SME reflection of Kenya’s 2019 Budget statement

The finance cabinet secretary in concert with requirements of Section 40 of the Public Finance Management Act, 2012 and the Standing Order Number 241 of the National Assembly took Kenyans through the 2019-2020 budget statement that proposes government financial activities for the next financial year 2019 to 2020. The theme being creating jobs, transforming lives and harnessing the big four plan.

The national budget is a strategic tool that can be utilized to direct resources to economic sectors, demography’s or physical locations among others to unlock value for the benefit of the target audience and the country.

The budget statement espouses to address five economic challenges; creating and enabling environment for SMEs, prudent spending need to mobilize domestic resource to fund priority projects, need to reduce fiscal deficit and need to implement reforms that will enhance Kenya’s efficiency and make her more competitive.

Focusing on the challenge faced by SMEs in Kenya. For starters the initiative to have 30 per cent of electricity consumed by manufactures as an allowable deduction for tax purposes leading to a net reduction of the cost of electricity by 20 per cent is commendable hoping the conditions to be set by the ministry of energy will be favorable not only to big manufactures but cottage manufacturers such as found in Kariobangi Light industry and Uhuru market textile among others.

Second the release of funds owed to SMEs trading with government under the access to government procurement opportunity as well as audit and streamlining of import-export consolidators couldn’t have come at a better time

The challenge of access to finance by SMEs through consolidation of affirmative action funds of uwezo fund, youth enterprise development fund and women enterprise development funds to Biashara fund Kenya is fine on face value but given the checkered history of the funds and with no evaluation and correction of their shortcomings yet, the value proposition to SMEs is weak.

Similarly the SME loan product (Stawi) fronted by 5 Kenyan banks and approved by The National treasury and Central bank that is being piloted in Gikomba market has some unanswered questions such as sustainability of the aggregate loan price at 14% (in light of how banks price loans for example a typical loan less taxes would be; cost of funds 3%, Profit 6% and risk 4% totaling 13%) , loan risk management as well as suitability of the product given the diversity of the SME sector. Stawi gravitates towards cashflow financing of traders who buy to sell leaving out SMEs who are caught up in a cycle and want to invest in unlocking value by accessing long term financing.

The challenge of addressing markets through affirmative action by government to procure goods locally by local entrepreneurs must move beyond buying locally assembled cars but other goods manufactured locally such as apparel, shoes, furniture among many others as well as protection from cheaper low quality imports.

Although the Ajira project is good, the reality is that SMEs currently account for over 84%  of new employment in the country but still struggle with issues of unfavorable tax, lack of infrastructure, management skills challenges, Intellectual property protection challenges among many more that are yet to be addressed.