How can you solve the key challenges of doing business in Africa? This post gives you 10 types of business risks facing startups and established investments in Kenya. You will also learn how these challenges hinder your business’s growth and survival. Finally, the post will give you a simplified strategy for compliance risk management and mitigation to increase your chances of success.
Kenya is among the best investment destinations in Africa. However, as a local or foreign investor, you will face various economic, political, technological, and social challenges. The key risks for you are corruption, inflation, unfair competition, bureaucracy, and low access to credit. Others are prohibitive taxation, high cost of energy, and insecurity. These are further explained below.
High Regulatory Compliance
The legal process of starting a business in Kenya is long, cumbersome, and expensive. Navigating the regulatory compliance landscape when starting and running a business in Kenya can be a daunting and expensive process. It involves registering your company, obtaining various licenses and permits, and dealing with complex annual compliance requirements.
These bureaucratic hurdles not only increase costs but also lead to unnecessary delays in executing business plans. However, recent initiatives like e-citizen and Ardhisasa platforms are making it easier and more efficient to obtain permits and licenses, reducing the burden of regulatory compliance. These online platforms provide a cheaper, faster, and more accessible way to streamline the process of starting and running a business in Kenya.
Taxation
Kenya’s tax law is bulky and complex to understand and fully comply with. It requires significant investment in professionals like tax accountants, consultants, and lawyers to ensure full compliance. Additionally, the tax code’s unpredictability, with annual changes through the Finance Bill, makes it difficult for businesses to plan and allocate resources efficiently. Furthermore, some businesses face the burden of multiple taxation at both county and national levels, affecting sectors like transport, branding, cold storage, and agriculture cess and levies.
To address these challenges, hire tax consultants, stay updated on tax laws, and explore available tax incentives. Tax planning and compliance are essential to avoid legal issues.
Corruption
Corruption in Kenya has been a longstanding issue. Bureaucracy, regulatory hurdles, and obtaining permits can often involve under-the-table payments. This not only increases the cost of doing business but also presents legal and reputational risks. For investors looking for transparency and an efficient business environment, Kenya’s corruption levels might be a deterrent. As a small business, you can overcome the corruption risks by;
- Implementing strong internal controls
- Promoting transparency
- Fostering a culture of ethics and integrity
- Actively reporting and addressing any instances of corruption.
Security Concerns
Kenya has faced security challenges, including incidents of terrorism and occasional civil unrest. These security concerns can pose a direct threat to business operations and the safety of employees. For risk-averse investors, the security situation might make Kenya a less appealing choice.
You should conduct thorough risk assessments, implement security measures, and consider insecurity risk insurance to protect your investments.
Competition
Stiff competition from counterfeits and substandard goods is a significant problem in Kenya. It has sometimes forced some companies to close or relocate to other countries. The majority of consumers opt for these alternatives when they cannot afford more expensive and high-quality goods.
To overcome unfair competition, as a small business, you can invest in research and development (R&D) to;
- Understand your customers
- Differentiate your product and service offerings.
- Provide exceptional customer service
- Continuously innovate to meet customer needs.
Limited Access to Credit
Access to credit in Kenya, especially for small and medium-sized enterprises (SMEs), can be restrictive. High-interest rates and strict lending criteria might limit financing options. If your business heavily relies on credit or you need significant capital, this limitation could pose a significant challenge.
You can explore alternative financing options like venture capital, angel investors, or government-backed loans. Additionally, maintain a good credit history and build strong relationships with local banks to improve access to credit.
Inflation
Inflation in Kenya has been rising in recent years. High inflation erodes the value of investments and can disrupt business operations. It has also led to unemployment and the rising cost of doing business in the country compared to her neighbors.
You should consider inflation when making financial projections and hedge against currency risks. Diversifying your portfolio, investing in stable currencies, and monitoring Kenya’s economic policies can help mitigate inflation risks.
Infrastructure Gaps
While Kenya has made significant strides in infrastructure development, there are still gaps in areas like water, energy, and waste management. Insufficient infrastructure can affect the efficiency of business operations and increase costs for investors. If your business relies heavily on well-developed infrastructure, Kenya’s limitations may be a drawback.
consider investing in technology solutions, such as remote work capabilities and supply chain optimization, to mitigate operational disruptions. Collaborating with local authorities and industry stakeholders to advocate for infrastructure development can also help improve the business environment. Finally, register for membership and participate in major business associations in Kenya such as KAM & KEPSA.
Exchange Rate Risk
Kenya’s currency, the Kenyan Shilling (KES), can be volatile. Exchange rate fluctuations can impact the profitability of your investments. You might find it challenging to manage currency risks, especially when their home currency is stable in comparison.
To manage currency fluctuations, you should use financial instruments like forward contracts and currency options for hedging against exchange rate risks. Diversifying currency exposure by holding multiple stable currencies can reduce dependence on a single volatile currency.
Political Risk
Kenya’s political landscape has been marked by periodic tensions and instability. Historically, political disputes have led to protests and violence. Apart from disrupting business operations, this also erodes investor confidence. For some, the political climate in Kenya may seem too unpredictable, making it a less attractive investment destination
To overcome political risk as a small business in Kenya, it is essential to implement an effective political risk management strategy. It should help you stay informed about policy developments, build strong relationships with government officials, diversify your customer base and supply chain, and consider investing in insurance or other risk mitigation tools. Finally, join a business association to help in lobbying.
