How SMEs Can Create an Inclusive Economy

By Phyllis Wakiaga

One of the main concerns as we head to the ballot box this year is the ever-increasing gap in socio-economic equality in this country for many people. Despite the sustained over 5% economic growth, we continue to grapple with broad based improvement in well being and commensurate poverty reduction. The population below the poverty line is growing at an accelerated rate and the ‘middle’ continues to lean very precariously on the whimsical shifts of global, regional and local elements of politics and economics.

In 2015, the Institute of Security Studies said drastic measures need to be undertaken if we are to lift about 18Million Kenyans out of poverty in line with our vision 2030 goals. 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 people have called a ‘culture of rent seeking’. But let us remember that 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 begin therefore with the recognition that economic development or lack thereof influences cultural notions on tendencies towards our preservation, distribution and investment in public resources.

We will all agree that finding resources is not the main problem for this country, but the investment that ensures their proper administration, management and distribution is where they exists room for improvement. One of the most 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 regulatory and governing structures flexible enough to absorb these changes and allow these businesses to thrive. But because it has not been understood in this way, SMEs have been at best been pushed to the back burner and at worst all labelled as unstructured, short-term, unstable businesses.

But this 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%! 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 that I mentioned earlier. If a person holds a job, a steady one for that matter, it affects the degree of influence they have in the spaces they occupy, be it their home, their institutions, community and so forth. It also means that they begin to see their role to society as meaningful, and therefore they 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 6.3Million work in licensed ones. If we were to make it such that formalization and running of these businesses was easy, affordable and sustainable, how many more people especially the youth would gain an identity that can bring about a monumental change for this country?

The Government has in the past introduced programmes that were aimed at solving the unemployment issue such as the Youth Enterprise Development Fund (YEDF) initiative. But did we have the structures in place that allowed these businesses to move from hypothetical and theoretical plans to firms with visionary structures and solid foundations? The findings from a study on youth development points to a satisfactory state of affairs with regard to the success of YEDF interventions aimed at encouraging and nurturing entrepreneurship amongst the youth. Financial support services offered by the YEDF have recorded success in promoting and developing new enterprises.

The study found that the missing link was the training and skills development which are crucial in building the capacity of youth entrepreneurs to start and run successful business. Looking at the statistics presented above, 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 way 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, access regional and international markets and upscale their business models to cater to a global market. 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 bottom line and market expansion. More importantly, this increases SMEs’ capacity to absorb the ever-expanding labour market in Kenya.

The ‘Middle’ then, need not be precarious in the future because SMEs, if well nurtured and supported, will play tremendous role in wealth and resource distribution across the country. 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 for our country.

The writer is the CEO of the Kenya Association of Manufacturers and the local representative for Global Compact Network in Kenya. She can be reached on ceo@kam.co.ke