Why Kenyan firms fail to cross borders

Trade Cabinet Secretary Moses Kuria. [PCS]

Trade Cabinet Secretary Moses Kuria believes the problem with the Kenyan economy is not the fiscal deficit, debt, or inflation, but the lack of production by Kenyan businesses.

He calls it a virus.

And they are three of them: lack of production which has caused the manufacturing to gross domestic product (GDP) contribution to drop from nine to seven per cent, reduced exports from 28 to 10 per cent in eight years and a stagnated foreign direct investment at Sh50 billion ($ 500 million).

Fear of scaling

A contributor to this, perhaps the major one, he notes, is the refusal or reluctance by Kenyan businesses to grow beyond their small or middle enterprise status.

"These triple viruses are what causes all the other problems we battle every day," he said during the opening of the African Private Sector Dialogue on the African Continental Free Trade Area (AfCFTA).

Kuria says there is no justification for businesses in the country, or in Africa to remain small or medium in a market of 1.3 billion people which is expected to hit 2.5 billion by 2050.

He likens this to one being a village champion.

"I think this is a conversation we need to have with the private sector. How comes everybody is in the village with a 1.3 billion people market in Africa? Everybody is a king in their own corner; everybody is an Olympic swimmer in their bathtub," he said.

"And they call themselves champions. We need to go out there; we need to expand and be in more countries."

He cited businesses like Stanbic Bank (Standard Bank) and Ecobank which are continental with footprints in dozens of countries in the continent.

"We are really losing it when we become villagers. It is not bad to be a villager but you do not need to be a villager forever," he said.

Poor policy

But why is difficult for Kenyan businesses to international?

The Kenyan MSME sector is faced with numerous challenges especially relating to the regulatory regime. [iStockphoto]

Some of the insights are found in research published by the Journal of Innovation and Entrepreneurship. The paper, authored by Hezron Mogaka Osano from The Technical University of Kenya (TUK), details some of the challenges which include the lack of policies that encourage global expansion of SMEs.

The research titled Global Expansion of SMEs: Role of Global Market Strategy for Kenyan SMEs, notes that the key finding is that there is a functional relationship between global market strategy and global expansion of SMEs.

"The implication for practice and policy is that there is a need for collaboration between industry and government in pursuing policies for global expansion and among SMEs and large enterprises particularly in developing capacity and collaboration in global marketing strategy, market intelligence gathering, export promotion and strengthening of foreign trade missions," the research reads in part.

It adds that there an early warning system should be developed to alert businesses that have crossed borders of any changes that may lead to potential failure in their global pursuit of markets.

Cost factor

The research also documents the cost factor which brings in the fear of suppressed revenues by owners of the business which the document refers to as investors' expectations of short-term profits.

"The start-up cost and higher transaction cost might make an SME dissuaded from going international as this may hurt its performance. It is therefore important that the government provide export assistance to enterprises that are starting to export," the research notes.

The research references numbers from the Kenya National Bureau of Statistics (KNBS) which estimate that about eight in every 10 businesses in the country is small or medium. These businesses contribute up to 40 per cent of GDP.

"Despite its success, the Kenyan MSME sector is faced with numerous challenges especially relating to the regulatory regime. The entrepreneurial culture is hampered by an unfavourable environment curtailing MSMEs from thriving.

This has resulted in a high mortality rate of MSMEs with about 2.2 million businesses being closed in the last five years," the research reads.

Poor organisation

While some of these challenges are clearly genuine and need the government's hand to ease these burdens, some are due to poor organisation of the country's business environment.

"Sometimes I go on trips, and all the times I am travelling, I try to go with the private sector as it is in the nature of our business management organisation, and I find in my entourage people who do not have business cards. They cannot show you where their offices are," the CS lamented.

Trade promotion organisations in the country should be revamped. [iStockphoto]

One of the recommendations from the research is that trade promotion organisations in the country should be revamped, an idea that marries with a law in the offing revealed by the CS which will see the restructuring of the Kenya National Chamber of Commerce and Industry (KNCCI) that will make it mandatory for every business to be a member.

The research wants a revamp of trade promotion organisations to be more proactive and allocate more funds for overseas marketing.

This should go in line with providing part-grants for SMEs to obtain international accreditation for their processes in order to meet global standards.

The vision of the Kenya Chamber Bill which will be tabled in Cabinet in a few weeks., the CS says, is to make the body at par with the European Business Council, American Chamber of Commerce (AmCham), or the China Chamber of Commerce.

"So that in that chamber, we can have a conversation of why everybody is so comfortable with being small and medium," the CS said.

"Some people will start crying that this will increase the cost of doing business; how? If you think belonging or paying for a subscription to be a member of the chamber is expensive, try to be an employee, who has stopped you?"

This chamber, he says, must be reflective of Kenyan businesses. Not one that will advocate for selfish interests or serve briefcase enterprises.

"Kenya is going to the be next haven for small and medium businesses, and I am praying everything possible to create a very good environment for SMEs. But that should not be the end of our aspiration," he said.

The CS gave an example of East African Breweries(EABL), which is a major manufacturer in the region operating in Kenya, Uganda and Tanzania, saying there is still room for such firms to spread further in the continent. This can be done by integrating the existing economic blocs.

Lack of aspiration

"Why don't I find EABL when I am passing the streets of Togo? How comes Anglophone countries only talk to Anglophone nations? Or Francophone with Francophone? We need to build a strong East, West, South and North and have beams that connect all these regions," said the CS.

The CS insisted that firms should aspire to grow to be continental and global adding that it is hard to find a business in the continent that is operational in more than five countries.

"We talk of M-PESA which is a global brand but is it a global company? That is the conversation we need to have. The best of our businesses, they look so big from here but are they big in Africa?" he posed.

"If they are big enough, let us go out there and compete with the world because we have whatever it takes to be big businesses."