Workers of a tyres outlet on Nairobi’s Koinange Street watch, from the safety of their shop, as police confront protesters during the election period. PHOTO | FRancis nderitu
Small firms should get top support from government, financiers to scale up going forward.
After what has been widely acclaimed as a difficult year for Kenya, the conversation must now turn to how the country can recover. The first step to doing so is acknowledging the factors that held economic growth back and those that sustained and propelled growth.
One sector that was hit was obviously agriculture, due to the drought, which made many Kenyans food insecure, hit forex earnings from export of agricultural commodities and of course led to aggressive inflation.
The financial sector was hit due to the continued unfolding effects of the interest rate cap and linked to that, credit growth, particularly to small and medium sized enterprises (SMEs) shrunk considerably.
Finally, a great deal of investment was held back over the course of the year. Indeed, a few weeks ago, the Kenya Private Sector Alliance claimed the business community had lost more than Sh700 billion in just four months of electioneering.
This figure was arrived at, reportedly, by costing not only business lost due to disruptions linked to protest and general unrest, but deferred investment decisions as well.
It is important to unpack the impact of deferred investment because there are negative ripple effects linked to this, particularly in the African context. When investors choose to hold off on investing, several entities are hit. These include market research companies, product developers, manufacturers, advertising companies, suppliers, and distributors.
The entire ecosystem around investors suffers in case of decision to postpone or defer investment. As a result, the multiplier effect of suspended investment has left many Kenyans feeling particularly financially strapped this year.
On the bright side, Micro and Small and Medium Enterprises (MSMEs), most of whom actually sit in the informal economy, proved resilient. The Central Bank of Kenya said MSMEs showed ‘extraordinary resilience’ and helped cushion the economy.
The factors behind this resilience has not been formally unpacked, but studies on the informal economy reveal a nimbleness, flexibility and litheness that larger, more formal businesses may find difficult particularly within short timeframes.
Challenges aside, informal businesses have an ability to change their business models and adapt to a changing environment much faster than formal businesses with more rigid structures and processes.
Going forward, it is important to take remedial action on what emerged as weak spots. This will begin by ensuring better coordination between national and county government on the management of agriculture as well as serious consideration of the repeal or adaptation of the interest rate cap.
In terms of positive aspects, MSMEs ought to be prioritised going forward and given the necessary support by government, financiers and business development agencies to scale formal MSMEs with promise, and support informal ones on the journey of sustained profitability and formalisation.
Finally, both government and domestic private sector have to give candid and honest signals on the state of the political economy in Kenya. Investors need to be given a clear indication of when and where to invest such that the investment ecosystem is sustainably revived.
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