Services top list of fastest growing mid sized firms

The middle segment of Kenya’s economy shifted significantly in the past 12 months, leaving the services sector as the top-most driver of growth.

A survey of more than 240 medium-sized firms found that services toppled telecommunication to become the sector with the highest number of fastest growing companies in the 2011 listing of Kenya’s Top 100 SMEs.

Service firms dominated this year’s list in terms of representation and revenue growth.

But construction maintained its position as the most lucrative segment of the economy with an average annual rate of return on equity (ROE) of 81 per cent.

It was followed by services with a ROE of 58 per cent while transport while hospitality were third and fourth with 52 and 41 per cent respectively.

ROE is a measure of how much profits a company generates with shareholder money.

The Top 100 SMEs survey, which entered its fourth edition this year, recognises the fastest growing medium-sized companies with annual turnovers of between Sh70 million and Sh1 billion.

It is conducted by the Business Daily, a publication of the Nation Media Group and KPMG — a consultancy firm.

Mr Philip Muema, a tax partner at KPMG and director of the Top 100 project, said transport firms posted the highest revenue growth at an average of 48 per cent, followed by ICT, hospitality, and service with 40, 34, and 34 per cent respectively.

“There is a lot of spend in the services sector,” said Mr Muema. “Demand for transport, ICT, hospitality, and professional services is rising in tandem with population growth, expansion of the middle class and the uptake of new gadgets and products,” he said.

Mr Muema spoke during this year’s Top 100 Club members’ conference held at the Strathmore Business School in Nairobi.

Transport minister Amos Kimunya, who was chief guest at the conference, said the government was working on one-stop licensing shops to cut the cost of doing business in Kenya.

The shops should be ready and operational by end of next year and would be replicated in all counties.

A total of 246 firms went through the rigorous vetting process that includes presentation of three years audited financial results — same level as last year — though up to 300 entries were received.

Growth of the services and transport sectors is linked to rapid urbanisation and expansion of the middle-class in the past seven years that has created a huge demand for consumer goods.

This year’s Top 100 survey confirmed the growing importance of medium-sized companies as key drivers of Kenya’s prosperity. The sector accounts for 60 per cent of the country’s labour market.

“These companies represent a major part of the economy that play a critical role in job creation and a source of the tax revenues needed to finance development,” said Mr Linus Gitahi, NMG’s chief executive.

The Top 100 companies have an estimated combined annual turnover of nearly Sh100 billion or 10 per cent of the country’s Budget.

The survey found that the companies have an average staff size of 110, up from 103 last year.

Majority of the firms said they planned to hire more workers in the near term to support their expansion plans and growing demand for specialists such as auditors.

Most are looking to the region for expansion opportunities with Uganda as the most favourite destination, having attracted the interest of 54 per cent of the firms. Tanzania was second with 48 per cent, while Rwanda is third with 37 per cent.

The majority of the firms surveyed — or 74 per cent —have annual turnovers of between Sh70 million and Sh400 million, while four firms graduated to Club 101 — having crossed annual turnover threshold of Sh1 billion.

These are Express Automation, Prime Fuels, Manji Foods, and Vitafoam limited.

The top 100 winners in this year’s survey will be unveiled at a gala dinner at Carnivore Gardens Nairobi this evening.

The survey is sponsored by Standard Chartered Bank, software firm Sage Pastel, the Nairobi Stock Exchange (NSE), research firm Synovate and Strathmore Business School.