We Must Talk About SMEs In the Current Business Environment

By Viffaconsult

Kenya’s Small and Medium Enterprises (SMEs) play an important role in the country’s socio-economic development while contributing 33 percent to the nation’s Gross Domestic Product (GDP), employing over 30 percent of the population and constituting 98 percent of all businesses in Kenya.

SMEs have the potential to significantly play a much bigger role but face systemic and unsystemic challenges leading to a mortality rate of 75 percent within 3 years of inception.

Some of the challenges faced by SMEs are; access to finance, access to markets, technology, management skills, access to information, unsupportive policies among others.

Further, a critical look at SMEs sectors leading the high mortality rate shows that the wholesale-retail, motor vehicle-cycle repair between them contribute 22 percent of the 33 percent GDP second only to manufacturing at 24 percent; constitute over 70 percent of SMEs dying.

This coupled with razor-thin margins and no significant competitive advantage means that these enterprises are highly exposed to systemic shocks such as experienced in form of the Covid-19 pandemic.

Although concerted efforts have been made by various Entrepreneur Support Organizations (ESOs) including the government; the outcome has not been able to turn the tide of mortality, quality of jobs created among other factors.

Covid 19 has further complicated an already arduous SME environment which also presents an opportunity to take stock of current SME support philosophy and theory of change for all entrepreneur support organizations.

Fundamental questions ESOs must collectively ask; is there sufficient and coordinated triple helix collaboration amongst private sector, government, and academia in supporting entrepreneurship?

Is training and providing access to finance to SMEs with weak business model the most optimal approach?

How can SMEs easily access upto date market intelligence and is the current mentorship practice optimal for SME support among other questions?

Based on sub-optimal SME performance as well as high disruption risk in the past decade; a shift in sectors from low value to high value must take place from wholesale-retail dominant to manufacturing, agritech, and technology-based or founded enterprises among other sectors.

The shift will be impossible if current ESO practices are to be applied hence the need for ESOs to also shift model of support to venture to build a situation where academia, governments, and private sector come together and map out the most promising sectors by conducting feasibility studies and presenting these high-value opportunities for SMEs to pick and choose from the list.

Once this is done ESOs can develop a national support framework for SMEs in these high-value sectors hence increase the likelihood of SMEs contributing significantly and sustainable to the socio-economic development of Kenya