Factors limiting the Growth and Success of Small Businesses in Kenya

By Soko Directory Team / May 16, 2017

Access to finance workshop for SME Development
By Amina Faki

Over the past years, Kenya has been embarking on a long process of political economic and social reforms to improve the business environment, promote economic growth and poverty eradication.

The economic trauma the country is facing is attributed to a lot of factors among them being the underdeveloped private sector which accounts for a large percentage of employment.

Unemployment has been a chronic problem in the country. Today the unemployment rate stands at a staggering 39.1 percent forcing a large number of working population to opt for self-employment.  Unfortunately, a number of newly formed businesses fail to operate on profits and eventually close down or continue operating without a good return on investments constrained growth and expansion.

As it is widely known, the small business sector is recognized as an integral component of economic development and a crucial element in the effort to lift a country out of poverty.

Small-scale businesses are a driving force for Kenya’s economic growth, job creation, and poverty alienation. The have the ability to accelerate economic growth and rapid industrialization.

In addition, the small-scale business has been recognized all over as a feeder service to large-scale industries. While its contribution to development is generally acknowledged, entrepreneurs in this sector face many obstacles that limit their long-term survival and development.

It’s reasonable to expect small businesses to grow and flourish, but the rate at which business fail continues to increase because of the numerous obstacles affecting business performance;

Lack of financial resources to supplement new businesses lead to their closure, banks are not ready to finance and give loans to small businesses whose business has a low assurance.

Lack of management experience is a major obstacle to the growth of a business. Most young people who start up business lack the skill to manage it to its growth; they are managing their business for the first time. Poor choices and rapid decisions made in the management of a business lead to its failure. Also, poor communication and lack of teamwork greatly contribute to the failure of a business.

Poor location; the success of a business is determined by setting it up in the right business environment. Right business location helps one to reach the right target audience making it easier for a business to sell its products and services.

Laws and regulations have greatly undermined the growth of businesses in the country. This is so due to high-interest rates on returns imposed on the businesses by the government. For a business that has no deep roots in the business world, this directly affects its performance undermining its growth.

General economic conditions in Kenya are not so favorable for new businesses. Dominant businesses in the market get the upper hand for it has definite consumers in the market. For a new business to compete against the dominant products in the market it won’t be able to make a profit to grow the business. This is seen with the telecom industry in the country, Safaricom being dominant over the others like Airtel, Orange etc.

Poor infrastructure; setting up a business or growing up one needs sufficient infrastructure which is in good condition. Poor and insufficient infrastructure automatically leads to underperformance in a business and a business that has no means to keep up with the others in the market fails.

Corruption has been a song in the mouths of many citizens if not all in the country. A corrupt government has no room for the growth of a business; businesses end up failing for lack of a better business environment for their hard labor ends up in the hands of a chosen few.

Low demand for products and services; every product has the right season and time to be consumed. There are those that run all time like the basic needs and day to day services. Seasonal businesses fail due to lack of demand from its consumers leading to the closure of some businesses due to the failure of catching up with the market demand. E.g. the tourism business might flourish during the holidays but right after the business faces low turn-ups.

In addition to the above-mentioned obstacles to the growth of a business in Kenya, poverty, shortage of raw materials, handicap in obtaining finance, inadequate competent personnel, inability to control costs and problems of dumping of cheap foreign products and many others have greatly hindered business growth in the country.

About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system. Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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