Toxic policies that can kill your business

Kenya’s industrial impotence has been captured in a popular catchphrase: “And yet we can’t manufacture toothpicks.” 

However, James Kariuki, the chairperson of the over 75,000-member China-Dubai Traders Association, says this is not a rant. 

Mr Kariuki observes that Kenya has failed by not giving micro small and medium enterprises (MSMEs) enough attention. 

MSMEs, he reckons, have been the driving force behind the growth of some of the most formidable economies in the world and Kenya’s reluctance to give them the desired attention might be its greatest undoing.

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Although MSMEs are the largest employers in many low-income countries they are threatened by a lack of credit, insurance and access to risk management tools such as savings, according to the World Bank. 

Enterprise looks at how wrong priorities are posing threats to the survival of MSMEs through the eyes of a person who’s been running and helping them for decades.   

Focus on the base of the pyramid

Kariuki points out that empowering the small businesses at the bottom is the surest way to ensure sustained growth of the economy.

“Cottage industries that morph into big industries have anchored some of the world economies that today are very robust,” he says.  

In a pyramid, where the base is made up of a majority that is running the small level businesses - hawkers, shoe shiners, mama mboga, owners of small shops - having policies that favour such businesses leads to the betterment of the whole chain of businesses going up, in what he describes as the capillary action.

“A mama mboga who makes Sh200 a day will buy more goods if she is empowered to make more money, and the company she buys from will be making more money thus will produce, or procure for sale, more goods, and it will employ more and pay the workers more, same way up with benefits at every level,” says Kariuki.

Such empowerment of those at the bottom, he notes, is different from one in which the government believes that building many highways attracts more vehicles. This model, however, forgets that the millions are at the bottom and wallowing in poverty. The success of those at the top of the pyramid might be impacted by the strain at the bottom of the pyramid, which might keep on expanding.

Kariuki says that while there is no clear definition of who an MSME is, businesses that make between Sh500 and Sh10,000 every day could be considered micro. Those above them, which has shopkeepers who can occasionally travel abroad to source for goods that they introduce to the market, is in the category of small enterprises. The latter makes a bulk of the China-Dubai Traders Association, which he heads.

He has been in business for as long as he can remember; he was barely 15, in 1985, when he started selling bread. Four years later, in form five and six, and going on into university, he drove matatus to earn a living. In 1995, he started selling music cassettes in the city before rapidly evolving technology kicked him off the streets.

As he sank deeper into business, he took his forays into the Chinese market and started importing electronics. From 2003 to 2013, Kariuki lived in the Asian economic powerhouse touring the world for business engagements enough times to earn himself a Platinum-For-Life Card.

“There were many small businesses that I thought I could connect to the Chinese market and the idea of this traders’ association was born out of the need to bring together traders who could accrue benefits from belonging to a union,” he says.

In 2009, the China-Dubai Traders Association was born.

“We were also looking for a way to negotiate for cheaper tickets on airlines that we used regularly, and those who joined the union benefited from this,” he says. The traders also benefited from being guided around China, and obtaining help to access goods they desired from different towns in the country; where the goods were most readily available and cheaper.

Bridge the Government and traders disconnect

Kariuki feels that there is a disconnect between the government and SMEs and that unless the gap is sealed, a lot of damage will continue to occur.

“Sometimes the government is making plans that sound very good to the ear. But these decisions do not benefit the SMEs, because the implementation is poor. The people sent to implement it mess things up,” he says.

Micro-entrepreneurs contribute an immense chunk of Kenya’s taxes and Gross Domestic Product (GDP) kitty, with well over 80 per cent of employment opportunities in the country in this category.

“The lack of micro-entrepreneurs recognition is prevalent in the National Treasury and Trade dockets, which is also reflected in all arms of government inclusive national assembly and other agencies. Such attitude results in MSMEs having serious mistrust or suspicions of government initiatives, a situation further exacerbated by years of promises made but hardly delivered,” he says.

He remembers a moment in 2017 when, he says, many people who were importing wares from the East abandoned their businesses altogether after the government, in a bid to crackdown on counterfeits, went on overdrive and crushed entire containers just because of a small section of undesirable goods.

“Because of delays for clearance at the port, people ran into losses and abandoned the business.”.

The failure of adequate representation of small enterprises in government, he says, has ensured that those in government are blind to what is happening out here.

Laws that kill the poor

Kariuki notes that high taxation, which has led to the rise in prices of goods, impedes the growth of small businesses.

“Take an example of a roadside cook or the owner of a small hotel. The price of cooking gas hikes, but he cannot increase the prices of food lest he loses customers. He ends up having to lead a lower quality of life, and probably even takes his children to a less prestigious school,” he says.

Tenders have also eluded deserving business people, he says, where honest entrepreneurs often hit hurdles in their pursuit for tenders.  

He says that policy implementation is the biggest problem in the country.

“Ministries of trade, finance and internal security are, in my opinion, the most important in the country. They are not present to set the right policies, and those that are set from those high offices face a problem of implementation.”

Kariuki says that hawkers, who are entry-level micro traders, rely on imports, buying from shops that have imported and making little profits off of it.

Access to credit, which has been for long cited as a problem facing SMEs, has been a perennial thorn in the flesh, Kariuki says.  Banks have been lending to the blue-chip companies and government, with most of the small traders left to scavenge off scraps from unregulated lenders and shylocks.

Value addition and cost of transport

Kariuki also says that our failure of value addition of products makes it impossible to optimise profits in our products.

“In Kinangop, a lot of people farm potatoes. These could be made into crisps in industries set up near farms. Some of these roads getting into the farms are terrible and, generally, transport is very expensive in Kenya. Such crisps could be manufactured in areas of convenience, allowing Kenya to even export,” he notes.

Kariuki says that just years ago, a 30-tonne or 40-foot container cost $2500 (Sh270,000) from China to Mombasa, and Sh100, 000 from Mombasa to Nairobi, a considerably short distance for that amount.

Another impediment to successfully setting up cottage industries is the mess at Kenya Power, he says, with power very expensive in the country, and with rationing rife.

For farmers, Kariuki feels that the agricultural inputs should be subsidised to lower the cost of production, which will lead to higher yields at low prices.

“Or how can you explain rice coming from Pakistan, travelling to Mombasa, all the duties getting paid, and even after transport to Nairobi remaining cheaper than Kenyan rice?”

Kariuki feels that people should shun the obsession with real estate and build sheds for small scale traders.