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Back small enterprises to better boost jobs and economic growth

Thursday June 20 2019

Treasury CS Henry Rotich, DENNIS ONSONGO

Treasury Cabinet Secretary Henry Rotich at Parliament buildings on June 14, 2018 for presentation of the 2018/19 budget statement. PHOTO | DENNIS ONSONGO | NATION MEDIA GROUP 

PETER WARUTERE
By PETER WARUTERE
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The small business sector is the source of livelihood for most families in Kenya, yet its survival hangs on a thread due to exclusion in national policies and budgets. In the 2019/2020 budget, the government allocated to it just Sh1.7 billion, which National Treasury Cabinet Secretary Henry Rotich said was to facilitate the growth of micro, small and medium enterprises in the manufacturing sector.

VALUE CHAINS

Although that could help the MSMEs move up the value chain, it is a drop in the ocean when considered against the needs of the enterprises. The crippling problem for most MSME operators is the Sh500 billion pending payments for goods and services delivered to the national and county governments. The government has an obligation to clear this debt, some of it outstanding for several years, to breathe life into the operations of the sector.

The other major challenge is that they operate informally and their activities are not even well understood. A 2016 survey by the Kenya National Bureau of Statistics showed that of the 7.4 million MSMEs, only 1.56 million, 21 per cent of them, were licensed by the counties.

Informality means majority of them, though contributing to jobs and economic growth, are not documented and cannot benefit from programmes targeted at improving them.

Enhancing the contribution of MSMEs to the economy should be a key priority of the national and county governments. They just need a package of interventions that include an enabling business environment, access to finance and markets.

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A conducive business environment for MSMEs should include a framework of policies that encourage them to grow, to reduce their mortality rate. Their survival depends on whether they are supported through enabling regulations and affordable fees and taxes.

The national and county governments should upgrade the jua kali sheds constructed over three decades ago and help the operators to upgrade the technology that they use.

Greater access to finance would improve the survival of MSMEs and help them to move up their value chains. The financial sector does not offer a solution to the capital needs of MSMEs.

INTEREST RATE

This sector has suffered the most from the interest rate caps imposed in September 2016. The caps were supposed to improve access to credit for small business operators and households but the major credit providers, mainly banks and microfinance institutions, shifted their funds to government paper, which is more secure and lucrative.

And while the Treasury bills floated weekly are usually heavily oversubscribed, small borrowers are starved of credit and are increasingly shut out of the formal financial system, to be at the mercy of Shylocks — including the fast-growing fintech lenders on mobile apps charging annual interest rates of 60-360 per cent.

The solution is two-pronged: The government should reduce its appetite for domestic borrowing to stop crowding out MSMEs and restructure the interest rate regime to allow affordable credit to all.

The government should also facilitate the MSMEs to deepen their integration with the formal economy, particularly in manufacturing, agribusiness and services. Business associations such as the Kenya National Chamber of Commerce and Industry should engage the government on potential areas for MSME participation in the Sh450 billion allocated in the budget for the Big Four Agenda projects.

Integration to the Big Four is happening in affordable housing, where artisans have clinched deals to supply fittings to the housing projects. What should be addressed is how the small enterprises can upgrade the quality of their goods and services to match the rigorous demands of their clients.

Supporting MSMEs would boost the realisation of the Big Four and expand their contribution to jobs for the youth, economic growth and shared prosperity.

Mr Warutere is a director of Mashariki Communications Ltd. [email protected]

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