Stop the lie that entrepreneurship is solution to mass unemployment


Jobseekers in Nairobi’s city centre. FILE PHOTO | nmG

Entrepreneurship has always been touted as the solution to the problem of unemployment and underemployment in Kenya.

A recent research collaboration between Trends and Insights Africa (Tifa) and job listing site Brighter Monday painted a very dire picture with 86 per cent of the 15 million unemployed working-age Kenyans comprising the youth aged between 18-34 years.

With the shrinking job prospects thanks to a mal-functioning economy and corruption, many youth are encouraged to ‘pursue their own hustle,’ which is the code-word for entrepreneurship.

According to the report only, six per cent of the Kenyan population are self-employed or engage in some form of entrepreneurial pursuit.

That number underscores both the little impact and by extension the difficulty that comes with trying to establish a business venture. Contrary to most reports, entrepreneurship is not an easy and viable alternative available to most young people.

Globally, a business failure research conducted by Harvard researcher Shikhar Ghosh showed that 75 per cent of all venture backed start-ups fail. The failure rate is 50 per cent in the first five years and hits 70 per cent within 10 years.

Locally research by the National Bureau of Statistics shows that nearly 400,000 of the 7.3 million micro small and medium enterprises (MSMEs) close shop every year. The number could be higher considering only 1.6 million of the 7.3 million SMEs are registered and easier to monitor.

This rate of failure means entrepreneurship isn’t the most viable escape route given that the financial impact of entrepreneurial failure is hard and far reaching.

READ: Youth unemployment threatens Kenya's role as regional powerhouse

A critical factor that’s not addressed by those telling the youth to pick up entrepreneurship as a solution to their unemployment is the cost of starting a business.

Licences alone cost anywhere from Sh25,000 to Sh100,000 depending on the industry that one ventures into. In a country where over 53 per cent are unemployed and more than 60 per cent of the employed take home less than Sh25,000 a month, the licence fees amount ranges from one to four months’ worth of pay.

It’s also nearly impossible to access credit from the 40+ financial institutions thanks to the interest rate cap and the risk aversion of financial institutions when it comes to lending to SMEs.

Recent studies show that 89 per cent of Kenyan businesses depend on the founder’s savings, while only four per cent are eligible for bank loans. About five per cent depend on cash injection from family and friends.

Overall, the challenge of accessing capital, prohibitive licensing costs, the massive rate of entrepreneurial failure, and lack of requisite skills means it’s virtually impossible for a huge chunk of the jobless youth to successfully venture and succeed in entrepreneurship.

Ultimately there is no alternative to providing proper social services such as affordable schooling, healthcare, security, sanitation services and housing, which act as a safety net for the millions of jobless people and their dependants if we are to fight the scourge of unemployment.

Darius Okolla, Nairobi