SMEs feel pinch of poor policies as many struggle in grim economy

Joshua Milimo, a trader in Ngong town, started two businesses last year — one for him and the other for his wife.

Little did he know that, in five short months, he would close his spare parts shop to concentrate on running a small roadside kiosk with his wife.

GRIM STATISTICS

Milimo’s story, though touching, is just a small part of a much larger and grimmer statistic. He is one of the 17 million small and medium-sized entrepreneurs who have to overcome insurmountable odds to see their businesses beyond their third birthday.

Registering a business in Kenya is the easy part. But, to begin actual operations, entrepreneurs would need up to 10 different licenses depending on the nature of the business to satisfy various agencies. This is before they face the taxman.

After dealing with the landlord and settling other secondary charges among them goodwill, which can run into millions of shillings in urban areas, a start-up will need to visit the county government offices to secure relevant licences.

Besides the business permit, which is the standard licence for all businesses, a start-up may need health licences if they plan to deal in any form of food handling.

Then they will have to secure the environmental and music copyright licences that cost up to Sh15,000 in urban areas. You may also need to pay advertising fees if you want to brand your car or for a signboard directing customers to your premises.

ANNUAL LICENCE

After that there would be fire and safety certificates. If in the alcohol business, then there will be other licences, among them the annual liquor licence that costs at least Sh50,000 in a town, municipality or city.

After you are done with this, you may need a special budget from which you will draw some allowances to keep police in the area happy in their patrols.

If you survive this process and land the highly sought-after government tender, the next phase of your nightmare will begin, especially if you relied on a bank loan to do these purchases.

If the Kenyan business environment is a graveyard for small and medium-sized enterprises (SMEs), county governments are its grim undertakers. To further illustrate the dire economic times, auctioneers are increasingly finding it difficult to find buyers for the goods they seize.

“We are in a tight spot. We are advertising but not selling. What you are seeing are repeat adverts for unsold stock,” Mr Stephen Kang’ethe, an auctioneer with Nairobi-based Dalali Traders says.

Banks are also finding it harder to recover their money at auctions. Mr Kang’ethe says some banks are now opting to renegotiate with their clients on other ways out of the situation.

“Banks are allowing customers to restructure their loans. You cannot keep advertising and incurring additional costs,” he added. He attributes the situation to low money circulating in the economy.

Those in the real estate sector are the most squeezed, given that they must deal with impatient banks on one side and a depressed market on the other.

FLASH SALE

Just recently, a bank put up for auction luxury residential houses in the upmarket Lavington suburb after the developers, Peter and Susan Muraya  of Suraya Property Group, failed to settle a loan. The property was valued at Sh384 million.

Loan defaulting has become so pervasive that developers must now find other alternative ways to survive. To put a face to the figures, Housing Finance, which reported a Sh500 million loss for the year ending December 2018, also saw its stock of non-performing loans grow by Sh5.1 billion to close the year at Sh13.3 billion.

This means that most of the people it has given loans to have either defaulted or are struggling to meet their monthly repayment.

The lender has now opted to put up 700 properties on a 30-per-cent-off flash sale to increase uptake and reduce chances of default.

The national and county governments have exacerbated the problem by taking too much time to pay their suppliers, with contractors waiting for years to get their cheques. Most of them have gone bankrupt as counties continue to hold over Sh90 billion in pending bills.

Counties in turn blame government bureaucracy for the delays in payment.

INTERVENTION

“We want to pay on time but sometimes you go to pay and find that the Ifmis (Integrated Financial Management Systems) is not working,” Kakamega governor Wycliffe Oparanya and Council of Governors (CoG) chairman says.

Mr Oparanya also cites poor quality works by some contractors and contested invoices as other reasons for delayed payment.

He says that, in most cases, what counties receive is just enough to pay salaries and most governors prioritise salaries over suppliers: “Things will be chaotic if you miss paying salaries at the counties.”

The Micro and Small Enterprises Authority (MSEA), formed more than seven years ago, is yet to lift enough of its own weight for it to advocate cogently for the interests of SMEs in the country.

Micro enterprises are all businesses that make a turnover of Sh500,000 a year and employ less than 10 people. Small enterprises have a turnover of between Sh500,000 and Sh5 million with 10 to 49 employees.

Despite being in existence since 2013, MSEA is yet to make significant interventions in promoting and nurturing the small businesses.

The business environment for start-ups is also not yet conducive given the multiple licences, which sometimes overlap.

INCUBATION CENTRES

The country is also yet to embrace the concept of incubation centres that are used to support start-ups test their ideas. This has entirely been left to the private sector, which only does it if it benefits their business.

Last year, President Uhuru Kenyatta publicly admitted that the state had let down SMEs, having not improved their conditions.

SMEs are the biggest employers in Kenya, with the government banking on them to create jobs and reduce unemployment among young people which stood at 22 per cent in 2017.

According to the Kenya National Bureau of Statistics (KNBS), there are more than 17 million registered SMEs  in Kenya, with 98 per cent of them contributing to 25 per cent of the country’s Gross Domestic Product.