SMEs Skills Enhancement is Key to Economic Growth
The small and medium enterprises play a major role in all major economies, particularly in developing countries.
SMEs account for the majority of businesses globally and are important contributors to job creation and global economic development, according to the recent World Bank Group data.
In Kenya, they are regulated under the Micro and Small Enterprise Authority, a state corporation established under the Micro and Small Enterprise Act No. 55 of 2012. The Act was developed through a stakeholder’s consultations and is currently domiciled in the Ministry of Co-operatives and MSME Development.
This a clear demonstration of its importance in the current administration.
The Act gives the Authority the mandate to formulate and coordinate policies that will facilitate the integration and harmonization of various public and private sector initiatives, for the promotion, development and regulation of the SMEs to become key Industries of tomorrow.
The SMEs occupy a very strategic position in Kenya’s development. They cut across all sectors of the economy and have been identified as major contributors to jobs and income generation. These enterprises are, therefore, a major vehicle for poverty reduction and wealth creation.
The World Bank Group further postulates that SMEs represent about 90 per cent of businesses and more than 50 per cent of employment worldwide. Formal SMEs contribute up to 40 per cent of national income in emerging economies such as Kenya. The numbers increase when informal SMEs are included.
According to estimates, 600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments around the world. In emerging markets, most formal jobs are generated by SMEs, which create seven out of 10 jobs. However, access to finance is a major constraint to SME growth as it is the second most cited obstacle facing SMEs to grow their businesses in emerging markets and developing countries.
In matters finance, the SMEs are less likely to be able to obtain bank loans than large firms. Instead, they rely on internal funds, or cash from friends and family, to launch and initially run their enterprises.
The International Finance Corporation estimates that 65 million firms, or 40 per cent of formal micro, small and medium enterprises in developing countries, have an unmet financing need of $5.2 trillion every year, which is equivalent to 1.4 times the current level of the global MSME lending. East Asia and Pacific accounts for the largest share (46 per cent) of the total global finance gap and is followed by Latin America and the Caribbean (23 per cent) and Europe and Central Asia (15 per cent).
The gap volume varies considerably region to region. Latin America and the Caribbean and the Middle East and Africa regions, in particular, have the highest proportion of the finance gap compared to potential demand, measured at 87 per cent and 88 per cent, respectively. About half of formal SMEs don’t have access to formal credit. The financing gap is even larger when micro and informal enterprises are taken into account.
Enhancing talent or capacity-building can be exemplified as the progression of developing and strengthening the skills, instincts, abilities, processes and resources that organizations and communities need to endure, acclimatize, and prosper in a fast-changing world.
The importance of SME contribution to the economy can be accentuated by providing the necessary tools key among them is to enhance their capacity building.
The capacity building skills relevant to the SME sector are strategy, leadership, marketing, finance, compliance, branding, public relations. At the personal level this cascade to self-awareness, empathy, critical and creative thinking, decision making, problem solving, effective communication, interpersonal relationship, coping with stress and emotions, innovative mindset and emotional stability.
This then is how key stakeholders can create an environment conducive to augment skills or building capacities of SMEs.
First, the governments at the national and county level should fully recognise and embrace the contribution of SME’s to the national economy.
Second, the government should develop a comprehensive legislative framework to guide their operations - registration, permits and other exigencies.
Third, to enable target all SMEs for service delivery the MSEA should develop and maintain a data base of SME’s in all sectors.
Four, there should be a concerted effort aimed at mobilising providing funding for enhancing skills and building capacities for SMEs in their key areas of operation, including governance, finance, leadership, strategy marketing, branding, public relations, compliance and risk management.
Fifth, having been adequately empowered the SME’s can then be provided with access to capital funding to finance their operations.
Sixth, there is need to re-orient the tax compliance regime of SMEs to enhance their growth, innovation and
Seven, the Kenya Revenue Authority in collaboration with key stakeholders should mount a comprehensive training programme for all SMEs in the country.
In conclusion, SMEs play a crucial role in the country’s economic development in terms of poverty reduction and wealth creation. This can only be achieved though the concerted efforts of stakeholders at all levels from the national and the counties cascading to the grassroots.
Dr Njau Gitu is an educator and programme director AGES Business School
[email protected], [email protected]
Twitter: @GNjauGitu
