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Trade, tech firms account for majority of MSMEs


A majority of MSMEs in the country are now concentrated in the trade and ICT sectors, a new report by the banking industry lobby has shown. PHOTO | POOL

A majority of medium, small and micro enterprises in the country are now concentrated in the trade and information and communication technology (ICT) sectors, a new report by the banking industry lobby has shown.

The two sectors account for 58.9 percent of the MSME sector, which now leads in job creation, especially for the youth, ahead of agriculture, which was previously the dominant hub for enterprises.

The wholesale and retail trade sector has the largest concentration of enterprises, accounting for 38.3 percent, followed by ICT at 20.6 percent, the survey by Kenya Bankers Association (KBA) and Japan International Co-operation Agency shows.

The agriculture sector accounts for 13.6 percent of the enterprises operating in Kenya, followed by the manufacturing and construction sector at 13.1 percent and 14.5 percent respectively.

Labour force

While agriculture has been the backbone of Kenya’s economy, contributing 26 percent of the gross domestic product (GDP), there have been concerns that it has yet to fully realise its potential for formalising and move away from the subsistence model. The sector engages about 75 percent of Kenya’s labour force, accounting for most of the population in the rural areas either directly or indirectly employed in the sector.

The growth of trade and ICT enterprises, however, show the shifting preferences by the youth who have migrated to urban areas seeking white-collar opportunities.


Employees at Eagle Wholesalers Limited, Nairobi, arrange school uniforms on shelves awaiting customers on January 27, 2020. PHOTO | PAUL WAWERU | NMG

High unemployment rates and a tough economic environment has also meant that Kenyans are now moving to trade in small businesses dealing in fast-moving goods such as household items, electricals, vehicles, spare parts, clothing exports and imports supported by regional and international market access.

The improved Internet penetration, access to mobile devices, demand for digital skills and sprouting innovations also support enterprises in the ICT sector.

The report, however, showed a majority of these small businesses, which are less than five years are from agriculture and ICT. This suggests that agribusiness could yet still make a comeback as the top job enterprise segment.

Limited experience

Many enterprises are young start-ups, with 53 percent having been in operations for less than five years.

“This points to a limited experience in business management among enterprise owners. The rest of the enterprises are spread between the age of six-10 (22.6 percent) and over ten years (24.4 percent) in operation,” said KBA chief executive Habil Olaka.

“Cognisant of the fact that a strong and sustainable economic recovery in Kenya will be underpinned by a vibrant MSMEs sector, the need to characterise the environment MSMEs operate in would be important to facilitate appropriate interventions, including enhancing credit to MSMEs.”

The report also stated that most of these enterprises are concentrated in Nairobi at 59.1 percent, while 13.3 percent in the Rift Valley, central (9.7 percent), coastal (6.5 percent) and eastern (5.7 percent) regions.

Enterprises in Nyanza and the western regions accounted for 4.7 percent and 1.1 percent of the share of responding MSMEs, respectively.

About 48.6 percent of all enterprises started their business with a capital of more than Sh200,000, with the rest having started with less than this amount.

“In terms of performance, profitability was noted to differ considerably across enterprises but dominated by profit levels of between more than Sh10,000- 30,000 as reported by 21.0 percent of MSMEs,” the report said.

With the businesses being of smaller size, they hold less than five suppliers each — a majority are local suppliers.

Prompt payment

Only 34.2 percent of enterprises said they had local and international suppliers predominantly from Asia, which accounted for 51.2 percent of the foreign suppliers.

Most payments for supplies are prompt, representing 50.5 percent of the enterprises while the rest use both prompt payments and trade credit at 41.1 percent as only 8.4 percent of the enterprises use trade credit exclusively. The report shows that about eight in every 10 of the enterprises that use trade credit do not pay any interest on the trade credit whose repayment period is mostly within 30 days.

The report adds that 33.7 percent of the enterprises use cash, bank and mobile money to pay their suppliers.

A larger chunk, 24.2 percent, use both bank and mobile payments, 18.9 percent use mobile money transfer – M-Pesa and Airtel money, while only a small portion at 5.8 percent used cash only.

The survey, conducted in May, targeted to reach all 2,949 MSMEs under the KBA’s Inuka Enterprise Programme.

The sector employs more than 15 million people in the country, contributing nearly 30 percent of the country’s GDP.

“Based on entrepreneur characteristics, a majority of MSMEs owners are males at 77 percent, highly educated with 54.5 percent having a bachelor’s degree level of education.

“In addition, close to two-thirds or 63 percent of enterprise owners had been in employment for more than six years before starting their enterprises,” read the report.

Despite this, the sector continues to face hurdles, key among them lacking access to finance that impede their growth and access to larger markets.

The businesses also face competition from imports, increased taxation and input costs, and a challenging business environment affecting their cash flows and the rising cost of doing business, even before the onset of the pandemic.