Support small enterprises to hone skills and expand output

Statistics show how deeply Kenya’s future is entwined with the performance of the micro, small and medium enterprises sector.

It accounts for over 30 percent of national output and annual job increases, according to the Central Bank of Kenya and the Kenya National Bureau of Statistics.

A 2016 KNBS survey shows that MSMEs employed 14.9 million Kenyans, produced goods and services valued at Sh3.4 trillion and accounted for a third of the economy’s value added.

Like in Europe, China and India, MSMEs are the biggest players in the business sector. In China and Kenya, 98 percent of all businesses are categorised as small to medium.

MSMEs contribute 38 percent to India’s gross domestic product and 60 percent in China and expanding. They are the goose that lays the golden egg.

DEBT

But though they create output and jobs, they are exposed to lopsided policies and poor integration to markets and credit. They should be nurtured.

The starting point should be to remove the frustrations and constraints that MSMEs experience in their day-to-day operations.

The most crippling one is the debt they accumulate due to failure by clients to pay up for goods and services delivered.

The biggest defaulters are the government and county authorities — they owe over Sh300 billion to suppliers and contractors, including MSMEs.

Access to affordable capital is also restricted by their lack of collateral for borrowing and the government’s appetite for domestic debt financing.

The MSMEs cannot survive in a credit market that remains hostage to archaic lending policies that tie borrowing to assets rather than firm performance.

This has perpetuated accumulation of costly idle assets, such as undeveloped land, which don’t contribute to earnings.

PARKS

Moreover, government borrowing distorts the credit market and chokes small borrowers. It turns banks into lazy financial intermediaries that collect public deposits at low interest rates and lend to the government at a higher rate.

The government should reduce its domestic borrowing to improve the credit market for MSMEs and reduce their vulnerability to shylocks.

It should strengthen development finance companies to provide affordable credit to MSMEs.

It should also expedite the operations of the Kenya Development Bank — which merges the Industrial and Commercial Development Corporation, IDB Capital and Tourism Finance Corporation. The merger was approved by Cabinet in May.

A conducive environment for MSMEs should also include rapid development of business and industrial parks in all major towns.

The government ought to reincarnate the Kenya Industrial Estates business model that created sheds for “jua kali” operators in towns during the early years of Independence.

ACCOUNTABLE

Modern business and industrial hubs would create opportunities for MSMEs to upgrade their skills, adopt new technologies and deepen integration with large business to enhance their products’ quality and competitiveness.

In India, MSMEs are providing components for space satellites. Strategic interventions, through initiatives such as cluster development and national manufacturing competitiveness programmes, have upgraded MSMEs’ performance.

The institutions mandated to improve the enabling environment for MSMEs should demonstrate accountability in response to the critical needs of the MSMEs.

The National Industrial Training Authority, Kenya Industrial Research and Development Institute, Kenya Institute of Business Training, Anti-Counterfeit Agency and others should work to enhance the long-term viability of the small entrepreneurs.

MSMEs don’t have to be consigned to the bottom of development pyramid. They have a great opportunity to break out of the “jua kali” cycle and play a more significant role in economic growth and regional transformation.

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