Heightened political risk, brought home by the unstable coalition government and tribalism, is prompting small and mid sized firms to cut back on their expansion plans, a new survey indicates pointing to a lower level of business leaders’ confidence in the SME sector.
The findings by Strategic Research say 58 per cent of executives in the mid and small enterprises expressed fear of a fresh round of violence linked to the 2012 general election as they slow down on expansion and cut back on stocking products to cushion themselves against losses.
This means that SMEs’ role as key drivers of job creation and economic growth in Kenya is set to be dampened.
“There is greater uncertainty among small and medium enterprises regarding political stability and economic prospects,” said Danish Ambassador to Kenya Bo Jensen, who had commissioned Strategic Research to carry out the study.
The findings are contrary to the outcome of last year’s study by Synovate which indicated a high level of optimism among medium sized firms as executives in the sector planned to hire new staff, expand their operations and launch new products and services to stay competitive in the marketplace.
The SME sector employs about 70 per cent of the nine million working class Kenyans.
The economy has over the past two years been facing subdued consumer demand for goods and services, the situation made worse by downsizing of payrolls by some employers and the high cost of living.
The country was gripped by a bloody post election violence in January and February 2008, which culminated in the death of more than 1,300 people and uprooted more than 300,000 people from their farms mainly in the bread basket region of the Rift Valley.
This saw economic growth plummet to 1.7 per cent in 2008 from 7.1 per cent in 2007, whose effects are still being felt.
According to the Strategic Research survey, the biggest driver of the fears over fresh breakout of election turmoil is tribalism, fanned by early campaigns for the 2012 presidential and parliamentary elections.
Already, politicians are on the campaign trail with the presidential candidates and their aides keen on forming tribal alliances to propel them to the presidency.
Nearly 14 per cent of the executives said tribalism is the key driver of the fears of a relapse into violence ahead of 2012.
About 13 per cent of the executives picked on political interference, with eight per attributing the fears to the unstable coalition government.
The squabbling parties, which formed the collation government in March 2008 following a truce after the bloody post poll turmoil of early 2008, have failed to reach an agreement on a number critical issues such as the new constitution, appointments in government and Judicial reforms.
About 45 per cent of the executives feel that the government is not doing enough to calm the fears, with 28 per cent of the respondents saying the political class is working to avoid a repeat of election related violence.
Delays in taking action against people suspected to have fanned the post election violence of 2008, tribalism and corruption have also contributed to the feeling that violence will break out in the 2012 general election, the survey says.
Business leaders say the government must act to defuse investors’ fears of election violence.
“Political violence is a hindrance to business and economic development,” said Lucy Karume, the vice chairperson of the Kenya Private Sector Alliance.
Most of the business people interviewed by the researchers said the government should arrest people behind the 2008 post election turmoil, enact a new constitution, and stop tribalism through holding reconciliation meetings.
“These fears are real. In Kisumu, we found a businessman who refused to increase the stock in his shop. He decided to have bare minimum stocks so that he could run away without much worry of incurring losses in case of violence,” said Ceasar Handa, the CEO of Strategic Research.
According to the Ministry of Trade, Kenya has about 1.6 million registered SME’s accounting for nearly 60 per cent of all business enterprises in the country.