures; catalysing public-private dialogue and reducing legal, regulatory and administrative barriers. These measures were expected help raise business confidence and result in long term planning and investment by the private sector and a globally recognised country investment rating. The PSDS had rightly documented that investor confidence was the outcome of several factors such as political and macro-economic stability, transaction costs, security of persons and property, reliability of infrastructure, stability in policy and consistency in its implementation, efficiency of the administrative, legal and regulatory framework, and sound macro-economic management.
2. Accelerating institutional transformation by promoting a ‘culture change’ in the public and private sector and reforming public institutions for better service delivery to the private sector. These measures were expected to bring about efficiency in public institutions resulting in better service delivery. According to the PSDS, Kenya’s development policies and strategies had focused strongly on the technical
elements of developmental problems in the past without due regard to the institutional framework within which they were to be implemented. It had realised that those overstaffed ineffective institutions were responsible for poor
implementation of otherwise very good policies, and that there was mistrust and misunderstanding between the public and the private sector institutions. This problem was further compounded by the lack of a strong dialogue mechanism between the two. Nepal is currently facing a very similar situation.
3. Facilitating economic growth through greater expansion of trade. The PSDS had beheld the declining share of trade as one of the key constraints for private sector growth. This decline was attributed to an inability to diversify exports and to access new markets. Nepal’s current situation is no different from it. To address this, the following policy measures were pursued: finalisation of trade and
industrial development policy, revitalisation of trade
facilitation and expanding access to trade finance. Further, the MOTI was expected to develop negotiation skills for both the public and private sector to use during bilateral or multilateral trade negotiations. The expected outcome of these measures was sustained annual growth of at least 20 percent in export trade.
4. Improving productivity of enterprises through enhanced investment and skills. The GoK had realised that the productivity of Kenya’s workforce was declining because of the waning in capital investment and poor skills. It was also attributed to not responding fast enough to technological innovations. The GoK had understood that poor Research and Development (R&D) with limited participation from private sector and inadequate public funding contributed to deteriorating productivity. To address these problems, the PSDS had concentrated on the following measures: enhancement of both labour and capital productivity; stimulation of R&D activities and adoption of modern and appropriate technology which were expected to boost private sector productivity.
5. Supporting entrepreneurship and indigenous enterprise development through better access to market and capital. The PSDS had acknowledged that the MSMEs constituted the largest part of the private sector and were scattered all over the country. The majority of these forms were indigenous businesses which would never evolve further than the medium enterprise level. They have had series of constraints namely lack of access to market, limited access to capital, limited skills and firm-to-firm linkages and lack of effective representation in sector specific and umbrella business association. To address these problems, the PSDS had emphasised on enhancing competitiveness of MSMEs through better facilitation for development of new enterprises; improve access to capital; facilitate graduation and evolution of enterprises; promote firm-to-firm linkages and promote broader MSMEs representation in business associations.
The PSDS had recognised the fact that there were number of issues that did not fit into any particular strategy but cut across all and therefore had implications for its success. This includes: enhancing public-private partnership, gender concerns, information and communication technology and so on. The PSDS did recognise the importance of addressing these cross-cutting issues and had taken them into account during implementation of the strategy
An important assumption made in designing the PSDS was that while pursuing their corporate interest, business will and should respond to incentives created through the PSDS, not only to meet their profit goals, but also to help Kenya reduce its poverty and enjoy a higher rate of economic growth. This assumption would be equally applicable to Nepal.
