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Bridging MSME Funding Gap Will Unlock Northern Kenya’s Economic Potential

The most significant obstacle faced by SMEs in Northern Kenya is the funding gap.

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By Venny Mayaka

The vast and arid landscapes of Northern Kenya have often remained obscured from the national development narrative. Yet, this region, covering up to two-thirds of Kenya’s landmass, holds a wealth of untapped potential that could significantly bolster our nation’s Gross Domestic Product (GDP). While immense tracts of land in the region are classified as having high agricultural potential for ranches and large-scale farming, they languish in underutilization.

Northern Kenya is not just a barren landscape; it’s a storehouse of natural resources waiting to be harnessed for the benefit of the nation. These resources range from minerals deep beneath the ground to renewable energy sources like wind and solar power, capable of fueling economic growth, generating substantial revenue, and providing both direct and indirect employment opportunities.

Moreover, the region has witnessed a notable increase in population over the years. According to the national census, the region’s population grew from 12% to 19% of Kenya’s total population, between 2009 and 2019. This surge not only presents a growing market for goods and services but also highlights the untapped potential of Northern Kenya to contribute significantly to the national economy. Additionally, a significant proportion of this population comprises young people who represent a dynamic and eager workforce, ready to engage in productive activities.

The dawn of devolution in Kenya, ushered in with the promulgation of the 2010 constitution, marked a significant turning point for the development of Northern Kenya. For the first time, the region started to experience noticeable development. This change underscored a crucial missing piece of the puzzle: adequate funding. Discussions around revenue allocation formulas gained momentum, drawing attention to the need for increased investments, both from the government and private investors, in this promising region.

Indeed, substantial government projects are already underway in the area. The Lamu Port, South Sudan – Ethiopia – Transport (LAPSSET) project, for example, promises to connect Northern Kenya with markets in neighboring countries. Other critical projects include energy initiatives like the Lake Turkana Wind Power Project and the Tullow Oil Project in Turkana County. These projects, with their scale and potential impact on businesses in the region, offer early investors a glimpse of the significant benefits that could accrue.

Yet, despite the abundant opportunities awaiting exploitation, it is Small, Medium, and Macro-Enterprises (SMEs) that stand out as a priority sector for accelerating economic development. Most of northern Kenya’s residents rely on agricultural activities, such as livestock rearing and crop cultivation, for their livelihoods, making SMEs a vital part of their daily lives.

However, the path to growth for SMEs in this region is far from smooth. They face a multitude of unique challenges that hinder their progress. For instance, agricultural products are often traded without much value addition due to a lack of machinery and skills, leading to substantial losses for farmers. Moreover, the arid and semi-arid nature of the region makes farming and livestock rearing difficult and costly, especially during dry seasons. Poor public infrastructure, including limited access to good roads, the national grid, and stable internet connectivity, further restricts residents from producing, transporting, marketing products, and reaching customers with ease.

But perhaps the most significant obstacle faced by SMEs in Northern Kenya is the funding gap. Many entrepreneurs lack the capital required to scale, innovate, and create jobs through their business ideas. The communal ownership of land, a common practice in this region, eliminates one of the crucial collateral options for sourcing credit. The funding gap primarily results from the region’s underdeveloped financial services, which hinder access to appropriate and affordable capital, especially in productive areas like agriculture and livestock. Furthermore, low levels of business literacy undermine entrepreneurs’ ability to source funds and manage their businesses effectively.

Addressing these challenges and unlocking the potential of Northern Kenya requires strategic action on multiple fronts. One crucial step is increasing funding options by establishing more financial institutions in the area. These institutions can provide much-needed credit access to SMEs, helping alleviate some of the challenges they face.

USAID Kuza has been actively engaged in implementing programs aimed at creating sustainable businesses in the region for a considerable period. These initiatives aim to promote economic growth, and discussions have been taking place to explore investment opportunities in the region. Particular focus is placed on the potential held by SMEs to elevate Northern Kenya to new heights.

However, the responsibility for driving growth in this region does not solely rest on organizations like USAID Kuza. Various sectors, including agriculture, education, technology, and healthcare, should consider setting up operations in Northern Kenya. By doing so, they can leverage the abundant opportunities available and enhance the productivity of the local population through training, rolling out different business funds targeting SMEs, and introducing social initiatives.

Nonetheless, it is vital to acknowledge that some challenges extend beyond the scope of specific actors and require government involvement at both the national and county levels. Such challenges include vital investments in infrastructure projects and fostering security, particularly in regions bordering Somalia and South Sudan, which experience occasional civil unrest. Addressing these issues necessitates public-private partnerships to continuously engage, maintain funding programs, and promote unity among communities – all of which are essential for the transformation of Northern Kenya.

Indeed, unlocking the immense potential of Northern Kenya is a collective endeavor. To bridge the MSMEs funding gap, empower local entrepreneurs, and foster an environment of sustained growth, we must join forces. Together, we can usher in a new era of prosperity for this remarkable region and contribute significantly to Kenya’s overall economic development.

Venny Mayaka is the Deputy Chief of Party, USAID Kuza, 

USAID Kuza is a project that develops and supports economic opportunities in northern Kenya by creating an enabling environment for economic opportunities and accelerating public-private investment.

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