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Fresh ideas needed to transform SME sector

A new baseline study on Micro Small and Medium Enterprises (MSMEs) found that they employ close to 15 million people, up from 2.3 million in 1999.

They contributed 33.8 per cent of the Gross Domestic Product (GDP) in 2015, down from 40 per cent in 2008.

MSMEs are key to economic and social transformation, but there is not enough support to make the sector productive and provide more meaningful jobs as well as becoming responsive to other obligations like tax.

The survey was long overdue, considering the fact that it was becoming impossible to estimate the sector’s usefulness.

The survey by nature deals with physical attributes of the sector, which in some cases should be used to make inference to critical non-physical attributes like cultural, entrepreneurial orientation and psychological state of the entrepreneur.

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For example, the report has highlighted enterprise failure which more often is as a result of lack of passion and in our case many would-be entrepreneurs are necessity types that will jump out if there was a job.

The solution is to isolate real entrepreneurs who could create jobs, but due to the political nature of supporting such an initiative, lots of money is wasted to make non-entrepreneurs entrepreneurial.

There is a process to becoming an entrepreneur and if that is built into the MSMEs support systems, there will be better outcomes and less failure rate, increased incomes and reduced poverty.

A decision to become an entrepreneur starts with the passion to become one followed by the evaluation of ideas to identify an opportunity; conduct a feasibility analysis; and develop a business plan to validate the feasibility study, develop an effective business model and understand the competitive environment.

From the support systems such as youth and women enterprises, this is never done. More often than not, enterprises across Africa are replications. You see what your neighbour has done and replicate the same without even scanning the competitive environment.

The report says up to 73.5 per cent of enterprises, especially in wholesale and retail trade, fail within the first four years.

The high failure rate can be explained by the culture of creating multiple enterprises that divert attention from the primary business and blind copying from neighbours without understanding their sources of strength, which sometimes include strong networks that are not replicable.

If you examine the three enterprises with the highest failure rate, they are the most replicated throughout the country.

They have always been businesses of choice along with the complementary real estate development at rural market centres.

Indeed since Independence, “investors” in these rural real estate put up structures that are popularly referred to as dukas whose payback period has never been realised and would never be realised in their life time.

They litter the African continent with similar designs that cost billions of dollars, but they are virtually a waste of resources. They epitomise the African investment culture that yields nothing but prestige.

The survey shows that manufacturing ranked the highest by contributing 24.3 per cent of the MSME”s gross value to GDP.

This indeed points out the fact that the country would do better if it reduced raw exports and started aggressively adding value to local resources.

This perhaps should have been one of the key recommendations owing to the fact that Kenya still exports raw materials. The study failed to highlight some key recommendations that could transform the industry.

These include: Assisting MSMEs to identify opportunity first before investing, developing makerspaces (community centres with tools, manufacturing equipment, and education for the purposes of enabling community members to design, prototype and create manufactured works that wouldn’t be possible to create with the resources available to individuals working alone) at county level as a strategy to build manufacturing capacity.

The study revealed that more than 60 per cent of the informal enterprises are women-owned and informal enterprises contributed 10.4 per cent of the MSME’s gross value.

Basically, some of the entrepreneurial activities by women are largely wasteful since there are no structures to support them to market their goods.

Mama Mboga loses the produce if the market is either saturated or because they deal in perishables that have a shorter shelf life.

It would have made sense to make a recommendation to develop supply chains and value-added services for perishables.

For example, tomatoes whose shelf life is nearing the end should be dried to create value. The report provides so much that we must begin to interpret if the sector is to play its critical role.

Key among the things we must consider is to start early teaching entrepreneurship so that in the future we don’t face the many challenges the report highlights.

The writer is an associate professor at University of Nairobi’s School of Business.

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