- Ndiritu Muriithi
Promoting SME competitiveness in Kenya is the now somewhat dated 2019 study, a collabo by Ministry of Industry Trade and Investment (MITI), International Trade Centre (ITC) and the Kenya National Chamber of Commerce and Industry (KNCCI), based on survey data from 23 counties.
The study has an excellent conceptual framework, focusing on three dimensions of competitiveness – capacityto compete, to connect and to change. The firstlooks at current operations of firms and their efficiency in terms of cost, time, quality and quantity. The second focuses on how firms gather and exploit information and knowledge about consumer profiles, preferences and demand, as well as efforts like marketing and advertising.
Capacity to changeis the ability to respond to, or act in anticipation of, dynamic market forces, and to innovate through investments in human, intellectual and financial capital. This dimension measures how well firms access finance and invest in human capital, innovation and intellectual property protection. All three dimensions of competitiveness can be assessed at the firm level, business ecosystem, and national level.
The 2019 study found significant regional differences in SME access to utilities and logistics, negatively impacting competitiveness in the north and southern parts of the country. In addition, non-food manufacturing firms innovate to stay competitive, but at high cost.
Vision 2030’s promise of investment in energy, water and information and communications technology infrastructure, was to resolve these issues thereby improve the productivity and competitiveness of firms across the republic. Notable largescale investments along these lines include the Lappset Corridor, and the National Optic Fibre Backbone Infrastructure.
On its part, devolution has led to improvements in rural roads, cutting the costs of, and increasing the efficiency of logistics services, making SMEs more competitive. It has led to great results in some counties. Marsabit county economy grew the fastest at 9.3% during the period 2019-2023 period. Other high growth counties included Tana River (7.6), Nakuru (6.9), Kajiado (6.3), Isiolo (6.1) and Turkana (5.4).
Except Nakuru, other Mt. Kenya counties struggled, despite their solid base and scoring high on competitiveness. Their combined gross county product is US$28 billion, larger than Mauritius, Rwanda, and Botswana, and 34 other African countries! On a UN list of the economies of various countries and territories by size, the Central Region Economic Block (CEREB) is larger than 103.
Size gives CEREB critical mass for rapid expansion of manufacturing, particularly for agriculture. Here is how the numbers stack up. By 2022, the region had 670,000 small businesses. Forty percent (265,000) of the licensed small businesses are small traders, shops or retail services, often with premises of 50 square feet or less. They sell everyday household goods, but also agricultural tools and inputs.
The region has 27,200 manufacturing enterprises, categorized as small, medium and large size workshops; and small, medium and large industrial plants.
Nakuru has 8,100 manufacturing enterprises, Kiambu 6,040, while Meru has 5,700. Muranga 985, and Laikipia 589. Including processors of agricultural produce, the number would be higher still. The 27,000 manufacturers should be producing what the 265,000 retailers are selling, but this is not the case. Imports from China and India dominate.
The competitiveness study found that beyond a reduction of interest rates, other tools are necessary to broaden and deepen access to finance for SMEs. Supporting these manufacturers will create hundreds of thousands of jobs, and increase incomes, but national progress on this front has remained elusive.
And, sadly, efforts by the CEREB governors to improve market access for the manufacturing enterprises within the region have stalled, alongside their overall economic blueprint. Still, individual counties can take measures within their jurisdictions to promote manufacturing and create jobs. As previously demonstrated in Laikipia, it is possible to improve access to credit, reduce energy costs, and improve the physical operating environment.
The County did so by arranging a 3.3 billion shillings economic stimulus package from leading commercial banks, that delivered appropriately structured finance such as invoice discounting, LPO and asset finance. The program bought down credit risk, making it possible for licensed small business to access credit at affordable rates of around 7% per annum.
The county provided qualifying manufacturing small business with rebates on energy costs, and improved the production environment through smart towns in Oljabet, Rumuruti, Nyahururu, and Nanyuki.
More broadly, the Kenya Urban Support Program, a conditional grant now in its second phase, is also improving urban infrastructure. A court case has, however, slowed implementation.
@NdirituMuriithi, an economist is Partner at Ecocapp Capital, the advisory firm
