SME sector beats corporate Kenya in job security outlook

Millions of Kenyans working for small and medium-sized companies are more likely to keep their jobs in a sluggish economy than their counterparts in large corporations, a new survey indicates, pointing to a higher level of business leaders’ confidence in the SME sector.

Synovate, the consumer market research firm, says 70 per cent of executives in the mid and small enterprises plan to hire new staff in the next 12 months as they expand their operations and launch new products and services to stay competitive in the marketplace.

The finding is contrary to the outcome of a July survey of business leaders in large companies who indicated that they planned to continue with the freeze in employment and the scaling back on expansion to protect their profit margins in a difficult business environment.

Nearly 60 per cent of the large firms said they planned to continue with ongoing cost cutting measures to defend their profit margins in a business environment characterized by a slowdown in growth.

High level of optimism in the medium sized firms is linked to their ability to adapt faster to changes in the business environment compared to large corporations that take time to shift.

“Big companies tend to have long term commitments compared to the SMEs, whose commitments tend to be in the short or medium term leaving them with more room to navigate any turbulence,” said Mr George Waititu, the group managing director at Synovate.

This means that SMEs role as key drivers of economic growth in Kenya has gained impetus and is set to remain so until big business gains enough evidence to start hiring and unfreeze earlier plans to expand into new business areas or launch new products.

It also comes as big relief to millions of Kenyans employed in the small and medium-sized companies sub-sector, and offers hope for sustenance of consumer demand for goods and services at current levels at least in the medium term.

Kenya’s economy has been facing subdued consumer demand for goods and services with recent downsizing of payrolls by the big employers, the continued rise in inflationary pressure and job insecurity for those still in employment.

The economy grew by 3.9 per cent in the first quarter of the year compared to a contraction of 0.6 per cent in first quarter of the previous year but interim data compiled by the National Bureau of Statistics shows that growth slowed to about 2.4 per cent in the second quarter.

High inflation has seen low-end consumers cut back on the purchase of non-basic goods and services, culminating in reduced corporate sales that have in turn forced companies to scale back their spending to protect profits.

Some large corporations such as BAT, EABL, Zain and Haco Industries have been forced to render some of their staff redundant in the course of this year to manage their costs.

Some companies in the fast moving consumer goods market such as BOC Kenya, East African Breweries Limited (EABL) and Crown Berger have reported a drop in profits in the first half of this year compared to last year pointing to subdued economic environment.

While the larger firms have been grappling with emerging challenges in the business environment, small and medium-sized companies have sustained growth through aggressive sales and expansion to regional markets.

“SMEs react to situations faster, have less protocol bureaucracy, operating costs and innovate faster,” said Julie Nyang’aya, a partner at consulting firm Deloitte.