Small and micro businesses make a large contribution in Kenya – a good reason why the Government is making great effort to encourage entrepreneurship. The facts are that they contribute more than 80 per cent of the country’s GPD and more than 80 per cent of jobs created.
Those are powerful figures. But what defines a small and micro (SME) business in Kenya? There are various definitions. A general one is that it has an annual turnover of Shs250 million or less. The government makes more detail definitions with micro businesses being described as any business with less than 10 employees and an annual turnover of less than Shs500,000. A medium enterprise is described as one with more than 10 but less than 50 employees and a turnover of between Shs500,000 and Shs5 million.
Why Start an SME ?
Why is it good to start an SME business in Kenya today? There are many reasons ranging from the pleasure of following your dreams and passions to earning more money. But from an economic point of view these are the key reasons:
- Demand for local products and services is increasing.
- Favorable environment for doing business. Devolution which has established 42 counties has created more competitive and increased opportunities as each county government strives to create more job opportunities.
- Accessing capital markets for businesses is much easier than before. Controlling interest rates has brought bank loans within the reach of many SMEs.
- Thriving retail sector. Competition in this sector continues to improve boosting demand for goods produced locally.
- Regional markets are easily accessible now thanks to improved regional economic integration.
- It’s much affordable now for Micro, Small and Medium entrepreneurs to access technical training that ensures competitiveness and growth business opportunities in Kenya.
- 40% of all goods and services procured by the government must be 100 % locally produced.
- 40 per cent of goods and services procured by the government must be specially allocated to SMEs.
Despite this, of course, there are challenges that entrepreneurs have to be aware of. Most entrepreneurs mention the following:
- Accessing markets. Most businesses are started by entrepreneurs whose only asset is passion. They do not have marketing skills. Kamau, a manufacturing entrepreneur cites his own example where he has rooms filled with goods that he doesn’t know where to sell. Similar problems where cited by others such publishers who find accessing market a big challenge.
- Knowledge of how to access funds. Despite the fact that funds for business are increasing, SMEs require knowledge of where the funds are available and negotiation skills. They further need skills on how to manage the funds when they get them.
- Delayed payments. This is one of the most daunting challenges. Banks and financial institutions have put up structures to report and circulate names of firms and individual that fall back on their payments, but what happens to institutions – including banks – that fall back on paying SMEs? Kamau wonders, saying that he has millions held up in government systems that have not paid. “When they don’t pay, we borrow again. And when that is also not paid quickly, we are blacklisted. Our businesses go burst.In an entrepreneurs conference at State House Nairobi, which was also attended by President Uhuru Kenyatta, Government organizations, including Counties were said to be the worst followed by supermarkets. President Kenyatta warned that accounts officers delaying payments will be sacked.