State must prioritise paying SMEs for ‘Big Four’ to succeed

Friday March 15 2019

SMEs

Ken Thiong’o (left), explains the process of making briquettes during a Nyeri County Jua Kali and SMEs exhibition on June 27, 2015. PHOTO | FILE | NATION MEDIA GROUP 

RICHARD NGATIA
By RICHARD NGATIA
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The government’s Big Four Agenda offers countless opportunities for small and medium enterprises (SMEs).

Having been founded on the premise of manufacturing, universal healthcare, affordable housing and food security, the business community will play a pivotal role for the success of President Uhuru Kenyatta’s legacy programme.

AMBITIOUS

As an ambitious development programme aimed at transforming this country, the multiplier effect will not only be diffused locally but also regionally and internationally due to side-by-side flow of capital and labour resources.

Early estimates indicate that trillions of shillings will be used in the roll-out of the four pillars — an opportunity all must purposefully seize to do business and also be agents of achieving the intended objective through a mutually beneficial arrangement.

Although the government has promised to ensure SMEs benefit from this transformative initiative, the need for proactive involvement cannot be gainsaid for them to effectively compete with multinationals and other global players.

However, to achieve this, the government must prioritise prompt payments to SME contractors to ensure the businesses remain afloat and enable them to meet their civic obligation of paying taxes, which translates to more public revenues.

Majority of the SMEs are suffering due to delays in payment from the national and county governments for goods supplied and services rendered to them, yet most take out interest-bearing loans to finance the contracts.

EXEMPLARY

About 2.2 million SMEs have closed shop over the past five years, up to 2016, according to a 2016 government report, underlining the tough business climate for small-scale traders.

The Kenya National Bureau of Statistics (KNBS) report, “Micro, Small and Medium Establishments”, indicates that most of the businesses that shut down blamed shortage of operating funds, increased operating expenses and declining income for the collapse. That highlights the need for SMEs to take advantage of the Big Four.

The government projection is to expand manufacturing and increase its contribution to gross domestic product (GDP) from nine per cent to 15 per cent in the next five years.

For instance, in the agro-processing subsector, the programme looks to create 1,000 SMEs with a goal of attaining 200,000 new jobs in the next five years.

Similarly, they can also invest in textile and other light manufacturing sectors — such as leather, food and beverage processing.

In an exemplary scenario, the government has announced plans to produce 20 million shoes by 2022 to reduce importation of finished products in a bid to cushion local entrepreneurs and increase their absorption of unemployed youths.

HOUSES

As noted during the recent meeting between President Kenyatta and SME investors at Strathmore Business School last year, which was organised by the host, NIC Bank and the government, the sector has a potential to produce 11 million tonnes of fish, as opposed to the less than the current 400,000 tonnes, if only it gets government support to engage in aquaculture.

In housing, SMEs can take advantage of technology and supplement government in constructing affordable houses, which they can then lease or sell for a profit.

In a bid to achieve long-term social security, the government seeks to build at least 500,000 affordable houses by 2022.

In support of SMEs — who form the bulk of Kenyans in active employment, therefore, the largest bracket of taxpayers — the government has expressed plans to consolidate Kenya Industrial Estates, Development Bank of Kenya, Industrial Development Bank of Kenya, Uwezo Fund and Youth Enterprise Development Fund.

In addition, the government has reduced electricity tariffs for manufacturers.

STRATEGY

The government has also prioritised operationalising the Buy Kenya, Build Kenya strategy, where the private sector will complement its ministries, departments and agencies to dedicate 40 per cent of their allocations for local purchases by opening up the markets. The sentiments were echoed by visiting French President Emmanuel Macron, who underscored that SMES are a critical component of the economy.

But more need to be done to build capacity in this sector to fully exploit its potential.

Although the government is the largest buyer of goods and services, most of them are largely sourced from foreign markets, adversely affecting cash flow for local firms.

In retrospect, transfer of modern technology and expertise into the country has served as a catalyst of development.

Mr Ngatia is the chairman, Kenya National Chamber of Commerce and Industry (KNCCI) Nairobi Chapter. [email protected]          

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