Legal and Regulatory Environment Issues affecting Businesses in Kenya

By Anthony M. Wanjohi:

Kenya is one of the developing countries that has been labeled as having poor legal and regulatory environment that has been hindering not only the growth of Small and Medium Enterprises (SMEs) but also macro enterprises.


A study on the challenges facing Small and Medium Enterprises in Nairobi revealed that a vast majority of entrepreneurs (84.2 per cent) indicated that unfriendly legal and regulatory environment was the most pressing challenge that faced entrepreneurs operating within Nairobi Central Business District (NCBD). Figure 1 shows the distribution of the respondents on various issues related to the legal and regulatory environment that affect businesses in Nairobi.





According to 42.1 per cent of the respondents, the most pressing legal and regulatory environment issue that affected businesses at NCBD was business permit. Some explained that the process of applying for the business permit is long and tedious, and expensive too.  Further, there was a feeling among most of them that the city council of Nairobi did not provide services which match the required permit / license fee. Slightly over a third (34 per cent) of the respondents indicated that taxation was another issue. Kenya has been said to be one of the countries in the world with heavy taxation.  Another common issue was fines which are charged upon failure to meet certain business legal requirements.


Unfavorable regulatory environment does not only scare away potential investors but also squeeze revenues for those in operation (Wanjohi, 2009). As such, there is need for government and development partners to create a conducive legal and regulatory business environment that is at par with international best practices so that the country can attract the requisite private investment.



Kamau, P. (2010). Managing Challenges Facing Small and Medium Enterprises in Nairobi Central Business District. Journal of Research Abstracts, JRA, Volume 4, 2010.


Wanjohi, A. (2009). Challenges Facing SMEs in Kenya. Available online at