Top 20 Challenges Kenyan SMEs Go Through Without Reprieve From The Government

Steve Biko Wafula

2 years ago

SME stands for Small and Medium-sized Enterprises, which typically refers to businesses that have a relatively small number of employees and generate moderate levels of revenue.

The exact definition of an SME can vary depending on the country, industry, and context. However, some common criteria used to define SMEs include:

The number of employees: In general, an SME has fewer than 250 employees. However, this number may be lower or higher depending on the country or industry. For example, in the United States, an SME is defined as a company with fewer than 500 employees.
Revenue or turnover: SMEs are often characterized by their relatively modest revenue or turnover levels. Again, this can vary depending on the context, but some common thresholds include annual revenue of less than $10 million or less than $50 million.
Asset value: Some definitions of SMEs take into account the total value of a company’s assets. For example, in the European Union, an SME is defined as a business with fewer than 250 employees and either an annual turnover of less than €50 million or total assets of less than €43 million.

Overall, the definition of an SME is somewhat fluid and can vary depending on the specific context. However, the key characteristic is that SMEs are relatively small and generate moderate levels of revenue compared to larger companies.

Importance of SMEs to an economy;

There are many reasons why small and medium-sized enterprises (SMEs) are important to the economy of any country.

Here are 20 reasons:

Job creation: SMEs are important creators of jobs, providing employment opportunities for millions of people around the world.
Innovation: SMEs are often more innovative and agile than larger companies, which allows them to develop new products and services and drive economic growth.
Competition: SMEs introduce healthy competition in the market, which can improve product quality, lower prices, and increase customer choice.
Entrepreneurship: SMEs are often founded and run by entrepreneurs, who are crucial for driving economic growth and creating new opportunities.
Flexibility: SMEs are more flexible and able to adapt to changing market conditions, which helps them survive economic downturns and thrive in dynamic markets
Regional development: SMEs can contribute to regional development by providing jobs and income in areas where larger companies may not have a presence.
Export growth: SMEs are important contributors to export growth, as they often specialize in niche markets and can be more adaptable to the needs of foreign customers.
Diversification: SMEs help to diversify the economy, reducing dependence on a small number of large companies or industries.
Social impact: SMEs can have a positive social impact by providing employment opportunities for marginalized communities, promoting social inclusion, and supporting local charities and causes.
Skill development: SMEs can provide opportunities for skill development and training, helping workers to acquire new skills and increase their earning potential.
Tax revenue: SMEs contribute to tax revenue, helping to fund public services and infrastructure development.
Supplier networks: SMEs often form part of larger supply chains, supporting the growth of larger companies and contributing to the overall economic ecosystem.
Economic stability: SMEs can help to stabilize the economy by providing a buffer against economic shocks and creating a more diverse and resilient business ecosystem.
Entrepreneurial culture: SMEs can contribute to the development of an entrepreneurial culture, encouraging more people to start their own businesses and drive economic growth.
Industry diversification: SMEs are often active in diverse industries, helping to reduce the concentration of economic activity in a small number of sectors.
Environmental impact: SMEs can have a positive environmental impact by adopting sustainable practices and contributing to the development of green industries.
Access to finance: SMEs can provide opportunities for financial institutions to lend to small businesses, helping to promote financial inclusion and support the growth of the financial sector.
Cultural diversity: SMEs can reflect the cultural diversity of a country, providing opportunities for people from different backgrounds to start and run their own businesses.
Local spending: SMEs often source their inputs locally, supporting other local businesses and contributing to the development of a strong local economy.
Economic empowerment: SMEs can contribute to the economic empowerment of women and other marginalized groups, helping to reduce inequality and promote social justice.

Challenges Faced by SMEs;

Small and Medium-sized Enterprises (SMEs) often face a range of challenges that can make it difficult for them to succeed in their respective markets. These challenges can include issues related to funding, market competition, limited resources, and regulatory compliance. Despite these challenges, SMEs remain an important part of many economies, particularly in developing countries where they account for a significant percentage of employment and GDP.

One of the main reasons why SMEs go through what they do is because they often lack the resources and access to capital that larger businesses have. This can make it difficult for them to compete effectively in their respective markets, particularly in industries where economies of scale are important. Without the resources to invest in research and development, marketing, and other critical areas, SMEs may struggle to differentiate themselves from their competitors and grow their customer base.

Another challenge that SMEs often face is regulatory compliance. In many countries, there are a variety of regulations and laws that businesses must comply with, including those related to labor, taxation, and environmental standards. For SMEs, compliance with these regulations can be particularly difficult, as they may not have the resources or expertise needed to navigate the complex legal landscape. Failure to comply with these regulations can result in fines, legal disputes, and reputational damage, which can have serious consequences for the long-term viability of the business.

Finally, SMEs may also struggle to compete effectively in their respective markets due to the increasing globalization of the economy. With the rise of digital technologies and the growth of e-commerce, businesses of all sizes can now compete on a global scale. However, SMEs may struggle to compete with larger multinational corporations that have the resources and expertise needed to operate in multiple countries and adapt to local market conditions. This can make it difficult for SMEs to access new markets and grow their customer base, which can limit their ability to succeed in the long term.

Here are the top 20 challenges that Kenyan SMEs face:

Access to Capital: One of the most significant challenges for SMEs in Kenya is access to capital. Many SMEs struggle to get loans from traditional financial institutions due to their lack of collateral, credit history, and high-interest rates.
Limited Market Access: SMEs face challenges in accessing markets for their products and services. They have limited market knowledge, and it’s challenging to penetrate the existing markets, leading to low sales.
Competition: Competition from large corporations and other small businesses in the same industry is a significant challenge for SMEs in Kenya. They struggle to compete on price, quality, and marketing strategies.
Limited Resources: SMEs in Kenya have limited resources, including financial, human, and technical. They cannot afford to invest in technology or hire highly skilled workers, which hinders their growth.
Government Policies and Regulations: Government policies and regulations are complex and challenging to navigate for SMEs, leading to non-compliance and hefty fines.
Limited Infrastructure: Lack of adequate infrastructure such as roads, power, and water supply hampers the smooth operations of SMEs, making it challenging to deliver products on time, leading to customer dissatisfaction.
Access to Information: Limited access to information, such as market trends, consumer preferences, and regulatory requirements, is a challenge for SMEs, leading to limited innovation and competitiveness.
Limited Access to Technology: SMEs in Kenya face a significant challenge in accessing modern technology that would enable them to improve their production efficiency and quality, as well as enhance their marketing and sales strategies.
Human Resource Management: SMEs in Kenya face a challenge in attracting and retaining talented employees due to limited resources and competition from larger companies.
Poor Financial Management: Many SMEs in Kenya lack proper financial management skills, leading to poor financial performance and a high risk of failure.
Lack of Business Skills: SMEs in Kenya lack essential business skills such as marketing, sales, and strategic planning, which hinders their growth and competitiveness.
Inadequate Market Research: SMEs in Kenya lack proper market research, leading to poor product development, pricing, and marketing strategies.
Corruption: Corruption is a significant challenge for SMEs in Kenya, leading to increased operating costs, unfair competition, and reduced access to government contracts.
Limited Access to Business Networks: SMEs in Kenya have limited access to business networks and collaborations, leading to limited growth opportunities and market access.
Limited Access to Export Markets: SMEs in Kenya have limited access to export markets, leading to limited growth opportunities and reduced revenue.
Inadequate Legal Framework: The legal framework for SMEs in Kenya is inadequate, leading to increased operating costs and limited access to legal services.
Limited Access to Energy: Limited access to affordable and reliable energy sources is a challenge for SMEs, leading to reduced productivity and high operating costs.
Limited Access to Raw Materials: SMEs in Kenya face a challenge in accessing raw materials for production, leading to reduced productivity and high operating costs.
Limited Access to Business Development Services: SMEs in Kenya have limited access to business development services such as mentorship, coaching, and training, hindering their growth and competitiveness.
Limited Access to Insurance: SMEs in Kenya have limited access to insurance, leading to high risks and uncertainty, hindering their growth and competitiveness.

In summary, SMEs go through what they do due to a variety of challenges related to limited resources, regulatory compliance, and market competition. While these challenges can make it difficult for SMEs to succeed, many continue to play an important role in the economies of developing countries and elsewhere, creating jobs and driving economic growth. By addressing these challenges and leveraging their strengths, SMEs can continue to compete effectively and thrive in their respective markets.

In conclusion, SMEs in Kenya face various challenges that hinder their growth and competitiveness. Addressing these challenges requires a collaborative effort from the government, the private sector, and other stakeholders.