Transforming MSMEs in Kenya

Visitors sample beauty products on display during the second day of the 4th Edition of the SMEs Conference and Expo held at the KICC grounds on March 16, 2023. PHOTO | FRANCIS NDERITU | NMG

The crucial micro, small and medium enterprise (MSME) sector role in the economic development of Kenya, continues to grow since it was first brought to the limelight in 1972, in a report prepared by the International Labour Organization (ILO) on Employment, Income and Equity in Kenya.

The report underscored the sector’s critical role in promoting growth in incomes and jobs. Consequently, Kenya embarked on putting in place innovative strategies to promote the growth and development of the sector. This is evidenced by several documents providing strategies for the promotion and development of the sector.

The sector accounts for 24 percent of GDP, over 90 percent of private sector enterprises and 93 percent of the total labour force in the economy. Development of this sector is, therefore, central to the realisation of national development goals anchored in the Kenya Vision 2030.

Employment in the informal sector, largely comprising micro and small enterprises rose by 4.6 percent to 16.0 million jobs.

Despite recognition of the sector’s potential in the creation of wealth, jobs and a key sector recommended especially to youth and women, it is still reported that most small firms collapse in their first three years in operation.

Growth in the sector is more horizontal than vertical. It is vertical growth–oriented enterprises that are more significant to economic development.

The growth-oriented enterprises in the sector are more capital-intensive and have a higher potential to create the needed employment opportunities and wealth. Various research findings, both academic and action research, from 1999 to date, have identified factors that hinder the vertical growth of enterprises in the sector.

These are mainly, market access, access to finance, quality of products, access to business and investment information and entrepreneurial culture.

The government and private sector have developed several strategies to counter the challenges experienced in the sector, for example, the government introduced funding facilities, aimed at enticing people to engage in entrepreneurship and grow their enterprises.

Some of the funding facilities specifically for youth and women, include Women Enterprise Fund, Youth Enterprise Development Fund, and Uwezo Fund. In addition, the government introduced entrepreneurship as a subject taught in colleges, universities and vocational training institutes.

The concern is why the same challenges are still cited presently by the youth, and women, operating in the sector, as the factors that hamper the growth of their ventures. I echo scholars who have recommended that entrepreneurship competencies need to be inculcated in those who operate in the MSME sector.

I recommend that an entrepreneurship policy framework be developed. Currently, there is Kenya, micro and small enterprise policy that seeks, to increase the competitiveness of enterprises, while entrepreneurship policy would focus on the key actors in the business.

I appreciate the sector’s heterogeneity and the dynamic ecosystem because every day there are entries, exits, and rapid changes in global trends of investment and business. In designing entrepreneurship policy, “One size does not fit all” should therefore be taken into consideration.

An entrepreneurship policy framework, whose scope focuses specifically on policies aimed at promoting the emergence of potential businesspeople and facilitating new start-ups, is required in Kenya.

It should pay attention to how entrepreneurship policy interacts with broader private sector development and general economic policies, as well as policies that contribute to improving the business climate.

The overarching goal of an entrepreneurship policy framework is to contribute to inclusive and sustainable development. Entrepreneurship is one of the most important drivers of job creation and economic growth and is crucial for the development of growth-oriented formal MSMEs.

It enhances productivity growth and helps find practical business solutions to social and environmental challenges, including climate change.

Although all types of entrepreneurial activities and start-ups are valuable for economic development, generating value-added, fiscal revenues and employment opportunities, start-up enterprises are particularly valuable for private sector development strategy and enhancing competitive advantages. Entrepreneurship policy is, therefore, to be an integral part of the overall national competitiveness policy.

This calls for a coherent policy approach that interlocks different areas of private sector development, including industrial policy, investment promotion, trade facilitation, export promotion, MSME promotion as well as fiscal policy.

Dr Joyce A. Ogundo is a former secretary in the Trade department and is currently part part-time lecturer at the Co-operative University of Kenya.