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State owes SMEs an economic stimulus

By Ken Opalo | April 13th 2019 at 00:00:00 GMT +0300

Research by the World Bank suggests that pending bills owedto government contractors amount to about 1.6 per cent of total output (GDP) in the 2017/18 fiscal year. That was an increase of 0.7 percentage points (or some Sh60 billion) from the previous year. In other words, the government of Kenya, is limiting the potential multiplier effect of public expenditures. This is a travesty.

The government’s deliberate effort to strangle contractors should also be understood in the context of the rate cap law, which has shrunk bank lending to small and medium enterprises (SMEs). In other words, businesses have been hit by the problem of a government that seldom pays on time, and a banking sector that would rather lend to the government and larger firms than take risk with entrepreneurs.

SMEs are hurting. And it is a real shame that the government is absolutely indifferent to this situation. All we seem to get are conference after conference where “issues are discussed” but with no follow up. The last time a high-profile event on SMEswas in the news, it was following an event at Strathmore University’s Business School. President Uhuru Kenyatta was in attendance. And as usual, he issued promises, was visibly unimpressed by his lieutenants and what they were doing for SMEs (so much that he refused to read his speech in embarrassment), and promised action.

That event was on October 16, 2018. And nothing has come of Kenyatta’s apparently empty promises. Incidentally, one of Kenyatta’s promises was to improve the infrastructure at Gikomba market.

At what point will we realise that this is no way to run an economy? SMEs ought to be a core part of our job creation strategy. Their organic growth and sectoral orientations mean that they are the best way to create jobs that can be filled by Kenyans of different walks of life (especially those with relatively lower skills). Yet the government spends most of its time focused on the so-called “formal” economy that employs a sliver of the working age population. Smart policy dictates that policy should be trained on where the people are. And right now in Kenya most of our working age population is in either agriculture or SMEs. That is where the Ministries of Finance, Trade and Industrialization, Agriculture, Energy, and Infrastructure should be focused.

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Indeed, Kenyatta’s Big Four Agenda (if it still exists) needs a reorientation to make it about SMEs. The road to a growing manufacturing sector (as a share of GDP) passes through SMEs. It is these SMEs that will grow into big firms and conglomerates that will generate jobs. The idea that we will magically attract capital from overseas without a demonstrated domestic manufacturing base is a pipe dream.

As we work to attract foreign investments in manufacturing, we must also strengthen SMEs manufacturers in Kenya. That is the channel through which we will be able to link foreign capital with Kenyan works, and also ensure that value generated stays in the country. Merely building assembly plants for products designed and fabricated elsewhere means that we will only reap the labor share of the total value of products. We need to be more aggressive in the quest to provide dependable jobs for our people.

Budget is policy: the way the government choses to spend taxpayer money reflects its priorities. Therefore, the fact that the national and county governments are strangling contractors by not paying them on time tells us all we need to know.

- The writer is an Assistant Professor at Georgetown University

World Bank GDP SMEs Businesses
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