Kenya Needs a National SME Intervention Report Card

There is an old management saying that goes; what doesn’t get measured doesn’t get done and this may prove to be true for Kenya in light of SME interventions that have been proposed by the Kenyan government as well as other stakeholders between 2019 and the first quarter of 2020 as an example.

Kenyan SMEs continue to play a key role in the country’s socioeconomic development contributing 33 percent to the GDP, employing over 30 percent of the population and constituting 98 percent of all businesses according to the Kenya national bureau of statistics.

Despite their prolific contribution, SMEs have a high mortality of 75 percent within 3 years of inception driven by challenges in; access to finance, access to markets, unsupportive policies, infrastructure challenges, management skills, access to technology and information among others. This mortality curve has steeped upwards due to the negative effect of Covid-19 pandemic.

The Kenya government and other SME stakeholders have put in measures to address the challenges SMEs face prior 2019 as well as during the coronavirus pandemic but still question lingers as to the veracity or optimality of these interventions.

Despite SMEs accounting for 83.6 percent of total employment created in 2019 (KNBS 2019) it has not translated into poverty reduction, with Kenya having lower poverty elasticity than countries such as Ghana, Tanzania, and Uganda. To drive the point home only 63.8 percent and 16.5 percent of total employees received a stable salary in licensed and unlicensed SMEs respectively.

Further Despite the impressive increase in the employment rate, Kenya is not producing sufficient jobs to keep pace with demographic change. Kenya’s population is young and rural and rapidly growing. About 50 percent of Kenya’s population is under 18 years of age and more than three-quarters are under 35 years old.

Based on the physics principle of action reaction; it seems that the SME action through government and other stakeholder interventions is not producing an equal and opposite reaction evidenced by high number and good quality jobs hence reduced poverty.

To understand the impact of these intervention concerted efforts need to be made to map out all national SME interventions by all stakeholders and develop an evaluation or impact measurement mechanism from where corrective and timely adjustments can be taken as well as identify redundancies with the overall goal of achieving meaningful impact in terms of SME support in Kenya.

Intervention towards SMEs can be classified in two parts as an example; 2019 and prior years and 2020.

SME intervention prior to 2019 whose impact or progress must be evaluated are; Impact of interest rate cap repeal on SME access to finance, impact or progress of STAWI, progress status of the SME fund as well as SME policy by micro small enterprise authority, competition amendment bill by the competition authority of Kenya (aim to penalize corporate who delay to pay SMEs on time), Proposed establishment of Warehouses in Rwanda, Burundi and The Democratic Republic fronted by Kenya Export Promotion and Branding Agency (KEPROBA).

Similarly to backstop SMEs from the negative effects of covid-19 to SMEs; the Kenyan government in the first quarter of 2020 fronted a stimuli package that will at least provide vital cashflow to SMEs. Despite the inherent risk of sub optimality of the intervention towards SMEs due to lack of fit for purpose underpinned on the assumption that SMEs are formal in nature despite 79 percent being informal, the impact of the measures must be evaluated to confirm whether they are working or not.

The interventions include; Credit guarantee scheme, tax breaks especially turnover tax and VAT, 35 bn Ksh released due to lowering of bank’s cash reserve ratio, state of pending bill owed to SMEs. These interventions must be combined with other SME stakeholder interventions such as SME funding received by financial institutions from development partners as well as direct interventions by development partners.

Complete audit an impact evaluation of SME interventions in Kenya will form a basis for understanding how best to support and improve the SME business environment hence make significant progress in socio economic development of Kenya.