Kenya’s Education System: A leaning tower of Babel

Today's top news story of the Daily Nation went by the title “students with lower grades to join varsity”. The good news was that public universities agreed to admit high school graduates with lower marks compared to last year.

Of course this will improve the lot of students who because of grades would not be able to enter university. However, though this should be a harbinger of hope for Kenya’s youth, several questions emerge on the real effects of such a move.

The unemployment rate amongst Kenya’s 35 million people is approximately 40%. It is estimated that 64% of these are the youth. Out of these, only 1.5% of unemployed youth have formal education beyond secondary school level and the remaining over 92% have no vocational or professional skills training, at all. But does allowing these extra youth the opportunity to go to university make a real impact in their chances of getting a job?

Even though universities are the cradle of research and innovation which could be perceived as a step in the right direction of nurturing future entrepreneurs, the education system before tertiary level does not adequately impart the innovative and resilience skills required of entrepreneurs.

Annually more than 240,000 post-primary students enter the labour force. Additionally 143,000 students graduate from high schools. The Kenyan education system in its current form does not equip these school leavers with skills to start business. Rather the curriculum is founded on rote learning rather than creativity and innovation, further stifling entrepreneurial development.

Even in the universities the calibre of the teaching staff raises questions. The Commission for Higher Education recently proposed reforms where the lowest qualified lecturer would be a tutorial fellow holding a Masters degree. The eminent scholar and noted historian Prof. Bethwell Ogot has been in the forefront as an opponent of this measure. He was recently quoted in the media decrying such a move saying "some teachers with a Masters are even allowed to teach Masters students".

And though these new regulations should be commended as a move to regulate the amphitheatre football stadium scenario many university students have to face and hoarse throated lecturers’ rue, at the end of the day it’s really not what is heard in a lecture but the quality of the content and transfer of knowledge that counts.

Kenyan education reforms have not only been the preserve of academia. Politicians whilst campaigning have promised “new education systems” that increase the capabilities and capacity of the youth to “effectively operate in the knowledge economy”. Even Vision 2030 - Kenya's development plan has lofty claims founded on the education system that will by then make Kenya if not a newly industrialised economy then a middle class one. However government commitment to education has been compromised with a new Education Bill that at least is expected to enforce laws that will keep children in schools, where the Ministry of Education has been less than proactive in ensuring it passes through parliament.

A question of merit versus the feel good factor

Meritocracy is a situation where opportunities are extended based on demonstrated talent, competence and ability, rather than wealth, family background, socio-economic class and other historical determinants of social position.

When extending a helping hand to enable those who just by a few points missed entry into university, thought must also be given to both those already in public universities who worked hard to make the grade as well as those still in secondary school. With no ultimate reward (a decent job with a decent wage assured at the end), the message to those students in our campuses as well as high schools is that hard work in school no longer pays. After all, another meeting of university dons can be convened to lower the entry grade further at a later date.

So what balance can be accommodated?

First, as the first crop of standard one pupils of the 2003 universal primary education policy edge closer to entering secondary school, the policy of free primary and subsidized secondary schooling needs a committed review, with the ultimate objective of providing quality education, whether for all or for a few has to be debated, as well as the subject of another post.

Kenyan policy makers also have to be honest with themselves and the People of Kenya about the increasing rate of unemployment particularly amongst the youth. The education system has to provide financial literacy, personal and business management training as core subjects. The time when a job was assured even in the civil service is over – at Yipe.org we have even heard of Masters degree holders digging trenches as part of the ill-thought Kazi Kwa Vijana programme.

To accommodate both the university graduates and lower level school leavers estimated at 800,000 annually, business reforms that specifically target micro-enterprise startups also need to be implemented.

Ultimately, education has to be held sacred. Kenyans need to take ownership of education and never allow it to be politicized ever again.

Security and accountability are free public goods!

Public goods are those that are non-rivaled and non-excludable. This means, respectively that consumption of the good by one individual does not reduce availability of the good for consumption by others; and that no one can be effectively excluded from using the good. Due to the fact that the use by paying and non-paying consumers cannot be controlled, governments have to step in to ensure provision of such social goods. In turn tax monies go towards enabling governments to provide these social services.

Internal security is one such public good that falls to governments to provide to citizens. Though private sector security companies complement government security, they are constrained in providing this service for all as they do not enjoy economies of scale on the one hand and also to provide security for all is not economically viable in terms of ensuring that all consumers pay for such services.

According to Paul Collier writing in an article titled “Development in Dangerous Places” another public good is accountability. Historically, rulers needed revenue for their armies, which in turn provoked pressure for accountability and good governance from the taxpayers. Ultimately, security and accountability to Collier are not just public goods but expressions of power.

In countries of Collier’s Bottom Billion however, social divisions reign supreme. This lack of national cohesiveness in turn makes it more difficult to provide public goods. For instance, the 2008 post-election violence in Kenya aptly demonstrated the weak bonding of nationhood where tribes hacked one another with machetes and arrows causing the nation’s internal security to run down the doldrums. Kenya, fortunately or unfortunately has in its independence not had to face a massive external threat from an external aggressor which would galvanise its more than 40 tribes into a feeling of being Kenyan against foreign attackers. The Somalia and Ethiopian border squabbles never even reached such a point because the Kenya is home to sub-tribes of both nations. And even the most recent Migingo Island squabbles, were over a piece of land that hosts more Kenyans than Ugandans.

This lack of social cohesion breeds numerous self-identities and cultures which clash, and not without blood being poured. What is left is a fragmented population, where for instance the hint that Luis Moreno-Ocampo intends to prosecute crimes against humanity, send politicians into a tizz, whipping up ethnic hatred at the drop of a hat.

The second weapon politicians use is to invoke the concept of sovereignty forgetting that sovereignty requires a sense of nationhood; something that they themselves have to ensure is muted, so as to contain groupings calling for accountability.

Collier even names the weakened status of the military in bottom billion countries as a tool used by the political elite to retain power. It is this same military that presides over hurried swearing in ceremonies of tin-pot dictators when they steal elections overnight. And it is this same military that terrorises the masses to accept these “democratic election results”. But, it is this same military that must remain toothless in order for unpopular leaders to survive.

During the Migingo saga, many Kenyans commented that a small military battalion should invade the one acre island to shut Museveni up. But Kenyans were told that diplomacy was the way to go, even after President Museveni himself insulted Kenyans and more specifically members of the Luo tribe, from whom the Prime Minister Raila Odinga originates.

This was not the first time Uganda’s army had tried to stray onto Kenya’s territory. In the Moi era, and indeed during Jomo Kenyatta’s reign, Uganda insurgencies were swiftly turned back, and it was common to find the borders being closed as a matter of national security. However, probably as a good neighbour Kenya has turned to diplomacy as its weapon of mass destruction. This in turn has also led to the proliferation of small arms which have intensified a heightened scare amongst citizens for their personal safety.

The impact on business

Providing a safe environment where firms can conduct their business is a key function of any government. Yet, around the world, as many as 15% of firms report losses due to crime. In spite of this, a much higher share of firms (almost 60%) protect themselves from theft by using private security services, which adds to the cost of doing business. Interestingly, 16% of African firms report losses due to crime, at par with Eastern Europe and Central Asia. However, over half of the African businesses employ private security firms. Consequently, African firms spend an unrivalled amount of money on security, equal to over half a percentage point of sales, which is considerably higher than East Asia or South Asia.

The Africa Competitiveness Report 2009 (ACR) shows that most of the competitive disadvantage of African firms is due to invisible costs—that is, losses experienced by factors that include corruption (non-accountability) and lack of security.

The business costs of crime and violence and the sense that the police are unable to provide protection from crime are particular concerns for African entrepreneurs. The ACR disaggregates security into costs of terrorism, crime and violence, organized crime and the perceived reliability of police services. Amongst the survey’s findings Morocco’s weakening security environment was found to contribute to the country’s declining competitive position. The security situation in Kenya is also extremely worrisome, particularly in crime and violence, the potential of terrorism, and the prevalence of organized crime.

Unfortunately for small enterprise, there is no significant difference in the cost of security services borne by small firms compared to medium and large ones (in terms of share of sales), nor is there a difference between foreign and domestic firms. Africa’s export potential is further impaired as local exporters tend to spend more (almost 10% more) than non exporters.

In Africa, individual country’s competitiveness is also adversely affected by the lack of security. For instance, Egypt one of Kenya’s major competitors has relatively high levels of security and a resulting low cost of crime and violence for business. In terms of interest from foreign investors to set up businesses in Africa, security makes many shy away from putting their cash in jeopardy in unsecure environments. Mauritius has been able to exploit insecurity on the continent, benefiting from significant inflows of FDI over the past years in part due to the fact that the level of security in the country is good, particularly by regional standards.

Within East Africa, Kenyan 75% of firms have to pay for private security services. This is 5% higher than the regional average. Kenya also pays the highest cost for these services. In turn government accountability data in East Africa indicates that government wastage of resources is highest in Kenya and the country also has the highest perception amongst its business community that the police are unreliable.

Security and accountability are two public goods that make economic development and growth possible. History has provided more than adequate testimony that civil conflicts in poor countries last longer than international wars. With such a looming dagger hanging over these countries, unless security and accountability to address wrongs are provided (not at cost!), the interest of entrepreneurs to venture into business will be lost. Somalia is a prime example of this where revenues generated from enterprise (whether legal or through illegal means such as piracy) are stashed away in foreign countries, further plundering the country into a failed status.

Finally as Collier states accountability is indeed a two way street between government and citizens. Thus standing up to demand security and accountability is required of us all in the democratic spirit of no taxation without representation!

The Cost of Red Tape for East Africa Business

A study on businesses in Rwanda titled “Cutting The Cost Of Red Tape for business growth in Rwanda” based on a country-wide sample of more than 400 businesses found that regulatory compliance imposes significant costs on local businesses and on the economy as a whole. Overall, the study reported that red tape cost businesses in the formal sector at least RwF 55 billion, equating to approximately three per cent of GDP.

Tax compliance was found by 53% of the surveyed businesses to be the most problematic regulatory area in terms of the time consumed in navigating troublesome regulations. These included preparation of paperwork for tax audits.

Just this week the Kenya Revenue Authority announced that tax returns would now be online, reducing the need to visit the tax offices in person – which, for many businesses, means that someone has to stand in frustrating long queues to file returns and make VAT payments. For most micro-entrepreneurs, such visits mean closure during business hours. translating into further loss of revenue. As the Rwanda red-tape survey states, “standing in one of those queues, with our business on hold, it is hard not to think that regulations are a waste of time – simply ‘red tape’ and nothing more”.

Other hindrances to tax and business regulation compliance include poor customer service from unhelpful public officers, as well as the slow pace of processing forms. Other indirect obstacles include the high costs of public transport, making visits to these offices higher in opportunity costs.

When applying for public utilities such as water and electricity, the need to visit various departments in order to complete company requirements also act as a disincentive, when weighed against profits if the business owner remains at work in their business premises. It thus becomes more attractive to pay for illegal connections than waste time and money moving from one office to another checking the status of one’s status of their connection applications.

For businesses involved in exports, the paperwork requirements are both numerous and complicated. This again turns out to be costly in terms of time. Furthermore, the requirement that each consignment has to be verified by standards bureau’s in turn act as a disincentive to comply with existing rules.

And although Kenya’s President Kibaki ordered that the Kenya Ports Authority operates 24 hours, there still remain substantial delays at Customs for clearing and forwarding agents. These delays are felt not only in terms of time spent, but also involve direct expenses having to be paid to transport companies for the waiting time of their trucks and drivers awaiting clearance. According to the Rwanda survey, some businesses said that delays from Customs in some cases resulted in them losing clients.

There is also lack of clarity about products that fall under tax exemption status. Unfortunately tax regulations offer various interpretations within their exempt goods brackets. Licensing of goods is also mired in misunderstanding as well as long delays in obtaining the necessary approvals. A recent example regards the introduction of bans on certain plastic bags where even larger retail enterprises queried the exact plastic weight of bags that were banned.

The cost of red-tape

Compliance costs are of two types: one-off costs, such as the costs associated with initial business registration and recurring costs, which arise on a regular basis.

In the Rwanda survey, the overall total regulatory costs for the Rwandan economy amounted to at least RwF 55 billion per annum. The majority of these costs were spent on complying with tax regulations (33.8%) followed by costs of complying with export requirements including delays (33.6%).

Tax compliance was found to affect micro-entrepreneurs as much as large companies. For instance in the Rwanda red-tape survey, there was a difference of 15% in the responses of enterprises with over 100 employees and those employing less than 5.

Business registration procedures were most felt by businesses employing less than 10 employees, with temporary interruptions by having to close the businesses in order to comply with regulations being cited most. According to the 2005 Human Development Index Report titled “Aid, Trade and Security in an unequal world” on average the cost of starting a business in sub-Saharan Africa is 224% of the average national income, compared with 45% in South Asia. This factor keeps many entrepreneurs in the informal sector in order to survive.

To comply with red-tape costs, firms are often forced to pass on these costs onto their customers, which in turn have economy-wide knock on effects. For business startups this makes marketing their products and services doubly onerous. Ultimately the government loses revenue and taxpayers may face higher rates as a result of the government seeking to recoup lost revenue from registered businesses.

Higher taxation results in businesses not disclosing full information with regard to income and/or number of employees in order to avoid higher penalties. This in turn sometimes results in employee layoffs as a way to mitigate reduced earnings.

High tariffs on imports also lead to smuggling by unscrupulous entrepreneurs, who often have set up rings where they receive tip-offs of impending raids and offer bribes to evade prosecution. This leads to law-abiding entrepreneurs to exit the market as they are unable to compete on an equal basis with such enterprises.

Even VAT, the most common tax acts as a disincentive to registered enterprises. Businesses are required to pay VAT when they order supplies of inputs, but they often experience a considerable delay between paying the VAT and receiving payment from their customers for the goods or services provided. When combined with the costs of actually buying raw inputs in the first instance, this forces small business to operate with very little working capital.

Reducing the costs of red-tape frees up resources for more productive activities as well as spurring wider economic growth. Thus it is imperative for economic reforms to focus on regulatory and administrative environments that act as the foundation of business-friendly policies thereby stimulating trade and attracting more people to venture into entrepreneurship.

For starters as regards micro-entrepreneurs simplifying procedures that reduce the need for in-person interactions are a first step in the right direction. As seen from the increase in mobile phone cash transfers and banking, revenue and regulatory authorities can also harness these tools. This move should also encourage more entrepreneurs to comply, as well as reduce unnecessary delays in business.

A Fish Rots From Its Head - Crony Capitalism Exposed At The Kenya Youth Enterprise Development Fund

“A fish rots from the head … down”
Crony Capitalism at the Kenya Youth Enterprise Development Fund

A Mars Group Kenya / Youth Interactive Portal for Enterprise (Yipe.org)

Report for

The Partnership for Change
From Dictatorial Impunity to Democratic Accountability in Kenya

June 27th 2009.

On June 23rd 2009, the East African Standard published an article by Kenneth Kwama outlining a

litany of accusations of financial mismanagement and impropriety at the Youth Fund. The Fund in

turn through its Chairperson, Ms. Hellen Tombo accused the Standard of being used in political

machinations, and looking for corruption where none exists.

The basis of the East African Standard story was a management letter by the Kenya National

Audit Office (KNAO) dated 28th November 2008 to the Chief Executive Officer of the Youth

Enterprise Development Fund. It is not known what was the response if any there has been to

this letter but the letter contains detailed audit queries which indicate significant managerial

problems at this important national fund. This matter is one of urgent national importance bearing

in mind Agenda 4 of the National Accord.

Though the MOYA confirmed it received an investigation report from the Inspectorate of State

Corporations they denied having lost any money. Minister Hellen Sambili said the Inspectorate’s

report makes several recommendations to strengthen the governance structures of the Youth

Enterprise Fund but makes no mention of "anything about the disappearance of money".

On June 26th 2009, the MOYA published a paid advertisement in the Daily Nation reiterating the

same. Since the Youth Fund’s press briefing, no other media mentions have emerged regarding

their response on the discrepancies outlined in the Kenya National Audit Office management

letter to the Youth Fund.

On June 23rd 2009, the East African Standard published an article by Kenneth Kwama outlining a litany of accusations of financial mismanagement and impropriety at the Youth Fund. The Fund in turn through its Chairperson, Ms. Hellen Tombo accused the Standard of being used in political machinations, and looking for corruption where none exists.

The basis of the East African Standard story was a management letter by the Kenya National Audit Office (KNAO) dated 28thNovember 2008 to the Chief Executive Officer of the Youth Enterprise Development Fund. It is not known what was the response if any there has been to this letter but the letter contains detailed audit queries which indicate significant managerial problems at this important national fund. This matter is one of urgent national importance bearing in mind Agenda 4 of the National Accord.

Though the MOYA confirmed it received an investigation report from the Inspectorate of State Corporations they denied having lost any money. Minister Hellen Sambili said the Inspectorate’s report makes several recommendations to strengthen the governance structures of the Youth Enterprise Fund but makes no mention of "anything about the disappearance of money".

On June 26th 2009, the MOYA published a paid advertisement in the Daily Nation reiterating the same. Since the Youth Fund’s press briefing, no other media mentions have emerged regarding their response on the discrepancies outlined in the Kenya National Audit Office management letter to the Youth Fund.

Why this issue is important

When the Youth Fund management was confronted with questions regarding the financial letter from the Kenya National Audit Office, instead of answering the queries they only politicised the issue. Further to that the public statement carried in the Daily Nation of Friday 26th 2009, do not in anyway answer the auditors question regarding its financial management.

The Youth Fund in this year’s Budget is set to receive a substantial amount of money from the Exchequer. Therefore, before they receive the Funds, it is imperative that they satisfy the Kenyan public and in particular its youth who form the majority ofKenya’s citizenry that it has rectified these discrepancies, and addressed all the management issues raised in the letter by the KNAO.

Principles of accountability and transparency demand that it is the role of the Government of Kenya and its public officers to answer questions posed by the citizenry they serve. To politicize issues is an act of the impunity that has allowed scandals of loss of billions of Kenya shillings to occur. Kenyan’s will remember cases such as scandals of financial impropriety that cost the Exchequer huge losses, for instance the country’s National Social Security Fund. Though the figures listed below may well be small as opposed to other scandals such as Anglo-leasing and Goldenberg, which almost crippled Kenya’s economic security, the Partnership for Change contends that it is impropriety regarding trusteeship of small sums of money that ultimately end up exploding into scandals in the range of billions.

Furthermore, when the media raises issues in the public interest, duty bearers in public office are best advised to RESPOND to the issues being raised; not just to dismiss every question on accountability to mere politics. This is the era of accountability and the Partnership for Change will demand nothing short of answers when such queries are raised by the media and citizenry.

To avert this, the Partnership for Change on behalf of its membership, through Mars Group Kenya and the Youth Interactive Portal for Enterprise (Yipe.org) is thus posing 10 questions with the ultimate objective of not having to witness another scandal later on, if it emerges that the Youth Fund was indeed losing much needed money.

The Partnership for Change is grateful to the media when it acts in the public interest by playing its role as a public watchdog.

Read Full Report: “A fish rots from the head … down”: Crony Capitalism at the Kenya Youth Enterprise Development Fund

Related Documents:

Youth Fund Status Report as at 31st March 2009

YOUTH ENTERPRISE DEVELOPMENT FUND ORDER 2007
Financial Statement Audit Of The Youth Enterprise Development Fund Board June 30th 2008

Africa’s business competitive disadvantages don’t have to adversely affect corporate social accountability

In a landmark case settled this week, the family of the “Ogoni 9” executed in 1995 received a US$ 15.5 million payout from Royal Dutch Shell company. The case goes back to the 1990’s in Nigeria where it was alleged that Shell had a long history of closely working with the Nigerian government to quell popular opposition to its business operations in the Niger Delta region; home of the Ogoni people.

Even though Nigeria is an oil-rich nation, environmental and human rights activists claim that oil and oil companies have brought nothing but poverty, environmental devastation and widespread incidences of severe human rights abuses to the inhabitants of the Delta. Oil spills, gas flaring and deforestation have stripped previously agricultural fertile land of its environmental resources, further impoverishing local communities by making traditional income earning activities such as small scale farming and fishing virtually impossible.

Thus, the Movement for the Survival of the Ogoni People (MOSOP) was founded in 1990 to non-violently agitate against the repression and exploitation of the Ogoni people and their resources by Shell and the Nigerian government. One of the founders, noted author and playwright Ken Saro-Wiwa worked tirelessly to raise worldwide awareness of MOSOP and the plight of the Ogoni people. MOSOPs activism resulted in Saro-Wiwa’s nomination for a Nobel Prize and he was also awarded a Right Livelihood Award as well as the Goldman Prize for his environmental and human rights activism.

In early 1993, Shell requested military support to build a pipeline through Ogoni territory. Karalolo Kogbara, a local farmer who protested over the bulldozing of her crops, was the first victim of the Nigerian military’s violent eviction. She was shot by Nigerian troops and lost an arm, spurring mass agitation in the Niger Delta.

In 1994, Saro-Wiwa and other MOSOP leaders were prevented by the Nigerian military from attending a gathering to air their views. It was at this gathering where four Ogoni chiefs were murdered. The military governor promptly announced that Saro-Wiwa was responsible for the deaths, forgetting that his own troops prevented Saro-Wiwa from attending. These murders were used as a pretext to conduct raids on 60 Ogoni villages, where several hundred men suspected of MOSOP involvement were beaten and detained.

Saro-Wiwa and his co-accused henceforth known “Ogoni 9”, were thereafter tried by a tribunal for the murders of the Ogoni chiefs. The trial itself was a travesty of justice. The Ogoni 9 were denied access to due process, as well as an opportunity to appeal death sentences proclaimed on them. The Ogoni 9 were executed on November 10 1995. A month after, Shell signed an agreement with Sani Abacha’s junta to invest US$ 4 billion in a liquefied natural gas project.

On behalf of the families of the Ogoni 9, the Centre for Constitutional Rights (CCR) and EarthRights International (ERI) flanked by other human rights attorneys sued Shell for human rights violations against the Ogoni people. Amongst the plaintiff’s allegations was evidence that Shell provided monetary and logistical support to the Nigerian police, frequently calling on them for “security operations” that often just amounted to raids and terror inflicted against the Ogoni people. Other allegations of meddling in the Ogoni 9 trial emerged, where in one instance, Shell Nigeria reported to headquarters that Saro-Wiwa would be convicted.

The Shell case is by no means a unique phenomenon, where companies are sued for corporate social unaccountability. Chevron, another oil multinational has been sued by the Bowoto for gross human rights violations including extrajudicial killing and cruel, inhuman, or degrading treatment in the Niger Delta region. The case originates in May 1998, when unarmed residents of the Niger Delta protested at Chevron’s offshore Parabe Platform, demanding that the corporation contribute more resources to the development of the impoverished oil-rich region. On May 28^th, the protestors were shot and some killed by Nigerian soldiers and Chevron security personnel who were transported to the platform on Chevron-leased helicopters. Chevron is also being sued for causing the destruction of riverbeds, natural ecosystems, and contributing to extreme land erosion.

As more oil and extractive resources are being discovered, such reports of human and environmental violations are now setting a precedent. Cases of uranium workers in Namibia and gold miners in South Africa, where mining companies have been accused of not providing safe and healthy working environments, are cases in point. News reports of miners in Tanzania dying as a result of mines caving in have also been reported. The use of child labour has also been brought to light.

The recent settlement of the Ogoni 9 case further endorses the global trend towards corporate social accountability, that has pushed businesses to adopt internal codes of conduct. And this paradigm shift is not only directed at large multinational companies, even smaller businesses in Africa are under scrutiny.

The recently published Africa Competitiveness Report 2009 (ACR) arrives against the backdrop of the global economic crises whose effects are now being felt all over the Continent. Although Africa previously registered average annual growth rates of 5.9%, the global economic meltdown has meant that for 2009, GDP on the continent is expected to be below 3%.

Competitiveness of African businesses (their ability to create value) is both affected by the business environment, as well as internal factors (mainly production costs). Ultimately, profit minded businesses compete on the market on the basis of prices of their goods and services. Production costs (mostly wage related) are thus of fundamental concern when starting up or managing an enterprise, where business decisions centre on how efficiently to convert inputs into sales. The ACR is particularly useful in this respect as it analyses the direct, indirect and invisible costs African entrepreneurs’ face, with the conclusion that African firms experience higher costs as shares of sales in comparison to its most aggressive global competitor, East Asia whose operational costs are said to be almost 20% less expensive.

In terms of basic requirements for sustainable enterprise, sub-Saharan businesses face numerous challenges in accessing loans and venture capital. Efficiency enhancers such as public trust of the political class and government officials, also leave a lot to be desired. For instance, favouritism in government decision-making has been listed in Kenya as a factor that hinders local enterprise competitiveness. As far as innovation and communication goes, internet penetration rates are low in Africa compared to its Asian business rivals; and in an era where the knowledge economy is gaining more primacy, low levels of internet access in schools translates into higher training costs for employees compared to other regions.

Individual African firms in many African countries, also significantly suffer from a constraint in electricity availability as a result of a spatial terrain that impedes access to energy resources, un-affordability of energy, coupled with a regulatory environment that limits the number of investments for such technology. Even SMEs and co-operatives that venture into electricity generation and transmission through wind and solar power, are faced with a multitude of barriers from regulatory authorities and laws that give monopoly power to state corporations. In Tanzania, the quality of electricity supply has severely hindered local firm competitiveness, both regionally and throughout the continent.

High transport costs due to the poor quality of road and railway networks, also adversely affect the profitability of African enterprises. The railway that originates from Mombasa has been a sore thumb for enterprise for decades. Even recent concessions have failed to bear any fruits in terms of increased inland trade. The ACR also cites a lack of competition in the trucking industry that keeps transport costs exorbitantly high. In West and Central Africa, trucking cartels keep market prices high, both affecting consumer purchasing power as well as producer profitability. The report proposes such cartels should be abolished to promote enterprise in addition to fiscal incentives that encourage entrepreneurs to venture into the transport sector.

Cross border trade has also been an impediment to free enterprise within Africa. Exorbitant freight costs and delay prone border posts not counting the numerous police barriers speckled on Africa’s highways mean that inland trade is unattractive for new entrepreneurs.

In terms of the external business environment, the ACR reports that Africa retained the lowest global ranking in terms of its regulatory environment. Entrepreneurs face copious regulatory barriers including business startup rules, difficult registration of property requirements, a minefield of customs and excise policies, so much so that according to the ACR, the Continent stands out as a difficult location in terms of time and/ or the cost of doing business. The extent and effect of punitive corporate and value added taxation in countries such as in Kenya also act as a deterrent to business, keeping many entrepreneurs within the informal sector.

Even for technological savvy African firms keen to exploit business processing outsourcing opportunities, constraints in technological costs are involved. For those engaged in development of agri-business, the prohibitive costs from local research institutions mean that their innovative capacity also suffers. Competitive advantages such as Africa’s market size which ideally should offer vast economies of scale, are virtually wiped out by invisible costs such as corruption and security costs.

Thus, in order to remain profitable, the first cost in production to be guillotined by local firms are commonly labour related costs. Instances include the curtailment of training opportunities, not providing medical insurance in countries where it is mandatory, keeping wages at the barest minimum, resorting to unethical practices such as using child or illegal alien labour and refusing to put long-term employees on contract, amongst others. Another major social cost is environmental, where entrepreneurs face serious choices between keeping costs at a minimum as opposed to more expedient ways of processing that may cause environmental degradation. Even in African countries that have environmental bodies to monitor business activities and their environmental implications, these agencies are limited both in their capacity to detect violations, whilst environmental legislation is still nascent, and doesn’t empower them with vigorous enforcement rights.

Though these measures may pale in comparison to what the oil companies in the introduction have been charged with, they do still violate the rights of not only the people working for the enterprises; they also impact on the wider community in terms of lower income.

All businesses regardless of size, need to be aware that just as in the Ogoni 9 case, it is possible for them to be tried for corporate social unaccountability. It matters not whether the country of operation has such laws. The Ogoni case was filed under the Alien Tort Statute (1789) which gives non-US citizen the right to file lawsuits in US courts for international human rights violations. The Torture Victim Protection Act, empowers individuals to seek damages in the US for torture or extrajudicial killing, regardless of where the violations take place.

Nevertheless, business founders also need to be aware at the startup stage of the legacy they want their enterprise to have. This goes beyond a five year strategic plan. A business legacy is the impact an entrepreneur wants their venture to have 100 years from now. It matters not that Shell for instance began drilling oil in Nigeria in the 1950’s. It matters even less that the company was in existence way before then. The company will forever be linked to the case of the Ogoni 9.

African business does not operate in an isolated state, as seen by the local impact of the global financial crisis. As such, now is the time for African entrepreneurs think more long-term and in turn lobby for policies that emphasise competitiveness which will enable them to manage price shocks and economic uncertainty more competently; without having to resort to unethical measures.

Advocating for such competitiveness focussed reforms will not only promote business profitability, but will ultimately act as a catalyst for long-term growth and prosperity for Africa. Individually, we as entrepreneurs can educate ourselves and others on the importance of business integrity.

Son of murdered writer and Ogoni activist talks, Ken Saro Wiwa Jnr about his father, Ken Saro Wiwa.

An ethical business revolution is emerging

Kenyan Nobel Peace Prize Laureate Prof. Wangari Maathai has written a fascinating article posted on opendemocracy.net titled “An African future: beyond the culture of dependency”.

Maathai writes that as a result of the G20 London meeting where leaders pledged more funds for development aid to Africa, she was concerned that this injection may not be effective in enabling Africans to rise out of the poverty they live in, as the money may not in this case be spent effectively.

Maathai goes back to one of the root causes of poverty naming powerlessness or disempowerment as a key factor in its perpetuation. African leaders in the past, and some today have been deified to the point where they took all the power, leaving the common African more or less dependent on them to make all the decisions. Almost forgetting the power they yield through the ballot in those countries that allow democratic elections, even at the grassroots level any form of community self-help had to be led by a local or national leader either as Chairperson of the Committee or Patron.

This in turn resulted in a feudal scenario where the common man was beholden to the mweshimiwa (Honourable person) for almost everything ranging from allocation of relief food, to ensuring jobs for relatives in the public sector (which through this nefarious nepotistic activity resulted in the disintegration of many civil services) to handouts for school fees.

Maathai posits that this disempowerment has infected the psyche so that even one’s self esteem and dignity have been derogated. She writes:

“Disempowerment - whether defined in terms of a lack of self-confidence, apathy, fear, or an inability to take charge of one's own life - is perhaps the most unrecognised problem in Africa today. To the disempowered, it seems much easier or even more acceptable to leave one's life in the hands of third parties (governments, aid agencies, and even God) than to try to alleviate one's circumstances through one's own effort.”

She terms this as a syndrome that has been so far neglected by policy makers and development pundits. And it is this same alienation of the common man, that has allowed corruption as Maathai says to seep right down to Africa’s (grass)roots.

A matter of survival

Maathai gives an example of the macadamia nut industry where a group of farmers in her constituency (pre-2008 when she was a Kenyan Member of Parliament) approached her for assistance. For those who care to look, the macadamia industry is a growing sector and not only for its edible attributes. The nut’s active ingredients have been recognised as being able to be used for many products ranging from skin lotions to sexual dysfunction aids. Kenya is placed in the fortunate position of being climatically suitable for growing macadamia trees, so of course it was not surprising that many farmers have entered this sector.

This should have been the vehicle to prosperity for the farmers who approached Maathai when she was their Member of Parliament. However and this also applies to the plight of Africa’s youth entrepreneurs, disempowerment is what caused their macadamia nut project to flounder and is also what causes many young enterprises not to last more than 12 months.

Brokers, middle men and “connections” agents

Due to their lack of resources, most small enterprises have to go through brokers, middlemen or whatever other names they go by. For the macadamia farmers they had to go through a broker to link them up with an exporter. In the case of the young entrepreneur starting out, if they want to get some work from a large company or even the government, they too need a middleman who then sub-contracts the work out to them. They are thus not masters of their own business, having to share profits with these brokers, who for the most part hardly incur any costs of their own.

However, as also in the farmers case, asymmetry of market knowledge in the broker’s favour translates to a higher “brokerage” fee which if not paid means the end of that enterprise.

The green eyed monster

Maathai’s macadamia farming constituents also complained that as their standard of living began to overtly manifest the effects of increased household income, they became targets for theft from neighbours. This theft had serious repercussions on sales:

… the farmers were unhappy. When we met, they explained that, because there was so much money to be made in the macadamia nuts, their neighbours, also farmers, had begun to steal. Now, macadamia nuts need to be fully ripe to be ready for processing, and they are not fully ripe until they fall to the ground. But some people (the farmers told me) had started shaking the trees before the nuts were ripe, in order to make them fall … In the end, the greed had become so enormous that some individuals had simply crept onto the farmers' land at night, cut down the trees, and hauled them away, so they could harvest every single nut for themselves.

This same avarice and wanting to reap where one has not sown is what has brought many young businesses to come to an abrupt end. In a scenario where an entrepreneur seems to be climbing the financial ladder, they also have to face their peers ostracising them (though not always to their face). Comments such as “I wonder how so and so made so much money in such a short time, they must have stolen it” begin to emerge.

Jump aboard and hijack the product

Eventually as even the macadamia thieves started selling poor quality nuts, the middle-man told the farmers he wouldn’t buy any more nuts from them again. So what began as a very promising income generating activity that would have eventually enriched the entire community simply crumbled.

Taking a walk through African cities, one notices that the enterprises being operated by the youth are generally service oriented, and fall within a narrow category of retail business types. There is hardly any manufacturing and even more disturbing is the lack of innovativeness on the part of youth entrepreneurs. Just how many pirated DVD shops can a city have? The answer to that question depends on how many young entrepreneurs there are. This may sound cynical, but if one just strolls through Africa’s business districts patterns of mobile phone accessory shops, small clothing stalls and the emerging number of cramped cyber café’s tell the story of an over-saturation of enterprise but no individual firm growth. It’s no wonder most of these outfits hardly last a year, when the young entrepreneurs venture into the next big thing in small business.

The failure of a colonial developed education system

Education has also failed Africans. In countries such as Kenya and Nigeria, the education system was geared towards creating employees and not employers. Farming and agriculture have also been variously frowned on as backwards. So as such as Maathai writes: Such farmers may have little or no formal education, and may therefore be functionally or actually illiterate. Even if they are able to read or write, they lack access to written materials or the internet to inform themselves about the crops that are their primary source of income.

Likewise, the formal education system has let down young entrepreneurs. By not inculcating financial literacy, business and personal management skills, how then can a person of say 19, 25 or even 35 years be expected to start and grow a profitable enterprise?

Maathai also decries the state of support from the Kenyan government for farmers in her words to “empower him in the international marketplace". For the youth, yes the Youth Enterprise Development Fund (YEDF) is a great initiative to empower the youth, however, young entrepreneurs need some form of ongoing business support, not just financial. Also the Fund can be a conduit to push youth-owned products and services both onto local and international markets.

Working together for the greater common good

Apart from institutional challenges the macadamia farmers faced, ultimately Maathai writes that it was “own failure to understand the consequences of its self-destructive actions. Instead of working together to further the common good of their communities, each person pursued his individual interests - and all lost.”

Just as how the macadamia thieves ruined this entire industry, so have unethical entrepreneurs also sullied the name of business. So often cases are brought to our attention at Yipe.org of ruthless contractors or middle-men who give out work to young entrepreneurs and yet do not pay them their just dues.

However mainly due to a sense of powerlessness, young entrepreneurs who believe they are at the mercy of these thugs and on the promise of more work remain silent, writing off these debts by taking on more expensive loans to service them. Similar to the macadamia farmer case, as Maathai writes this is corruption, nothing else. It doesn’t matter whether it is at the State House or the local kiosk, unethical business where one lives off the sweat of another is corruption.

One new media group in Kenya has stood up to fight these criminal entrepreneurs by forming a facebook group called People Against Corruption in Kenya. The group is a platform for any person that has been cheated or defrauded out of their just dues to place a complaint so as to assist other young entrepreneurs from falling into the same trap.

Because most young entrepreneurs are small fish compared to the big fry that conned them in the first place, this group is a more user friendly way of at least ensuring justice in the form of awareness raising and preventing fellow entrepreneurs being conned. It beats waiting for the judicial system which takes too long, and is itself prone to corruption, and once it grows, it will probably serve as an business integrity rating system.

So as Wangari Maathai writes there is an ethical revolution in the making. And young entrepreneurs are sure to be in the fore-front of this change.