“When you see that in order to produce, you need to obtain permission from men who produce nothing – When you see that money is flowing to those who deal, not in goods, but in favors – When you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you – When you see corruption being rewarded and honesty becoming a self-sacrifice – You may know that your society is doomed.” Ayn Rand – Russian philosopher and writer.

I was recently pointed to the quote above by a friend who was perturbed that from the turn of the century, the Nairobi Securities Exchange (NSE) had only had about fifty two companies listing their equity which grew to sixty one by the time the NSE went public in 2014 and listed itself on the exchange, to the current sixty six companies in 2021. In short, in twenty one years the NSE has only had about fourteen or so companies go public. The question is why? Yet in that time, there has been a marked increase in Kenya Shilling billionaires, a number of whom have done nothing other than been at the right place at the right time, including – if the parliamentary inquiry into the KEMSA COVID-19 related procurements is anything to go by – just walking past the KEMSA doors and “angukia-ing” a tender just like that!

As Kenyans we have become inured to the fact that almost absolutely nothing happens to the perpetrators of the corruption related economic crimes. In Ayn Rand’s words “when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you”… it makes one stop and ponder if there is an invisible co-relation between the lack of growth in the capital markets and the growth of graft billionaires who tie up the justice system with adjournments and all manner of technicality cans kicking the case down an unending road.

The truth is, there is a high cost of doing business the legitimate way in this country. Paying your varying taxes on time, complying with the myriad local and national licensing requirements to trade and navigating through a myriad of employment regulations and court jurisprudence that over the years favor the employee over the employer is equally exhausting for many small, medium and large enterprises. Two interesting developments have occurred this year. The first was the attempt by Kenya Revenue Authority (KRA) to introduce the minimum 1% tax on turnover for all companies. This was brought to a screeching temporary halt by the courts in April this year as we await the outcome of any appeals that KRA will make. The second is the current National Hospital Insurance Fund (NHIF) (Amendment) Bill in parliament making it mandatory for employers to match the NHIF contribution paid by their employees.

With the increasing cost of doing business it is small wonder that companies, that are for all intents and purposes excellent candidates for listing on the securities exchange due to their growth potential and significant economic contribution are reluctant to raise their profiles any further than necessary, as the amount of disclosure on legal and financial business aspects make them targets of those “men who produce nothing” as Ayn Rand lyricizes. By flying under the radar of non-disclosure as is required of publicly listed companies, businesses can go about their work without worrying who from the KRA is monitoring their semi-annual results publications in the print media while comparing and contrasting with the tax returns that are being made.

The winners here are the banks, as debt financing has far more attraction for the borrower due to the reduced number of eyes that get to see their financial statements. The losers are the business owners who do not get an opportunity for price discovery that listing provides to enable the equity holders determine the market driven value of their equity, as well as an easier route to realize a gain on their sweat by selling to external shareholders and raising additional alternative capital which in some ways is cheaper and longer term in nature than debt financing.

“When you see corruption being rewarded and honesty becoming a self-sacrifice – You may know that your society is doomed”, Ayn Rand quips. We are not a doomed society yet and I refuse to consign our fate to this negative conclusion. But there is some food for thought in how our regulatory and tax framework in all matters business can reward those that actively produce goods and services for the betterment of our society.

[email protected]

Twitter: @carolmusyoka