SMEs critical in attaining manufacturing dream

By Phyllis Wakiaga

The key boon of manufacturing is that it absorbs large swaths of workers and places them into productive and decent paying jobs. Manufacturing also opens avenues for new ventures by creating strong value chains to support main production. SMEs are a crucial part of manufacturing in this country, due to their role in creating employment and bringing about innovation in the sector.

A recent National Economic Survey report by the Central Bank of Kenya (CBK) indicates that SMEs constitute 98 percent of all business in Kenya, create 30 percent of the jobs annually as well as contribute 3 percent of the GDP. Despite the huge role SMEs play in driving growth, it is estimated their contribution to production is minimal.

Essentially, many small businesses are part of a huge informal economy, which may seem to offer relief for their short-term challenges but in the long run, minimizes their potential for growth, access to wider resources and markets and limits their socio-economic impact.

During a workshop held on the sidelines of the recently concluded 3^rd Kenya Manufacturing Summit and Expo, it became apparent that SMEs have a huge but relatively untapped potential to turn around the Kenyan economy. The SME sector’s resilience was evident during the Expo and how they were ably represented among the exhibitors.

However, it was clear from the workshop that this sector is hindered by inadequate capital, limited market access, poor infrastructure, inadequate knowledge and skills and rapid changes in technology. Corruption and other unfavorable regulatory environments were also identified as bottlenecks to this vital component of the economy.

A survey by the Kenya National Bureau of Statistics released in 2018 indicated that approximately 400,000 micro small and medium enterprises do not celebrate their second birthday and very few SMEs reach their fifth birthday, leading to concerns of sustainability in this critical sector. While opening the SME Financing Africa Forum 2018 in May last year, Central Bank of Kenya Governor Patrick Njoroge pointed out that 46% of Kenya’s SMEs close within a year of founding.

MSEA has recently stated that it is developing measures aimed at turning around the fortunes that will foster the growth and sustainability of SME businesses in Kenya.  As they do this there are critical areas that need to be addressed in order to realize the full potential of this sector.

For instance, we need to look at the pressing need to create and monitor pro SME policies. This can be attained through the formalization of the informal segment of the SME sector through the promotion and simplification of business start-up operations. By so doing more people, especially the youth, will gain the confidence to formally register their business ventures.

There is also need to develop and implement measures that can help SMEs overcome the financing challenge. Many financial institutions shy away from lending to SMEs because they are considered as high risk ventures due to their lack of tangible assets that can act as security. However, this hurdle can be overcome if we adopted a subcontracting policy.

We should therefore aim at promoting the creation of strong linkages between large enterprises and SMEs, whilst governing the contractual agreements between the two. This will not only boost the growth of the SMEs, but also result in the growth of the value chains through up scaling SMEs by making them key players in the economy and ensuring their longevity and growth.

It is also important that we incubate SME innovation by tapping into the latest technological advancements and trends. As it stands today, technology has the capability of expanding markets by giving local products the chance to compete globally. SMEs should be able to tap into new and emerging markets made available by current technological trends like online markets.

Finally, it is important to promote market access of SMEs at both local and international levels. This can be done by capping unfair competition from cheap imports which continue to hinder the growth of the SME sector. The importation of items that can be locally produced should be frowned upon by industry players and clear guidelines aimed at building the capacity of SMEs to fully participate in the Buy Kenya Build Kenya Strategy are necessary. Since charity begins at home, the government, which is the largest consumer of goods and services would be a great start in offering SMEs tenders for their products.

The writer is the CEO of Kenya Association of Manufacturers and the UN Global Compact Network Representative for Kenya. She can be reached at ceo@kam.co.ke.