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February 19, 2019

SMEs As Catalysts Of Economic Growth

innovative: Kamukunji Jua Kali Association artisans display their skills during Labour Day celebration’s at Uhuru Park on May 1. Kenya’s informal sector is robust.
innovative: Kamukunji Jua Kali Association artisans display their skills during Labour Day celebration’s at Uhuru Park on May 1. Kenya’s informal sector is robust.

Small and Medium enterprises are recognised world over as the catalyst by which global economies are built. They provide the entrepreneurial vibrancy and vitality which drives economic activity across different industries. Their importance in Kenya is reflected in the Economic Survey 2014 which showed that 80 per cent of the 800,000 jobs created were in the informal sector that is dominated by SMEs. They are the undisputed foundation of economic diversification and expansion, contributing immensely towards a positive socio-economic impact within the country.

One need not go far to see the importance of SMEs in their daily lives and the economic wheel of the country. Going along Ngong Road at any time of the week, one can see the many artisans busy at work and displaying their beautiful furniture and various wares hoping to clinch sale.  

There you will find high quality hard and soft wood furniture, very artistic fabricated doors and gates, some priceless pieces of art created from scrap metal, carpets and rugs, antiques and many other products, all produced from the workshops behind the display area. The artisans are also aggressive marketers and will offer to make any item to meet a customer's specific need. Even from the modest road-side industries, some of the wares are destined for the export market, and earn foreign currency to the country

The same is replicated in Kigomba, Jogoo Road, Outering Road, Kibera, and in almost every urban centre of our country. Their products can compete in any part of the world! In the contrary however, if go to the upmarket outlets and most offices, including public offices, you will find imported furniture, mainly from the Asian sub-continent.  They may not be the same products but they tend to sell more.

It is indeed a misnomer to call our SMEs Jua Kali, which has a negative connotation.  Considering that this forms a big part of the creative economy, with a huge employment potential, we should coin a better name that signifies its vibrancy and innovativeness.   

The Jubilee administration promised to create one million jobs per year and the best bet therefore is to provide an environment that allows SMEs to thrive. In fact, the president’s directive for public bodies to purchase from the youth, women and people with disabilities is a step in the right direction. The tender specifications should also take into account and give priority to local production with local raw materials and labour.

Granted, it is generally recognised that SME still face heaps of challenges and obstacles that deter them from further expanding their businesses and reaching sustainable growth in myriad areas such as business environment, regulation and access to finance.  SME will for instance bear the largest impact of the current rise in interest rates in the market; one, because they may not have the buffer to absorb a higher cost of credit and two; by virtue of their smaller loan sizes, they lack the bargaining power to negotiate for lower interest rates with credit providers. 

Malaysia’s rise to the status of a newly industrialised country is credited in part to its success in SMEs that form 90 per cent of its manufacturing sector.  Through taping the potential of SMEs, Malaysia has transformed its economy from agricultural based to industrial- based, and now it’s shifting to a knowledge based economy even as it aims to attain the status of a developed country by 2018.  Behind this phenomenal growth is an economy that is driven by home-grown domestic policies that have succeeded addressing the needs of the SME sector.  Following the industrial transformation of Malaysia, the manufacturing sector contributes 40 per cent to its GDP, compared with the stagnated 10% for Kenya.  There are obvious lessons we can learn from Malaysia.

Today, Malaysia economy is ranked the 14th most competitive in the world and fifth  for countries with a population of over 20 million, higher than traditional economic giants like Australia, United Kingdom and Japan.  It is also ranked sixth in the world in the Ease of doing business index. It is not a surprise therefore that their products are readily available in almost every market in the world.

Most significant is its tops ranking in terms access to credit, which measures the ease by which SMEs access credit. Through various credit and guarantee schemes, Malaysia has galvanised its banking system to be responsive to the needs of the SME sector, enabling the sector to obtain the much needed capital to thrive beyond the local market to the export market.    

Kenya has a very hard working, educated and creative people and the many SMEs across the country, attest to this. An SME nurturing infrastructure is however needed to ensure the sector grows beyond start up stage and that the economy can look to the SME sector for provision of increased employment, innovation, economic development and national revenue.  If for instance the Government buys a significant portion of its goods and services from SMEs such as furniture as a policy, it would provide the growth momentum to export to the region and beyond. Perhaps it’s time we take the campaign “Buy Kenya, build Kenya” a notch higher and walk the talk.






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