Despite many hurdles, the Kenyan SME is headed for bigger stake in 2018. FILE PHOTO | NMG
Kenya’s small and medium enterprises (SME) have been through one of the most challenging years in recent times.
Other
than other well documented systemic challenges that SMEs face, 2017
added interest rate cap, drought and a prolonged electioneering period.
This has been particularly hurting because SMEs remain the economic growth engine for Kenya.
A
recent Central Bank of Kenya (CBK) report indicated that SMEs
constitute 98 per cent of all business in Kenya, create 30 per cent of
the jobs annually as well as contribute three per cent of the GDP.
Under
the Micro and Small Enterprises Act of 2002, micro enterprises have a
maximum annual turnover of Sh500,000 ($5,000) and employ less than 10
people.
Small enterprises have between $5,000 to
$50,000 annual turnovers and employ 10-49 people. Medium ones, while not
covered by the Act, have a turnover of between $50,000 and $8 million
and employ 50-99 people.
Vision 2030, Kenya’s anchor
economic blueprint, under its economic pillar sets out strategies to
strengthen the SME sector to grow and innovate.
Increased competitiveness of targeted local industries,
defending local industries against counterfeits, development of special
economic clusters and consolidation, focus on value addition in agro
processing as well as securing strategic partnerships for key agro
processed goods make the list what should be done.
All
these strategies with a view of reducing imports by 25 per cent grow
market share of selected products for the regional market from seven per
cent to 15 per cent and attract at least 10 large strategic investors
in key agro processing industries.
While developing
strategies is commendable by giving a clear direction that enables
giving priority and efficient allocation of resources to key national
projects, Kenya’s Achilles heel has been strategy execution, a situation
where government separates strategy from execution.
Although
the World Bank in its report on Doing Business in Kenya in 2017 lauds
the country for making progress in making it easier to start a business,
many bumps litter the growth path.
The
Ease of Doing Business index is a superior performance indicator for
any government but is outward looking, in that it is predominantly used
by foreign investors to assess whether to invest in a country or not.
The
assumption in the ranking is that there is a direct correlation between
foreign direct investment activity in a country and the country’s
position on this ranking.
The effort by Kenya to
improve the county’s ranking is noble and commendable, but it doesn’t
help the cause of local SMEs that are the major contributors to Kenya’s
GDP and employment.
Cognizant of the aforementioned I
was involved in a study to perform a diagnosis of the state of the
Kenyan SME sector for the year 2017 and possibly find out what their
aspirations for year 2018 are.
Although there are
several diagnostic tools for mapping and measuring an entrepreneurial
ecosystem, the study team settled for the ANDE developed diagnostic
toolkit.
The tool measures the following factors in
relation to SMEs: Access to Finance, Access to Market, Infrastructure,
Government Policies, Business Support Services, Human Capital and
Innovation.
The study team randomly sampled SMEs in
various sectors across the country such as manufacturing, aviation,
health care, business services; trade, agribusiness, construction and
tourism.
The study findings were startling.
Sixty-seven per cent of respondents indicated that they couldn’t access
financing from third party institutions, instead 80 per cent of their
financing coming from combination of business profits and savings with
business profits having 60 per cent.
Further, the study
indicated that 52 per cent of all respondent managed to access the
export market with 43 per cent registering more than 10 per cent revenue
growth.
Other indicators were: 96 per cent of
respondents indicated that their businesses were affected by the
political climate, 52 per cent said they put in significant effort in
productivity compared to 2016, while 63 per cent experienced increased
staff turnover and 67 per cent accessed business support services.
Finally,
70 per cent of respondents indicated that revenue growth was their
major goal for 2018 with diversification, expansion, financing and
markets sharing at 30 per cent.
Despite facing a tough
year Kenyan SMEs have proven to be resilient compared to bigger
companies, majority of who issued profit warnings.
With
the elections done and dusted and going by President Uhuru Kenyatta’s
plan to focus on economic development, Kenyans we can safely assume SMEs
will have plenty to chew on come 2018.
Victor Otieno is Director-Research and Innovation at Wylde International.
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