Government should help SMEs grow, not facilitate their demise

National and county governments treat Small and Medium-sized enterprises (SMEs) shabbily. In recent times, they have come up with regulations whose intended or unintended impact is to cripple SMEs. The ultimate objective of some of these policies is to formalise the affected sectors, ensuring that consumers are protected, taxes are paid and competition is fair.

Unfortunately, some of these policies have been counterproductive. For example, the decision by the county government of Nairobi to bring down all the make-shift stalls in the Central Business District will leave thousands of families without a livelihood.

The same will apply if Parliament approves regulations drafted by Kenya Dairy Board proscribing hawking of raw milk. While the intention is to protect consumers from taking contaminated milk, the standards are just too high for small holder vendors to meet.

SMEs are the springboard upon which most countries have lunged to the next development stage.  If Kenya wants to industrialise by 2030, it should take care of the small businesses. SMEs, which operate in the informal sector, employ over 80 per cent of poor Kenyans. Data shows that of 800,000 jobs created every year; more than 80 per cent are in the informal sector. Indeed, of the 19.3 per cent in the labour force, 13.4 per cent or 2.6 million Kenyans have a wage employment, or are assured of some payment on a daily, weekly or monthly basis. The formal sector, which the Government wants to promote, has been stagnant. In its 13th edition of Kenya Economic Update, the World Bank noted that rather than being job creators, large firms are job destructors.

Entry into Kenya’s formal sector is limited. In the manufacturing sector, for example, only 19 per cent of the firms are young - created less than five years ago. This compares badly with 35 per cent for the US and Ethiopia.

“The low entry rate of formal firms points to a lack of dynamism,” a World Bank review says. The report further states; “In a well-functioning market economy, more productive firms should be more competitive. As such, they are able to gain market shares over time. However, more productive manufacturing sector firms do not create more employment in Kenya”.

Indeed, the so-called big, productive firms are not creating jobs, they are shedding them. There is a strong case for the Government to begin re-looking at the informal sector. The Government needs to help businesses in the informal sector grow by retooling and upskilling them, rather than getting rid. The level of unemployment in this country is already too high to tolerate more job losses.

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Small and Medium-sized enterprisesSMEsKenya Dairy Board