Taking stock of 2017: A Reflection of Kenyan SMEs

The Kenyan SME sector has experienced one of the most challenging years to date. Other than other
well documented systemic challenges experienced by SMEs; 2017 had more challenges such as interest rate cap, drought and a prolonged electioneering period.

The Kenyan SME sector is the economic growth engine for the country.  A recent National Economic
Survey report by the Central Bank of Kenya (CBK) indicated 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.
Under the Micro and Small Enterprises Act of 2002, micro enterprises have a maximum annual turnover of Ksh 500,000 ($5,000) and employ less than 10 people. Small enterprises have between $5,000 to $50,000 annual turnovers and employ 10-49 people. Medium enterprises –while not covered by the Act have a turnover of between $ 50,000 and US$8mn and employ 50-99 people.

Vision 2030 under the economic pillar; The Kenyan government developed strategies to strengthen the SME sector to become key industries of tomorrow through productivity and innovations. Some of the proposed strategies were; Increase competitiveness of targeted local industries, defend local industries against counterfeit and dumped goods, development of special economic clusters and consolidation, focus on value addition in agro processing, secure strategic partnerships for key agro processed goods.

All these strategies with a view of reducing imports by 25% grow market share of selected products for
the regional market from 7% to 15% and attract at least 10 large strategic investors in key agro
processing industries.
Whilst developing strategies is commendable by giving a clear direction that enables prioritization and
efficient allocation of resources to key national projects; Kenya’s Achilles heel has been strategy
execution gap; a situation where government separates strategy and execution as separate and distinct activities setting itself up for failure not to mention toxic politics whose manifestos are populist and not often data driven as is the Vision 2030.

Although the World Bank in its report on Doing Business in Kenya in 2017 lauds the country for making progress in making it easier to start a business, major issues remain in smoothening the process. The ease of doing business index is a superior performance indicator for any government but is outwardly focused, in that it is predominantly used by foreign investors to assess whether to invest in a country or not.
The assumption in the ranking is that there is a direct correlation between foreign direct investment
activity in a country and the country's position on the ease of doing business index. The effort by the Kenyan government to improve the county's ranking is noble and commendable, but it doesn't help the cause of local SMEs who are major contributors to Kenya's GDP and employment.
Cognizant of the aforementioned I was involved in a study to perform a diagnosis of the state of the
Kenyan SME sector for the year 2017 and possibly find out what are their aspirations for the year 2018.

Although there are several diagnostic tools for mapping and measuring an entrepreneurial eco system
the study team settled for the ANDE developed diagnostic toolkit. The diagnostic tool measures the
following factors in relation to SMEs; Access to Finance, Access to market, Infrastructure, Government
policies, Business Support services, Human capital and innovation.
The study team randomly sampled SMEs in various sectors across the country such as Manufacturing,
Aviation, Healthcare, Business services; Trade, Agribusiness, Construction and tourism among others.
The study findings were startling; here is why. 67% of respondents indicated that they couldn’t access
financing from third party institutions instead 80% of their financing coming from combination of
business profits and savings with business profits having 60%.
Further the study indicated that 52% of all respondent managed to access the export market with 43% registering more than 10% revenue growth. Other indicators were; 96% of respondents indicated that their businesses were affected by the political climate, 52% indicated they put in significant effort in productivity compared to 2016,63% experience increased staff turnover and 67% were able to access business support services.
Finally 70% of respondents indicated that revenue growth is their major aspiration come 2018 with
diversification, expansion, financing and markets sharing 30%.
Despite facing a tough year Kenyan SMEs have proven to be resilient compared to bigger companies
majority of who issued profit warnings. With the elections done and dusted and going by President
Uhuru’s plan to focus on economic development; we can safely assume SME will have plenty to chew on come 2018

About Author
Victor Otieno is Director-Research and Innovation at Wylde International