The Kenya National Chamber of Commerce and Industry (KNCCI) in conjunction with the Nation Media Group (NMG) have organised 2020 Small and Medium Enterprises (SMEs) 2020 expo in Kenyatta International Convention Centre (KICC) to provide a platform for them to showcase their products as the country finds measures to address the myriad challenges facing the sector.
The expo will bring together thousands of exhibitors to showcasing local innovations, including those by the Jua Kali (informal) sector. Although the sector accounts for more than 80 percent of all businesses in the country, it faces immense challenges.
Lack of finance and credit, especially from financial institutions such as commercial banks, has been one of the sector’s main challenges. This is because of the lending conditions given to SME such as collateral for the loan, which they lack leading to them being profiled as high-risk borrowers. They, therefore, result in unreliable sources of financing and expensive loans that deny them the opportunity to embrace appropriate technology.
They too lack managerial strategies and operate through trial and error mechanisms. Their managerial techniques only focus on operational plans rather than strategic plans. Besides, these managerial techniques are not standard with those of other global managers.
Every managerial position regardless of whether in a small shop, supermarket chain or an enterprise warrants for adequate education and skill. However, research reveals that most of the managers of these enterprises in Kenya lack adequate education. Also, a good number are not well informed in terms of managerial knowledge and skills.
Frequently, the government and other stakeholders continue to introduce new regulations for industries and enterprises in Kenya. New laws are being enacted in a bid to regulate the operations of these enterprises. These laws are also meant to spearhead sustainable economic growth in the country. However, such regulations sometimes pose a tremendous threat to the growth of small and medium enterprises in Kenya. This is because some of these laws are too tough.
President Uhuru Kenyatta’s government has been very keen to work closely and promote Small Businesses Enterprises (SME’s).
Last year, the KNCCI signed an MoU with the Kenya Bankers Association (KBA) to help the SME’s access credit and the umbrella organization of business community entered into a partnership with the Office of the President (OP) when the Special Advisor to the President Ms. Anne Mutahi paid them a courtesy call to KNCCI last year.
“We have discussed how to assist startups and get a framework and an ecosystem around helping the SME’s. This is a critical area we talked about,” Mutahi said.
Last year, President Kenyatta announced the establishment of a special fund for SMEs in what was expected to ease a cash crunch that had hampered small businesses for three years before the scrapping of the interest rate cap last year.
“Five commercial banks have set aside Sh10 billion to be lent to MSMEs (Micro, Small and Medium Enterprises) at an interest rate of nine percent per annum, in loan amounts ranging between Sh30,000 and Sh250,000,” said the President.
“This was a most welcoming relief for our traders who were already facing soaring default penalties from their lenders and we thank the president for the timely move,” the President of KNCCI Mr. Richard Ngatia said.
According to Phyllis Wakiaga, the Chief Executive Officer of Kenya Association of Manufacturers, 50% of all new jobs are estimated to come from medium and large companies, despite them constituting only 20% of all firms in the manufacturing and services sectors. This, she said, is according to a World Bank report on High Growth Firms released recently.
“Despite the huge role that SMEs play in driving the growth of our economy, it is estimated that their contribution to production is minimal, and many of them specialize in low-value addition,” she said.
Added she; “Essentially, many small businesses are part of a huge informal economy which may seem to offer relief for their short-term challenges but in the long run, minimizes their potential for growth, access to wider resources and markets – and ultimately limits their socio-economic impact.”
Kenya’s Micro, Small and Medium Enterprises (MSMEs) contribute approximately 40% of the GDP with the majority falling in the informal sector. While there are about 7.41 million MSMEs in Kenya, only 1.56 million are licensed whereas 5.85 million are unlicensed, Wakiaga said.
The high number of unlicensed SMEs is indicative that the time is ripe to create conducive space for SMEs to be productive and profitable at local and regional levels
There are several ways to unlock the potential for small businesses if implemented in the short and medium-term, according to Wakiaga.
First, there is an urgent need to formalize the informal segment of the SME sector through the promotion and simplification of business start-up operations. By formalizing these entities, many more people, particularly the youth would gain an identity and, in the process,, open themselves up for more business opportunities along their value chains.
Second, we need to develop and implement the SMEs’ subcontracting policy. This should aim at promoting the creation of strong linkages between large enterprises and SMEs whilst governing the contractual agreements between the two. This will not only boost the growth of the SMEs, but it will also result in the growth of the value chains, catalyzing a more vibrant economy.
Third, it is important that we foster SME innovation and patenting. The SME sector competitiveness and the exploitation of economies of scale are largely determined by the quality of products developed and the right pricing. While the presence of innovation, inventions and modifications signifies growth, very few (30%) companies have come up with innovations within 3 years of their existence, according to a KAM study on Intellectual Property Rights. In this regard, it is critical that all 47 counties establish incubation centres for SMEs to resolve issues on product design, innovation and patenting.
And finally, promote market access of SMEs at both local and international levels.
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