Kenyan SMEs Play Huge Role in Wealth Creation, Distribution

One of the main concerns as we head to the ballot box is the ever-growing socio-economic gap. Despite the sustained over 5 per cent economic growth, we continue to grapple with broad-based improvement in wellbeing and poverty reduction. The population below the poverty line is growing and the “middle” continues to lean precariously on the whimsical shifts of global, regional and local politics and economics.

As a country, we have deployed many measures to combat poverty including aid and development sponsorships. However, the structures and institutions that we set up in this endeavour seem to be persistently eroded by what some have called a “culture of rent seeking”.

Prevailing institutions and governance structures cannot hold up in an environment where scarcity and despondency are the order of the day. The quest for cultural change must, therefore, begin with the recognition that economic development or lack thereof influences cultural notions on tendencies towards preservation, distribution and investment in public resources.

Availability of resources is not the main problem for this country, but the investment that ensures their proper administration, management and distribution is where there is room for improvement.

One of the crucial areas that has suffered due to this is the SME sector. Due to its versatility, the SME space, needs and trends change rapidly requiring structures flexible enough to absorb these changes and allow businesses to thrive. But because it has not been understood this way, SMEs have at best been pushed to the back burner and at worst labelled as unstructured, unstable short-term businesses.

But these descriptions fall short as they dilute the gravity of SMEs in our economy and especially for our social and political development as a country. According to KNBS MSME 2015 Survey, the SMEs in manufacturing employ between 10 and 100 people, and, the SMEs sector’s contribution to the GDP amounts to about 33.8 per cent!

These are staggering figures if we begin to look at what this means in relation to employment, productivity and innovation that is needed to bridge the inequality gap. If a person holds a steady job, it affects the degree of influence they have in the spaces they occupy, be it home, institutions or community. It also means that they begin to see their role to society as meaningful, and therefore are willing to give their contribution towards positive changes in their environment. They gain an identity.

In Kenya, 14.9 million people work in MSMEs and out of these only 6.3 million work in licensed ones. If we were to make formalisation and running of these businesses easy, affordable and sustainable, how many more people, especially the youth, would gain an identity that can bring about a monumental change?

We need to find ways to develop SMEs capacity in a way that their impact on socio-economic development is stretched beyond few geographical spaces and is sustained into the future.

One way to do this is by building the capacity of SMEs and integrating them into the industrial value chain.

This gives SMEs an opportunity to grow beyond borders. Challenges faced in the efforts to meet global standards by these businesses can be addressed through concepts such as subcontracting where bigger firms “mentor” SMEs in their navigation of value chains to find their competitive advantage and excel. In doing so, both parties benefit in terms of their bottomline and market expansion. More importantly, this increases SMEs’ capacity to absorb the ever-expanding labour market.

The “Middle” then, need not be precarious in the future because SMEs, if well nurtured, will play tremendous role in wealth and resource distribution. Subsequently, we will be able to foster a sense of belonging for many young people who will, in turn, focus their energies in reducing poverty and driving social development.

The writer is the CEO of the Kenya Association of Manufacturers and the local representative for Global Compact Network in Kenya