Bottom Up Economy | Cutting through the semantics to Kenya’s Economic Reality

There has been a lot of debate about the economic model fronted by a presidential candidate termed as bottom up economy an instance where economic growth is driven from the bottom by mama mboga and the likes.

The reality in Kenya for a long time is that MSME have been and continue to be the backbone of Kenya’s economy constituting 98 percent of all businesses, contribute 33 percent to GDP and employ over 30 percent of the population with a good example of 2019 where SMEs contributed over 70 percent of new jobs created.

There cannot be a conversation about Kenya’s economy without mentioning SMEs cognizant of their importance yet subsequent governments have failed to address the plight of SMEs that lead to their high mortality rate of over 75 percent within 3 years of inception. As we discuss bottom up economy or any other economic model we must address how to systematically support SMEs by addressing the challenges they face and enable them compete at the global stage.

A deep dive to SMEs in Kenya shows that in 2018 the informal sector engaged 14.9 million people with majority in wholesale and retail trade (8.9 million) followed by manufacturing (3 million) and community social and personal services at 1.4 million with these three sectors accounting for 89.3 percent of total informal sector employment.

Based on this data and other studies we can deduce the following sample SME challenges; Kenya needs to shift SME sector focus from wholesale and retail which is highly susceptible to external shock as evidenced by COVID 19 as well as competition from imports from China among others to manufacturing especially labor intensive manufacturing cognizant that countries that traditionally relied on human labor such as China and Vietnam are slowly shifting to automated production. To do this government needs to not only support formal manufactures ‘’big boys’’ but informal or cottage manufactures through a transitional support framework that offers support where they are currently and providing incentives for them to formalize to reduce the burden of formalization. Tied to growth in manufacturing is development of the agricultural sector.

Access to market is another challenge that must be addressed in the form of export market. Currently government, large establishments and direct export constitute a very small portion of consumers of MSME products probably driven by the fact that most SMEs operate in wholesale and retail.

Other SME challenges are; access to finance, access to technology, capacity challenges and information among others.

On the flip side cognizant of the importance of SMEs, based on global trend of increasing role of ICT and especially Startup driven innovation to rapid economic development as evidenced by change of guard in the last decade of the top global companies in terms of net worth from fossil based to IT; Kenya needs to open up this social economic development frontier.

According to Kenya Integrated Household budget survey 2016, the country’s national poverty levels stood at 36.1 percent with rural poverty standing at 40 percent. Further over 900,000 persons are joining the labor market annually according to the world bank. Despite the commendable absorption by the SME sector this is still not enough.

The potential of startup driven innovation in Kenya can be seen by; Kenya ranking 3^rd in Africa based on the global innovation Index 2020, Kenyan startups constitute over 15 percent of total funding in Africa according to Partech 2019 report and Kenya ranked 61 in the global startup eco system index 2021. Further startups continue to transform the lives of Kenyans with examples such as Mkopa solar, Twiga Foods and Sendy among others despite the lack of systemic government support.

Startups by their very nature have the intrinsic ability to scale very fast hence create rapid and stable jobs for Kenya’s young population both directly and indirectly as we have seen with Twiga Foods who have created employment in an entire value chain from a supply and demand point of view.

Startups can complement SMEs in terms of supporting the economy hence government must create a conducive environment for startups to thrive and the startup bill 2020 is a very good start to this journey.