Could the Modernization of SMEs Improve Kenya’s Ease of Doing Business Ranking Even Further?

I start with the quote by Paul Krugman, in the age of diminishing expectations: “Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker”. Reflecting on the responsibility we have as a large organisation in Kenya to improve the productivity of the country, we realized that we need to support the vibrant and all-important SME (Small and Medium Enterprise) sector.

Small and medium enterprises in Africa have been widely acknowledged as the engine of economic growth. They are at the heart of developing countries’ entrepreneurship, the source of most new employment and productive investment, and the basis for growth and poverty reduction.

Kenya is the economic and transport hub of East Africa and our real GDP growth has averaged over 5% for the last seven years. Since 2014 Kenya has been ranked as a lower middle income country because it’s per capita GDP crossed a World Bank threshold. While Kenya has a growing entrepreneurial middle class and faster growth, our economic and development trajectory is threatened by weak governance and corruption that has failed to solve the 40% unemployment problem. Furthermore, inadequate infrastructure continues to hamper Kenya’s efforts to improve its economic growth to the 8-10% range so that it can meaningfully address poverty and unemployment.

There is good news though. Kenya improved by 21 places (at position 92 out of 190 countries) in the latest Ease of Doing Business ranking as measured by the World Bank. This may just be testimony to the numerous business reforms underway, and the following five reforms specifically helped with this achievement: Protecting minority investors; Obtaining access to electricity; Registering property; Resolving insolvency; and lastly, Ease of starting a business. Kenya is well on its’ way to achieving its goal of being number 50 by 2020.

The construction of the new standard gauge railway connecting Mombasa and Nairobi is expected to be completed in 2017 and will open opportunities for trade to develop significantly. While we had chronic budget deficits, including a shortage of funds in mid-2015, that hampered the government’s ability to implement proposed development programmes, the economy is back in balance with many indicators, including foreign exchange reserves, interest rates, inflation, and FDI moving in the right direction.

Tourism holds a significant place in Kenya’s economy. A number of incidents in Kenya recently had a negative effect on international tourism earnings, but the sector is starting to recover. Kenya’s success in hosting a series of incident-free and high-profile events in the second half of 2015, including the visit of US President Obama, has helped improve the outlook for tourism. Surely there must be opportunities for entrepreneurs to exploit this sector, especially with the advent of mobile technologies that are connecting us with the rest of the world.

Besides tourism opportunities, SMEs represent diverse sectors in the economy, covering both the formal and informal sectors. Key sectors include agriculture, manufacturing, construction, mining, energy, water, trade, hospitality, transport, real estate, education, health and professional services.

Further to this, the Kenya National Bureau of Statistics reveals that SMEs in Kenya employ 7.5 million people and accounts for 80% of all employment and for over 92% of the new jobs created annually. SMEs therefore play a significant role in the Kenyan economy, and in many ways SME growth is seen as the way to get the economy back on track.

And no better way to get SMEs to grow than to get them to be highly productive with robust tech savviness to accelerate growth. In a recent study conducted by the Boston Consulting Group, it was found that tech-savvy SMEs grow their revenues 15% faster than those not embracing technology. It was also discovered that they grew jobs 2x faster than SMEs who are not modernized.

The modernization of SMEs should not be approached as a gradual process, but rather as a structured approach combining efforts from various stakeholders in the SME ecosystem. It is imperative that the ecosystem of all the role players supporting SMEs in Kenya collaborates to find solutions to holistically modernize SMEs, including partnerships between the private and public sector stakeholders.

Kenyan financial institutions, software providers, telcos, government and SME enablers should all jointly take hands to assist with the modernization of SMEs in Kenya. Think affordable, bundled offers. Think driving complimentary objectives. Think simple and easy-to-use software. Think modernized SMEs. Think economic growth.

Now think a reduction in unemployment and a much-improved standard of living for our communities, our children, and the children in their future.