SMEs move closer to bidding for big State tenders

The development of small and medium sized enterprises within the East African Community is set to be hastened under a new policy aimed at easing the enterprises’ access to government tenders.

Speaking at the East African Community (EAC) second annual investment conference in Nairobi, Kenya Investment Authority managing director Susan Kikwai said small and medium enterprises (SMEs) can only grow if they are exposed to large contracts by government and large businesses.

Subcontracting, she said, would leave governments and large firms to concentrate on their core functions while small firms benefit from a bigger market, acquisition of high end technology, skills and value addition.

She said there was ready demand for high quality and diversified products by a rapidly growing middle class in the East African region which comprises Rwanda, Uganda, Tanzania, Kenya and Burundi.

“Increased exposure means that buyers know what quality is,” Ms Kikawi said.

The regional governments are trying to replicate a tried and tested formula developed by the United Nations Industrial Development Organisation (UNIDO) called SPX.

Global markets
SPX is the branch of UNIDO which links SMEs and large manufacturing firms. The link helps both parties create synergy to connect to global markets and supply chain networks more efficiently.

Kenya has begun the process with a pilot test at the constituency level and if successful the programme will be scaled up.

During this year’s budget speech, Finance minister Uhuru Kenyatta directed the Public Procurement Oversight Authority, the State body mandated to handle government contracts, to make regulations that would enable small businesses compete for the lucrative government contracts.

“This initiative demonstrates the Government’s commitment to local-level budgeting and marks a departure from the past,” said the finance minister.

This year all 210 constituencies will receive approximately Sh90 million through the Constituency Development Fund, SMEs have the first priority to access these funds.

Namibia is leading the way in Africa. It recently introduced legislation comparable to affirmative action. It directed government tenders for construction and maintenance which are less than N$5 million (Sh50 million) be awarded to SMEs only.

It also plans to reserve 40 per cent of tenders for SMEs, in addition it will provide training in entrepreneurship and management.

But it may be too early for Kenyan SMEs to uncork the Champagne due to weaknesses in government policies such as punitive tax laws and unawareness by SMEs on government tenders.

The Government requires all its suppliers to register for VAT, forcing small businesses to buy electronic tax registers which cost at least Sh20,000.

Taxman’s deadline
Added to this cost is the time involved in filling out the forms and the penalties that follow should one fail to fill them properly or on time.

“Our business is not a fast moving one, so we may have one or two contracts a month and that is the only time when we use our ETR which we bought at Sh23,000,” Mr David Karanja, a business development officer at an IT firm said.

VAT returns have to be submitted before the 20th of the month and failure to beat the taxman’s deadline attracts the higher of a five percent fine on the tax due or Sh10,000.

Even if returns are submitted on time but the business is cash strapped and it cannot pay, a monthly compound interest of 2 per cent is added on what is due to the taxman.