Justification for a country of choice: Kenya
Over the past decades, Kenya has made it easy for foreign investors to start businesses in the country. The country has no minimum capital requirements. The World Bank report notes that it has increased and made it easy in dealing with construction permits. The country also has organised sets of building rules.
In enforcing contracts, Kenya has adjusted its case management system to enhance cost-effectiveness and efficiency in cases of commercial dispute resolution. Doing Business highlights that regulation climate in a country affects the creation of new companies in the domestic market, employment creation and level of productions of those organisations.
The recent national population census of Kenya (2009) estimated that the country has about 38 million people. Fifty two percent of this population are mainly people who are employable. Kenya has a high supply of labour force. However, the country does not generate enough jobs for its employable population. Some of these workers do not have a high-level education. However, Kenya generally has a highly qualified and educated workforce in the region.
Kenya is a country with a high potential in economic growth. In 2007, the country’s economy grew by seven percent in Gross Domestic Product. This was 6.4 percent in the previous year. Economists argued that it happened due to increased investors’ confidence, government initiatives and reforms, favourable macroeconomics situations, and strong global economy.
The country managed its inflation rate well during the year 2007. However, after the disputed general election of 2007, Kenya experienced a rise in inflation to 31.5 percent. There were also adverse effects of climate change, increased international prices of crude oil, and short supplies of food.
In the last few years, the country has experienced fluctuating inflation rates mainly as a result of unpredictable prices of the international crude oil (Daniels and Radebaugh, 1997).
Rules or regulations that may hamper business operations
According to the World Bank Report, Doing Business 2012, there are at least eleven areas in business which regulations affect. These areas include “starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency (formerly closing a business) and employing workers” (World Bank, 2012). Regulations and laws regarding the above aspects differ from country to country.
The report also notes that across the globe regulatory reforms aimed at streamlining such processes as starting a business, registering property or dealing with construction permits are still the most common.
However, most countries are focusing their business reform agendas on improving legal systems such as courts and termination rights and promoting legal protections of investors and property rights (Reed, 2006).
The report also indicates that it is the “low-income economies and lower-middle economies which are making improvements at 43 percent in areas of getting credit, protecting investors, enforcing contracts and resolving insolvency indicators” (World Bank, 2012).
The country repealed some section of its exchange control laws of 1995 to eliminate restrictions on share ownership of companies incorporated in Kenya. Consequently, there were no restrictions on ownership of shares.
However, non-citizens have restrictions on owning shares of companies listed in the country’s stock exchange. Likewise, “non-citizens or even citizens cannot have more than 75 percent of voting power in a listed company” (Devani, 2009).
Kenya has restrictive regulations on land ownership. Under the Land Control act, “a private company incorporated in Kenya cannot own agricultural land unless all its shareholders are Kenyans citizens” (Export Processing Zones Authority, 2005).
Agricultural land is not under the jurisdiction of the City Council, township and municipal councils; thus, the use is still under agriculture. Foreign investors can only apply from the President seeing exemption from this Act. However, there are no restrictions on owning commercial or industrial property in the country by foreigners (Export Processing Zones Authority, 2005).
The country’s Central Bank (CBK) has some regulations regarding transfer of “hard” currency outside its borders. Parties can pay any amount below US $ 10,000.00 freely. However, any amounts between US $ 10,000.00 and 499,999.00 require evidence of purpose to the remitting bank.
On the other hand, any amounts above US $ 500,000.00 require the remitting bank to notify CBK for its statistical purposes. Such payments outside the country must also go through a country’s licensed bank (Devani, 2009).
Kenya does not have a double taxation arrangement with most countries. Therefore, most foreign investors whose countries do not have treaty with Kenya will incur double tax. Some of the countries with the double taxation arrangement with Kenya include the UK, Germany, Canada, Norway, and Zambia among others (Cross and Miller, 2010).
The country has Foreign Investment Protection Act (FIPA) to protect its foreign investors. Since the repeal of exchange control, FIPA has been less relevant. However, foreign investors can apply to the government for a certificate to allow them freely transfer their profits outside the country.
It also protects the investor from forceful and unlawful acquisition of property by the government without adequate compensations. Kenya’s constitution has some provisions under which the government can acquire land belonging to an individual, or organisation, but with adequate notice and compensation. Such provisions include the country’s defence interest, public morality and safety.
Kenya’s Employment Act, 2007 restricts amounts of deduction from an employee’s salary. Some of the major changes under the new Employment Act are that it increases the amount of deductions that an employer may make on an employee’s salary. However, the maximum deductions are two-thirds of the employee’s salary or as the ministry may decide (Muganga, 2011).
The new Act of 2007 also provides for an increased maternity leave of three months from the previous two months for the female workers (Ellis, 2007). The new Act also provides increased protection for workers in the case of redundancy by requiring an employer to fulfil certain conditions before an organisation can terminate a contract of service on grounds of redundancy.
The new Act of 2007 clearly illegalises any form of forced labour and also abolishes any form of employees’ discrimination or harassment. At the same time, it has also increased the minimum age of a child from 16 to 18 years of age.
It also requires any employer with more than 25 workers to notify the Director of Employment for every new vacancy that occurs in the organisation. For any scraped or abolished vacancy or post, the organisation must notify the Director of Employment (Farole, 2011).
Ethics: How can a firm ensure that its suppliers are operating ethically?
What is the Ethical Trading Initiative?
“The Ethical Trading Initiative (ETI) is an alliance of organisations, trade unions and non-governmental organisations committed to working together to ensure that the working conditions of employees in organisations across the world meet or exceed international standards” (ETI, 2012).
ETI concerns itself with identification and promotion of best practice in employment and working conditions. ETI watches and ensures employers and their organisations comply with the codes of labour requirements. ETI has a Base Code for its members.
However, members can also use their own codes which they can in incorporate alongside Base Code. What makes ETI unique is that “its members must insist that the suppliers meet agreed standards within a reasonable time frame” (ETI, 2012). In case the supplier fails to meet the set standards, ETI member must take immediate corrective action against the supplier before it gets any additional contracts.
Unlike fair trade, which caters for the relationship among buyers and producers, “ethical trade focuses on the rights of the workers within a supply chain” (ETI, 2012). Studies have noted that developed nations are exploiting emerging countries, which produce their goods or raw materials for exports.
Exploitation takes many forms, such as physically abusing workers, application of bonded, forced or involuntary prison labour, severe methods of disciplining and intimidating workers. In this regard, ETI looks at workers’ welfare in organisations.
However, it must work with the organisations and employers in ensuring “workers have safe and decent working environment, labour and human rights, and improve their general living standards” (ETI, 2012). Thus, employers must adhere to such rights and labour laws requirements.
How does it operate?
First, workers have a free right to choose employment. This means that there should be no bonded, forced or involuntary prison labour. Likewise, “employees shall not leave their identity documents with employers and are free to leave employment after providing a reasonable period of notice” (ETI, 2012).
Second, ETI also promotes workers freedom of association and collective bargaining rights. It provides opportunities for workers to form their trade unions, and or join any of their choices, and do a collective bargaining if need be.
ETI also encourages employers to “embrace trade unions and have open attitudes towards them and their activities” (ETI, 2012). These provisions also ensure that “no employer discriminates any worker representatives, and they are able to perform their duties as representatives effectively” (ETI, 2012). In addition, where a country’s laws restrict freedom of association and collective bargaining rights, then employer should assist employees find legal ways of expressing their bargaining rights and association.
Third, ETI also strives to ensure that working environments are safe and hygienic. Employers must provide secure and hygienic working conditions. This provision also aims at protecting workers against injuries and health hazards or associated causes by reducing risk factors at the workplace.
Employees must also receive training on health and safety issues including repetitions for reassigned and new employees. Health and safety also accounts for the provision of clean and safe facilities, such as drinking water, food storage and sanitary facilities. Any employer providing accommodation should meet the minimum basic standards of living conditions. Under such provisions, workers’ representatives shall also have responsibilities in health and safety issues (Buckley, 2005).
Fourth, rising cases of child labour in developing nations have attracted much attention from individuals, governments, and organisations. ETI insists that there shall be no use or new recruitments of children in the labour force.
ETI requires organisations to participate and develop policies which ensure that children do not provide labour, but instead get a quality education until they are adults. It also stipulates that any child or a person below 18 years of age shall not work in hazardous conditions, or at night. ETI is also aligning its provision on child labour to those found in the International Labour Organisations.
Fifth, ETI also ensures that organisations pay workers living wages. These wages and benefits must reflect those found at national standards under provisions for minimum wages. It strives that organisations should pay wages which can cater for basic needs and allow for some extras.
Employees must also have written and clear information about their employment status, wages and pays before they start working. ETI does not “approve of any deductions from salaries as a form of disciplinary measure unless the national law allows, or the employee has given his or her permission for such deductions” (ETI, 2012). In this context, organisations must keep records of disciplinary measures against employees.
Sixth, ETI ensures workers do not work excessively i.e. exceed recommended hours. Companies must comply with the national labour laws and industry standards regarding working hours.
ETI requires that workers should not work for more than 48 hours in a week on a regular basis, and they must also take a day off within a week. Any overtime is purely at a worker’s discretion and must not exceed 12 hours in a week. At the same time, the employer has no right to demand overtime and must compensate for any overtime at a premium rate.
How might it affect the supply chain of your company, especially with respect to tantalum and other minerals that may come from conflict zones?
Tantalum is an essential mineral in the electronics industry. Mobile phones, computer chips and other devices rely on this mineral (Matheson, 2012). However, there is a deep problem along the supply chain of tantalum, which mainly comes from the war-torn DRC.
There are dangers of increasing wars, violations of human rights, labour laws, child abuse, and guerrilla controls of mineral areas. As a senior manager in mobile phone industry in the UK who is aware of these issues and ETI provisions regarding employees working conditions and rights, trading tantalum may affect the mobile phone company in a number of ways (Essick, 2001).
With reference to ETI, the Senior Manager of the Mobile phone Company must carry out an audit of its supply chain. This should start from the ore processors in ensuring that its supply chain conforms to best practices in procurement. It is also necessary that any step for effective compliance with the ETI requirements should start at ore processors in the industry (Fabrikant, 2011).
The corporation, as a multinational corporation, must engage the tantalum industry in order to understand the options available in working with their suppliers so as to eliminate bad practices in the tantalum mining. It must also understand that there regions in the DRC where the mineral does not negatively affect human and labour rights of employees (Shah, 2012).
The corporation must also comply with the corollary health risks of the mineral. This is because tantalum ores are radioactive. Thus, handling and transportation of the ores along the supply chain expose workers to radioactive elements, which may negatively affect their health.
The corporation should insist on assays of radioactive analysis from its suppliers in the chain. Any supply who cannot meet this minimum requirement must ensure compliance first before it gets back to business. If a supply does not comply with the shipping requirements, then its supplies could be illegal and flouting human safety and shipment measures.
The corporation should insist on certificates of origin among its suppliers. This will help in reducing abuse of human rights, child labour, and gorillas’ controls in attempts to exploit the mineral.
If the company finds out that there is a supplier that does not comply with the requirement, then it must suspend such a supplier from trading to give it time in ensuring compliance with the industry regulations and both countries’ labour laws (Ranganathan, 2009).
The corporation should not get its mineral supplies from the war-torn regions until the militias and the government bring the war to an end. It must also recognise the ETI requirements and comply with them. This is because there are poor workers abused by the guerrillas who do not observe any ETI provisions or the country’s labour laws.
If the corporation starts suspending any non-compliant supplier, then it will force the ore processors to make changes with regard to labour laws compliance and safety standards (Hayes and Burge, 2003).
There are also legitimate tantalum processors and suppliers in the war-torn DRC. It is also difficult to separate legitimate production from those of conflict-based mining. Fundamental ideas are that ETI should not spare any firm, least of all multinationals, when it comes to protecting workers along the supply chains. Therefore, suspension of non-complaint firms will eventually deny militias their sources of income (Metal Bulletin, 2011).
Reference List
Metal Bulletin 2011, Conflict minerals: the impact on the metal markets. Web.
Buckley, J 2005, What is International Business?, Palgrave Macmillan, New York.
Cross, F and Miller, RL 2010, The Legal Environment of Business: Text and Cases- Ethical, Regulatory, Global,and Corporate Issues, 8th ed, Cengage Publishers, Mason, OH.
Daniels, J and Radebaugh, L 1997, International Business: Environments and Operations, Addison-Wesley, Reading, MA.
Devani, A 2009, Investing in Kenya: An overview of existing regulatory environment and framework for investors. ALN, Nairobi.
Ellis, A 2007, Gender and Economic Growth in Kenya: Directions in Development, World Bank Publications, Washington, DC.
Essick, K 2001, ‘Guns, Money and Cell Phones: The demand for cell phones and computer chips is helping fuel a bloody civil war in the Democratic Republic of Congo’, The Industry Standard Magazine, vol. 84, pp. 1-3.
ETI 2012, Ethical Trading Initiative. Web.
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Fabrikant, M 2011, ‘AVX Commits to ‘Solutions for Hope Project’ Through Use of Conflict-Free DRC Tantalum Ore’, The Paramus Post, vol. 4, pp. 4-6.
Farole, T 2011, Special Economic Zones in Africa: Comparing Performance and Learning from Global Experiences, World Bank Publications, Washington, DC.
Hayes, K and Burge, R 2003, Coltan Mining in the Democratic Republic of Congo: How Tantalum-Using Industries Can Commit to the Reconstruction of the DRC, Fauna & Flora International, New Holland.
Matheson, A 2012, The time to tackle the tantalum supply chain is now. Web.
Muganga, B 2011, ‘Kenya: Business Regulatory Reform Unit (BRUU)’, Aid-for-Trade, vol. 1, pp. 1-5.
Ranganathan, J 2009, ‘Tin, Tantalum and Tungsten: The New Blood Diamonds’, Huffington Article, vol.1, 1-3.
Reed, O 2006, The Legal & Regulatory Environment of Business, Irwin/McGraw-Hill, New York.
Shah, A 2012, ‘The Democratic Republic of Congo’, Global Issues, vol.1, pp. 1-25.
World Bank 2012, Doing Business 2012, The World Bank, Washington, DC.