The Small and medium enterprise(SME) Empowerment project-2004

In Africa, SMEs create 80% of employment, establishing a new middle class and stimulating demand for new goods and services. In Asia, the regional and global economic slowdown has raised the need for a new growth model, strengthening business and economic opportunities for SMEs to boost national productivity and social welfare.

Most SMEs fall under the informal sector called jua kali, which means hot sun or fierce sun in Swahili. Initially, jua kali referred to people working under the hot sun or open air. By extension, the term now refers to people in self-employment or small-scale industries. In other reports, jua kali refers to all enterprises employing between 1-49 employers in all sectors. It therefore appears that jua kali could refer to both formal and informal sector SMEs. Kenya does not have a comprehensive record of SMEs. While estimates put Kenya’s MSMEs at about 7.5 million enterprises, contributing approximately 44% to the Kenyan GDP in 2008, it has been suggested that the number of formal SMEs is more in the region of 250,000. A 2014 CNBC news report puts SME contribution to Kenya’s GDP at about 45%

The informal sector is estimated to constitute 98% of business in Kenya, contributing 30% of jobs and 3% of Kenya’s GDP. The government recognises the role of the informal sector and seeks ways to integrate these businesses into the formal sector. According to the 2017 Doing Business in Kenya report, the ease with which businesses can be registered has a bearing on the number of entrepreneurs who start businesses in the formal sector, leading to jobs and more government revenue. In Kenya, starting a business involves seven procedures, takes 22 days and costs 21.1% income per capita for both men and women. Although Kenya has generally made progress in making it easier to start a business, there are questions as to how easy starting a business is for SMEs.

The benefits that will accrue to Kenya through integration and skills development of its large, yet unproductive, informal sector are significant. Fortunately, Vision 2030 acknowledges the need to support the informal sector to raise productivity and distribution, jobs, owners’ incomes and public revenues. Vision 2030, the country’s development blueprint to transform Kenya into a newly industrialising middle-income country, aims to increase annual GDP growth rates to an average of 10%. Under its economic pillar, apart from supporting the informal sector, the country hopes to accelerate economic growth by increasing national savings, implementing governance and institutional reforms and addressing poor infrastructure and high energy costs. The government is currently involved in some infrastructure developments, which have the potential to ease some of the constraints to doing business, such as the lack of electricity and accessible roads.

Barriers and threats to SME growth in Kenya

The Deloitte Kenya Economic Outlook 2016 notes Kenyan SMEs are hindered by inadequate capital, limited market access, poor infrastructure, inadequate knowledge and skills and rapid changes in technology. Corruption and an unfavourable regulatory environment are other challenges. Government attempts to address these problems include enforcing legislation on local content for public projects, establishing ‘Buy Kenya, Build Kenya’ policies in public procurement, research and development support and increased contributions to funds such as the Uwezo. The Uwezo fund aims to expand access to finances and promote women, youth and persons living with a disability. The Kenyan government is also promoting small and medium scale manufacturing firms and plans to develop SME parks.