It's high time we debunked Kenya's entrepreneurship myth

What you need to know:

  • The relevant question, therefore, is why the tendency to create businesses is neither of the right kind nor useful for livelihoods and prosperity.
  • By concentrating on raising productivity, fewer firms will arise, with the less efficient freeing up resources to find better use. 
  • The influence of bureaucrats who benefit from the maintenance of bad businesses has trapped the country in a fearful corner.

In Kenya, hardly a week passes by without some respected columnist or public official being quoted in national media about the need for new enterprises and start-ups in Kenya.

Their sensible reasoning is that with the right skills, an entrepreneur would be able to create their own job and not rely on employment.

This cliché means absolutely nothing in economic terms but is beloved of experts because it makes people look perceptive, while driving the idea that the silver bullet to poverty and unemployment in Kenya is to create a cadre of entrepreneurs. 

Rajesh Chandy, a professor of entrepreneurship and business studies at the London Business School, states that this idea is completely false.

His studies show that the most successful and prosperous economies are not those in which a large majority of the labour force are entrepreneurs.

In other words, entrepreneurship density is often a signal of a low-productivity economy and not the sign of robustness and good health.

His studies supply evidence that these prosperous societies tend to have, at most, one enterprise for every 10 citizens.

My estimate of the equivalent in Kenya is close to three times as much (one for every three citizens) with the inclusion of farm-based enterprises.

The first point these numbers make is that Kenya is unlikely to get further with the formation of more businesses of the type that are traditionally created.

POLAND OR RUSSIA

The relevant question, therefore, is why the tendency to create businesses is neither of the right kind, nor useful for livelihoods and prosperity.

Our affinity for state-owned enterprises does not just contradict the thinking that policy supports private firms to create jobs, but also ensures that many start-ups will not thrive.

This desire is, in turn, undermined by other behaviour that keeps the wrong kind of firms in place, through government subsidies and privileged access to public procurement.

The classic examples of public sector reform and economic liberalisation show that countries are faced with a definite choice. A country could emulate either Poland or Russia.

Both nations share Kenya’s history of heavy state involvement in the economy and a virtual collapse of the economy in the early 1990s.

Poland adopted reforms guided by the “Balcerowicz Rule”, which unapologetically broke down unprofitable state corporations and heavy bureaucracies.

As an article in The New York Times in 1998 stated, this was the twin policy of benign neglect of inefficient factories on the one hand and the commission to bankruptcy for others.

On the other hand, Russia’s reformers were at first committed to similar reforms but later freaked out at the behest of oligarchs, and amid fears that jobs would be lost.

It is clear that Kenya’s reform journey at the same time was not undertaken with the unflinching resolve of the Polish, but with the chameleon-like hesitancy of the Russians.

Thus Kenya has sugar and meat factories, and seed corporations, that are either surviving due to monopoly status or through consistent subsidies.

In short, the influence of bureaucrats who benefit from the maintenance of bad businesses has trapped the country in a fearful corner. This small but very clever set of bureaucrats and supplier firms benefit from the national fear that privatisation will hand over Kenyan assets to foreigners.

FREEING UP RESOURCES

In Poland, the inevitable death of inefficient firms released resources for creating new industries and for scaling up underfunded enterprises.

In the same way, for as long as Kenyan maintains public-sector firms whose business models were developed before half of the nation was born, they will continue to suck public money and vitality away from future businesses.

If we continue to jealously guard legacy firms and the jobs of the last century, the likelihood of start-ups becoming viable will remain remote.

There is an alternative to the existing policy of throwing funds at the youth to create enterprises, just so we can slap one another’s backs over entrepreneurship. Better policy must ensure professionals are pulled away from these old firms into new ones.

By concentrating on raising productivity, fewer firms will arise, with the less efficient freeing up resources to find better use. 

The prospects for job creation and higher productivity of labour in Kenya depend on reforming state corporations. Courage is required to close the insolvent ones, and provide space and resources for new ones.

Entrepreneurship without productivity is not useful and new firms must arise from the death of existing dinosaurs. Poland’s example is the one to follow.

Kwame Owino is the chief executive officer of the Institute of Economic Affairs (IEA-Kenya), a public policy think tank based in Nairobi. Twitter: @IEAKwame