State Need to play a greater role in MSME growth in Kenya

The other day the Kenya National Bureau of Statistics (KNBS) launched the 2016 National micro, small and medium establishment (MSME) survey.  In the report they defined Micro enterprise as those employing less than ten people, small enterprise as those employing more than ten but less than forty nine and finally medium enterprises as those employing more than forty nine but less than ninety nine employees.

It was critical for them to develop a working definition of Micro, Small and a Medium enterprise given the concept is very subjective. Case and point are that a small business in Europe or the US employing 200 employees; with an annual turnover of 300 Million is considered to be small by their standards contrary to Kenya where such cannot be classified as an SME.

The report established that in 2016 there were 1.56 Million licensed MSMEs and 5.85 Million MSMEs unlicensed businesses.  The said businesses engaged 14.9 Million people out of a total population of 40Million that is roughly 38% of the entire population. Further the value of MSME s output to the economy is estimated at Ksh 3,371.7 Billion against a national output of Ksh 9,971.4 representing a contribution of 33.8% in 2015.

This is astounding given the fact that the sector is most disadvantaged being plagued with lack of financing, licenses, lack of market, taxes, lack of management skills and many other challenges. Having said that i believe that the Kenyan government needs and has what it takes to promote MSME growth in Kenya.

Many Kenyans continue to hold the belief that the Kenyan economy is on the ‘runway’ ready to take off. While this may be true, I believe that it may never come to fruition if government doesn’t aggressively play a greater role in MSME sector. I know this view goes against the trend of popular and current thinking of the free market economy and a non-interventionist government, it needs to be recognized that such ideals are beyond many struggling, developing economies whose space in the global economy is heavily constricted by the presence of the developed economies.

China, Singapore are example of countries where the state has guided entrepreneurship offering their economies a competitive edge in international trade as it provides entities, that are owned by the state, the political underwriting, the surety of collateral surety and the united global thrust to compete in the global market.

I reckon that the government needs to develop a system of harmonization of the state and the market economy, of government and business, mutually dependent, co-existing both in practice and responsibility.

Kenya’s economy just like most developing countries in Africa and beyond continue to struggle due to the fact that they are heavily influenced by economic ideologies of the west who advocate for open markets and non state intervention in the market.

There are many examples of countries such as China, Taiwan, Singapore, and Malaysia that have excelled where the state partners with private sector beyond Public Private Partnerships which has a limited scope.

As at independence in 1963, Kenya and Nations such as Malaysia, South Korea and Singapore were more or less on the same economic level. To put into context; in 1960 Kenya averaged a GDP of 13.30 USD Billion with South Korea averaging a GDP of 2.36 USD Billion.

From then on these countries have been on upward economic trajectory. While most might assume that for instance the economic growth of Singapore is entirely private sector driven, rather, it was actually the state that has consistently played a greater role.

The Kenyan government can learn a lot from countries such as Singapore who initially wanted to grow their economy through attracting foreign direct investment (FDI) but opted to nature its MSMEs due to the volatility of FDIs which are affected by the economic performance of the foreign or home economy.

Singapore did this by a paradigm shift in employment culture and an education system that encourages creativity, innovation and enterprise.

The state has and needs to continue play a bigger role in the economy by using its spending power as an investor to stimulate the economy and contribute to MSME growth in Kenya. In an ideal situation in Kenya, I would expect the state to have significant investment in MSMEs in the transport, Medical, Energy and many more sectors. This should not be construed to mean that government runs the operations; rather that role is to be left to private organizations that are much more efficient.  With government funds and credibility, MSMEs will be able to compete at the global stage where they ought to be.