World SME Day // Celebrating the SMEs and their contribution to the Economy

World SME Day // Celebrating the SMEs and their contribution to the Economy

Micro, Small, and Medium Enterprises (MSMEs) are considered to be the backbone of Kenya’s socio-economic development. 

MSMEs have emerged as the second-largest employment generating sector after agriculture. 

The sector is a key driver of employment growth and considerably contributes to the country’s GDP by manufacturing a wide range of products and services. 

They contribute to over 90 percent of the total labor force and play a key role in poverty reduction and economic development. They are also a source of innovation, competitiveness, goods and services, and entrepreneurial skills. 

There are over 7.4 million MSMEs employing approximately 14.9 million Kenyans in various sectors of the economy. In addition, the MSMEs cover a wide range of establishments in almost all sectors of the economy. 

It is also worth noting that most MSMEs operate informally. Moreover, the important role of MSMEs in promoting GDP growth and employment is underlined in Kenya’s Vision 2030, the country’s long-term development blueprint and the “Big Four” agenda under the manufacturing agenda.

Despite the critical role they play in the economy, MSMEs are frequently confronted with market imperfections. 

They have difficulties in accessing adequate, affordable, and timely credit; face ineffective marketing due to inadequate resources and non-availability of skilled manpower, and most of them are unable to integrate into large-scale business relationships due to lack of international standards and quality controls. 

Most MSMEs operate without any type of certification, which greatly reduces their prospects of developing backward linkages with large enterprises. 

Additionally, it is important to note that a large body of literature identifies access to credit as the most important challenge faced by these types of enterprises.

While we appreciate the Government’s move in helping start-ups through the introduction of policies and initiatives to address these failures in access to finance and markets with varying degrees of success, there is still much that needs to be done. 

In 2013, the Government under the Access to Government Procurement Opportunities (AGPO) program set aside 30 percent of all Government procurement for youth, women, and persons with disabilities. 

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The aim of the program is to facilitate the youth, women, and persons with disability-owned enterprises to participate in government procurement and, therefore, increase their market access and further improve weak linkages in the value chain. 

Public funds advanced to the sector to address the access to credit challenges have included the Youth Enterprise Development Fund, Small and Medium Enterprise (SME) Fund, Uwezo Fund, and Women Enterprise Fund. 

These funds are mainly designed to cater to the unique needs of the respective categories, who would not access credit from the formal system because of stringent requirements that they could not fully meet, for instance, lack of collateral to support their loan applications.

As the world marks the 5th anniversary of MSME Day, small businesses are more than ever in need of support, as they navigate the impacts of the COVID pandemic, conflicts, and the climate crisis. 

They are the hardest hit by these multiple shocks, and at the same time play a critical role in building back stronger.

The role of SMEs in job creation

SMEs play a very critical role in the world economy by contributing to the employment scenario along with the input and output. There are certain points to be understood here. 

As per a report published in 2015, approximately 600 million jobs would be required worldwide over the next 15 years. 

Predominantly, most of the formal jobs that are available in developing markets are created by the SMEs. That is almost four out of five jobs available in the market. Despite playing a vital role in the development of the economy, it is observed that around 50% of the SMEs lack access to finance or capital investment. 

At any given point of time, the formal SMEs create around 33% of the national income and 45% of the total employment in developing countries. When we include the informal SMEs in the list, the numbers rise even higher.

MSMEs have to become more resilient to future shocks, and efforts and stimulus packages must target those most heavily affected by disruptions to global supply chains, rising inflation, and the continuing ramifications of the COVID-19 pandemic.

Policymakers have a role to play

Policymakers also have a role to play here and must move beyond recovery and consider ways in which to lower and eliminate barriers faced by MSMEs, and improve the business environment and access to finance, markets and technology in these fragile times.

Nairobi Garage is home to a number of SMEs and over the period we have come to appreciate SMEs’ role in acting as a cushion against recession by adapting and innovating as per the changing circumstances. 

There is a big connection between the various levels of poverty, hunger, and economic well-being of the society and the general condition of various SMEs in the country.

In almost every country, SMEs are a large proportion of all businesses in the country. In most developing and developed economies, over 90% of SMEs improve the employment rate. In fact, when big industries downsize and cut down jobs, SMEs keep developing and creating more jobs.

SMEs adapt fast to the dynamic business world by switching to e-commerce and online transaction of goods and services. The advancement in technology has not only eased the process of selling and buying, but it has also helped the entrepreneurs to cut costs of advertising and marketing too. The various e-commerce platforms make life easy for SMEs.

It is therefore critical that countries and their development partners continue to support and empower MSMEs and unlock their full potential through inspiring innovation, creativity, and decent work for all on this World SMEs Day and for years to come.