Challenges facing SMEs in Kenya

Small and medium size enterprises (SMEs) make up 98% of all businesses in Kenya, create 30% of jobs annually and contribute 3% of the Gross Domestic product (GDP). While these numbers are not as bad, they are not so good either. One would expect that being the majority, SMEs would register more impressive numbers.

To truly understand the potential of SMEs we must look at the challenges that hinder the growth of this vital sector. A clear and unbiased observation of these challenges gives an idea of what the SME sector can become if only these problems are alleviated.

Lack of Markets

Small and medium size enterprises transcend every part of the the Kenyan economy; from agriculture to wholesale and retail. Most of these businesses are founded with little to no investment in market research or proper identification of market need. As such, it is not uncommon to find a person going to poultry farming with no idea where they will sell their products. The assumption that there will always be a market for a certain item is flawed and bound to lead to frustration. Lack of markets plays directly into the next challenge faced by SMEs.

Inaccessibility of Markets

While a market for products may be readily available and known, getting the goods to the market is sometimes a toll order. Poor roads have frustrated local potatoes and milk producers for many years. They make it impossible for producers to get their products to the market on time if they do it at all. Value is destroyed and money lost in the process.

On international markets, small Kenyan businesses find it difficult to penetrate those markets because of trade restrictions and associated expenses of transport and licenses. The tight regulations for example in the EU region make it even harder for local businesses to access such markets.

Licenses

Over the years it has become increasingly easier to acquire a business license in Kenya. However, the existence of over 4.5 million unlicensed SMEs tells a different story. Businesses without licenses are often shut down at will by county government administrators or constantly solicited for bribes to stay in operation. This creates a very hostile environment and limits the growth potential of a business as unlicensed businesses can only operate at a very small scale and within a very limited geographical scope.

Stiff competition

According to the Kenya National Bureau of Statistics report on SMEs in 2015, stiff competition among businesses remains one of the greatest challenges SMEs face. This is because local businesses tend to sell homogeneous products with very low degree of differentiation. Research has shown that SMEs with unique items have higher returns than the rest. While one can argue than competition is good for growth, well, stiff competition is not.

Other challenges facing SMEs include; poor security, lack of collateral for credit, power interruptions and poor access to water supply.

The Future…

In the US, SMEs contribute 45–50 percent to the GDP and hire about 48% of all workers in the economy. If Kenya, wants to hit such figures we must consistently and inventively alleviate the problems that face local businesses.

We must build better roads, grant easier access to business permits and incentivize young people to think different. The potential is limitless.