The key boon of manufacturing is that it absorbs large swaths of workers and places them into productive and decent paying jobs. Manufacturing also opens avenues for new ventures by creating strong value chains to support main production.
Small and Medium Enterprises (SMEs) are a crucial part of manufacturing in this country, due to their role in creating employment and bringing about innovation in the sector.
A recent National Economic Survey report by the Central Bank of Kenya (CBK) indicates that SMEs constitute 98 percent of all business in Kenya, create 30 percent of the jobs annually as well as contribute three percent of the GDP. Despite the huge role SMEs play in driving growth, it is estimated their contribution to production is minimal, and many of them specialise in low-value addition.
Essentially, many small businesses are part of a huge informal economy, which may seem to offer relief for their short-term challenges but in the long run, minimises their potential for growth, access to wider resources and markets and ultimately limits their socio-economic impact.
During a workshop held on the sidelines of the recently concluded third Kenya Manufacturing Summit and Expo, it became apparent that SMEs have a very huge but relatively untapped potential to turn around the Kenyan economy.
However, it was clear from the workshop that this sector is hindered by inadequate capital, limited market access, poor infrastructure, inadequate knowledge and skills and rapid changes in technology.
Corruption and other unfavorable regulatory environments were also identified as presenting other bottlenecks to this vital component of the economy.
A survey by the Kenya National Bureau of Statistics (KNBS) released in 2018 indicated that approximately 400,000 micro small and medium enterprises do not celebrate their second birthday. The survey found out that very few SMEs reach their fifth birthday, leading to concerns of sustainability in this critical sector.
While opening the SME Financing Africa Forum 2018 in May last year, Central Bank of Kenya Governor Patrick Njoroge pointed out that 46 percent of Kenya’s SMEs close within a year of founding.
MSEA has recently stated that it is developing measures aimed at turning around the fortunes that will foster the growth and sustainability of SME businesses in Kenya. As they do this there are critical areas that need to be addressed in order to realise the full potential of this sector.
For instance, we need to look at the pressing need to create and monitor pro SME policies. This can be attained through the formalisation of the informal segment of the SME sector through the promotion and simplification of business start-up operations. By so doing more people, especially the youth, will gain the confidence to formerly register their business ventures.
This makes it easier for them to coalesce around groups and associations that will enable them to work hand in hand with the government in addressing the challenges they face.