Business, investment climate issues in new budget
On June 10, 2021, Finance minister Mwigulu Nchemba unveiled the 2021/22 Union government budget. The budget is to the tunes of Sh36.4 trillion, with about 63 percent dedicated to recurrent expenditure and 37 percent to development expenditure.
Among the key focus areas in the budget is improvement of the business environment and investment climate. This is crucial for a competitive economy which is one of the sub-themes of the budget derived from the Third Phase of the Five-Year Development Plan (FYDP-III).
This piece highlights some business environment and investment climate issues for economic competitiveness.
Business and investment climate
Business environment and investment climate include aseveralvariables that affect businesses and investments positively or negatively, depending on their status. Businesses and investments of all kinds and sizes need friendly, attractive and conducive environment and climate at all stages. The climate and environment are very important for not only attracting but also retaining investments and business in virtually all sectors of the economy. They are important in giving captains and titans of the industry the confidence needed to commit their normally colossal, long-term, borrowed and risky capital. In what follows some business environment and investment climate variables that are important for countries’ competitiveness are outlined.
Policy, legal and regulatory frameworks
Among the overall determinants of business environment and investment climate are policy, legal and regulatory frameworks in a country.
These do determine, influence and move and shake what happens and what does not happen in the world of business and investment. What investors and businesses need are friendly and most importantly predictable policy, legal and regulatory frameworks guiding businesses in all sectors of the economy. Policies, laws and regulations in a country influence what can and what cannot be done in a country. They therefore influence most of the other determinants of business environment and investment climate.
Infrastructure
Infrastructure of all kinds are needed for businesses and investments to take place. They include what is termed as hard, traditional and orthodox infrastructure on one side and soft infrastructure on the other. The former includes ports, airports, railways and roads among things while the latter include telecommunication including internet, telephones and related issues. What investors and businesses look for is quantity and quality of infrastructure that is very important for efficiency and speed and by extension for competitiveness.
Utilities
Along with infrastructure, businesses and investments are influenced by availability, accessibility, reliability and affordability of utilities. The key utilities are water and power in terms of electricity.
Among the issues of concern include the speed with which they can be hooked in a business premise, their costs and most importantly their quality in terms of reliability. This is especially so for electricity. Fluctuations in electricity for example can easily disrupt production processes by destroying not only the products in production lines but also the machines being used.
Fiscal matters
There are a number of business environment and investment climate issues in the fiscal space. They include but are not limited to number and rates of taxes, length it takes for tax refunds and associated opportunity cost of authorities holding firm’s capital; easy of tax payments including availability of one stop centre for tax purposes.
Other issues revolve around the axis of tax incentives, and the predictability of numbers, types and rates of taxes to be paid.
Skills and talents
Businesses and investments are moved and shaken by the quantity and quality of skills and talents in the labour force. These are key part of human capital which is among the most important factor of production. Investors and business are concerned with both the hard and soft skills and increasingly so in the latter. Soft skills include but are not limited to variables like trust, team work, creativity, innovation, perseverance, confidence, communication skills and much more along that line.
Access to finance
Access to finance is very important for the conduct of any business or investment. Finance is needed at all stages of businesses and investments. Among the key issues in the finance space include availability, accessibility and affordability of long term and structured finance in general and for specific sectors in particular. Issues of concern have included high cost of borrowing among others.
