Election fever adds gloom to SMEs in 2012 despite economic reforms

Micro, small and medium-sized enterprises (SMEs) expect a mixed bag of fortunes in 2012.

The economy could face some of its worst tests as Kenya gets into the campaign mood for the next General Election sets in.

But a soft landing could come from government and Parliament, which are putting final touches to a series of new changes to improve the state of doing business in one of the fastest growing sectors and top employers — the informal sector.

Among the highlights that small and medium-scale entrepreneurs can look forward to are the introduction of schemes to give SMEs credit, passing of new rules allowing listing of small businesses at the Nairobi Securities Exchange, strengthening the multi-billion shilling SME kitty and enacting a Bill to bolster entrepreneurship. So how will the world of SMEs look like in 2012?

“The way things are going, the year will be about better management of what I made last year since we are not sure what will come up being an election year,” said Kennedy Kimani who sells textiles in Nairobi’s Kariobangi area. “It’s hard to borrow. Not unless rates come down and prices of key commodities reduce, it will be a hard year for business. Harder that 2011,” said Mr Kimani.

Last week, Capital Markets Authority approved the policy and regulation for the establishment of a listing segment for SMEs at the bourse.

“The SME market is intended to offer issuers benefits by permitting for listing by introduction, without a public capital raising component, and is aimed at seeing enterprises broaden their shareholder base, gain access to open market valuation through market price discovery,” said CMA chief executive officer Stella Kilonzo.

However, small businesses should prepare for hard times in 2012.

Inflation is expected to remain at double digit, interest rates might not come down any time soon and a mangled General Election and noisy campaigns could soil the business environment thereby hurting sales.

A survey by the World Bank released last week shows a country at a crossroads. “Kenya has been navigating through rough economic waters in 2011.

For 2012, the economy could grow by over five per cent if the government is able to effectively manage the current crisis, maintain political stability in the run-up to the elections and address the security challenges arising from the conflict in Somalia,” said the bank in a report.

A further rise in interest rates could mean it would be costlier for small businesses to access bank loans and this could also worsen a trend which has seen lenders shun SMEs due to their perceived high risks of default. Banks are already projecting high levels of default across borrowers and they are worried.

Last week, commercial banks through their lobby Kenya bankers Association announced that they had capped any increment in monthly repayments at 20 percentage points above the applicable rates and extended the period borrowers are expected to service their loans. What this move — which is meant to cushion banks from loan defaults — means to business owners is that they should not expect any further rise in rates for existing loans and they can negotiate for a longer repayment period.

Banks are reacting to a long-held economic reality that high interest and inflation levels are a major catalyst for loan defaults.

This is because entrepreneurs, like households will see their finances thin out — consumed by the high cost of living — leaving them with little to pay back loans they have taken from financial institutions.