By Gabriel Onyango
Kenya’s development blueprint, vision 2030, in its mission to transform the country into an industrialized economy, highlights micro small and medium sized enterprises (MSME) as key growth driver.
To a casual observer MSMEs appear like just another sector of the economy. Nothing special about them.
However, the value is in the details. In 2016 after a 17-year information gap. The Kenya National Bureau of Statistics (KNBS) released the 2016 MSME report. Which reveals the nature and structure of MSMEs countrywide.
The sector is divided into three: Micro (1-9 employees), Small (10-49 employees) and Medium (50-99) sized enterprises. A majority of which are in the service sector.
Wholesale, retail and motor vehicle repair businesses account for 57.1 per cent of the 1.56 million enterprises that are licensed and 62.9 per cent of the 5.86 million that remain unlicensed.
Contribution to the Economy
At the time of the report’s release, MSME’s accounted for 33 per cent of the country’s GDP – sh3.4billion.
A point to note here is that although wholesale and retail had the highest number of businesses (more than half of the MSMEs in Kenya).
Those in manufacturing outperformed them; at 24.3 per cent against 22.8 per cent respectively. This reveals an opportunity to improve the productivity of MSMEs by investing more in manufacturing in line with vision 2030.
2.2 million businesses are said to have closed in the last 5 years up to the time of the report’s release in 2016.Wholesale and retail businesses accounted for 73.5 per cent of these.
Anyone out there thinking of starting a business in wholesale or retail, you better do Sherlock Holmes like Research before starting. Otherwise, your chances of survival are at best 30 per cent before you even sell your first bundle of Unga.
Main Sources of Capital
Main capital source is money from family/own, which accounted for 80.6 per cent of MSME start-ups. The report found that a majority of these businesses were stated either because of preference for self-employment or for better potential to increase income.
Sadly, banks only fund 5.6 per cent and with the current interest rate capping, this is likely decline further. However, do not just take my word for it, go and try asking for a loan.
Chama’s fund 1.4 per cent, Cooperatives (0.4 per cent) and the government (0.1 per cent) of MSMEs capital.
The level of innovation among MSME’s is low with many subscribing to the “Copy and Paste” school of thought. It is worse in marketing and businesses processes where little innovation is seen.
However, among manufacturing, ICT, financial and health services innovation was found present at 31.6 per cent, 33.3 per cent, 44.4 per cent and 42.5 per cent respectively.
According to the report most MSMEs depend on client satisfaction and product quality as a marketing tool. 58.3 per cent of micro, 35.6 per cent of small and 33.5 per cent of medium sized enterprises do not employ any marketing efforts.
A significant number of business owners expressed desire for the government to help in market promotion and providing a working environment with fair competition.
The main constraints stated were multiple licenses required, high taxation and a tiresome registration process. Information about these processes is also not easily available.
Besides currently being the biggest employer in the country MSMEs still hold a lot of potential to be explored .With proper support and policies in place the sector can take the lead towards achieving vision 2030.