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SMEs driving Kenya’s economy

Tuesday February 25 2020

BUSINESS

Fashion designer Kim Kyallo takes advantage of the SMEs exposition at KICC on February 24, 2020 to showcase his wares. PHOTO | DENNIS ONSONGO | NATION MEDIA GROUP 

KEZIAH KINUTHIA
By KEZIAH KINUTHIA
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In any jungle the big beasts get the attention. That’s no different when it comes to business.

For far too long, the big businesses in Kenya have hogged the limelight, shunning those at the other end of the spectrum — the small and medium-sized enterprises (SMEs).

Small and medium-sized enterprises are the lifeblood of Kenya’s economy, constituting of about 98 per cent of all the businesses in the country, yet still, they are often forgotten, marginalised and ignored.

Embarrassingly little is known about these firms that have employed about 14.9 million Kenyans.

FACILITATING SURVIVAL

These small and medium-sized enterprises (SMEs), defined by the government of Kenya (GOK, 2005) as business that engage between 1-99 employees, cover a range of establishments in almost all sectors of the economy; they operate formally or informally, seasonally or year round and are located in a number of areas including markets, streets, households or mobile.

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We all rely on these small businesses in our daily lives, yet many of us may not realise their true impact.

Whether it’s the local coffee shop you visit every morning, the parts manufacturer that employs a member of your family or the accountancy firm that helps you manage your finances, small businesses help to shape our local cities and regions.

The small business sector makes a huge contribution on multiple fronts — fostering innovation, creation of new markets and consumers, a higher tax base, generation of employment and in effect, alleviation of poverty.

EFFECTIVE TOOLS

Specifically, official statistics show that the value of SMEs output is estimated at Sh3,371.7 billion against a national output of Sh9,971.4 billion representing a contribution of 33.8 per cent in 2015.

This was an incredible rise from 13 per cent recorded in 1993.

Although, markets dominated by major players with huge promotional budgets and economies of scale can seem impenetrable by small businesses, quality, flexibility, and personal service are proving to be effective tools for carving out a niche in even the most competitive of markets.

Perhaps this has been the most significant role of a healthy small business sector.

Start-ups have played a critical role in the country’s economy by inventing new products and approaches, forcing existing businesses to compete or fall by the wayside. An essential element of a prosperous economy.

GRADUATES LUCKY

Data from Kenya National Bureau of Statistics (KNBS) shows 49.2 per cent of licensed SMEs had a monthly turnover of less than Sh50,000, while 35.7 per cent recorded a monthly turnover of between Sh50,000-1,000,000.

Only 0.2 per cent of these businesses had a monthly turnover greater than Sh1 million.

And even though this turnover which is like a drop in the ocean of what the big businesses record, SMEs have become attractive employer to most fresh graduates.

This is why: first, with the thin job market, SMEs have now become the only route open to them.

Secondly, even though big company schemes are certainly valuable due to their strong salaries, development schemes and professional support, there are drawbacks too - the constraints from supporting departments can sometimes stifle your initiative; competition to climb the hierarchy will be intense, and you can risk your career stalling — possibly for a decade or more.

SKY IS THE LIMIT

Inside an SME, things look very different. Your salary may be lower initially, but it’ll be less constrained in the future.

You might not get so much support either, but your level of responsibility will go higher, faster, and while it is likely there will be no internal career path mapped out for you, recognition can be swift and your rise through the ranks meteoric.

After only a short time you’ll know how all of the primary functions in the business work — including board level decision-making.

Thirdly, at start-ups, teams are often so small that you’ll find yourself working directly with the founders of the business.

This lack of hierarchy also means you’ll be able to get your creative juices flowing too. Got an amazing idea?

You can take it straight to the founders and if they like it you’ll get the chance to implement it. At a larger company it can be harder for a graduate to get their voice heard.

LACK OF STATE SUPPORT

Yet, even with its immense contribution to the economy, Kenya’s SMEs face a myriad of challenges that always hamper their growth.

According to a report by Deloitte, "Kenya Economic Outlook 2016", SMEs are hindered by inadequate capital, limited market access, poor infrastructure, inadequate knowledge and skills and rapid changes in technology.

Corruption and other unfavourable regulatory environments present other bottlenecks to this vital cog of the economy.

A survey by the Kenya National Bureau of Statistics released early this year indicates that approximately 400,000 micro, small and medium enterprises do not celebrate their second birthday.

Few reach their fifth birthday, leading to concerns of sustainability of this critical sector.