MSMEs need fa­cil­i­ta­tion not reg­u­la­tion

The Star (Kenya) - - News Business - KAREN KANDIE Karen Kandie is a fi­nan­cial and risk con­sul­tant with First Tri­dent

mi­cro, small and medium en­ter­prises sur­vey that was re­cently led by the Kenya Bureau of Statis­tics gives very use­ful in­sights into busi­nesses in the in­for­mal sec­tor. The fo­cus was mi­cro busi­nesses that are mostly house­hold-based and un­li­censed, and SMEs that are largely li­censed. The in­for­mal sec­tor is the largest source of new jobs. In 2015, it cre­ated 84.5 per cent of the new jobs with the sur­vey show­ing MSMEs em­ploy 14.9 mil­lion peo­ple. While the sec­tor is the big­gest em­ployer by the num­ber of jobs, it ac­counts for only 33.8 per cent of the wealth of the coun­try. Es­sen­tially, this means out­put and ef­fec­tive­ness may be lim­it­ing the growth of the sec­tor. We have a large num­ber of peo­ple that could pro­duce more.

Granted, most gov­ern­ment poli­cies and in­cen­tives fo­cus on the for­mal sec­tor. Be­sides, busi­nesses in the for­mal sec­tor are bet­ter able to ex­ploit gov­ern­ment in­cen­tives, and are more re­silient to shocks. How­ever, some of the ob­sta­cles that are ad­min­is­tra­tive and red tape in na­ture can be over­come fairly eas­ily. First of all, by own­ing up to the im­por­tance of the sec­tor to the coun­try. A change of at­ti­tude, in the way the in­for­mal sec­tor is viewed, is needed to drive a help­ful or fa­cil­i­ta­tive rather than a reg­u­la­tory ap­proach.

Grow­ing up within a house­hold-based small busi­ness, I of­ten came face to face with the fear of gov­ern­ment in the in­for­mal sec­tor. When­ever word spread that gov­ern­ment in­spec­tors were around, it would cre­ate a near panic sit­u­a­tion. It was dur­ing the time of price con­trols, and there was al­ways the risk an item would be found wrongly priced, even by chance. Any­way, most busi­nesses re­lied on in­for­mal means, such as sup­pli­ers and peer busi­nesses, for ac­cess to of­fi­cial prices. The fear that the agents could al­ways find some fault some­how, if not on pric­ing, in the ac­cu­racy of the weigh­ing scale, was real.

The spe­cific prob­lems faced by the in­for­mal busi­nesses to­day are dif­fer­ent from those of ear­lier years. But the re­la­tion be­tween the gov­ern­ment and the in­for­mal sec­tor con­tin­ues to be mostly con­trol­ling and less help­ful. And yet in view of its im­por­tance in job cre­ation and in­put to the econ­omy, a help­ful ap­proach is more ben­e­fi­cial in the long term. It is then crit­i­cal that peo­ple in this sec­tor are as­sisted to sup­port their liveli­hoods, grow their busi­nesses, and pay tax.

It is per­haps not a sur­prise the re­cent sur­vey found the reg­u­la­tory en­vi­ron­ment is the main lim­i­ta­tion to the growth of MSMEs. In par­tic­u­lar, the re­quire­ment of mul­ti­ple li­cences seems costly and com­pli­cated. Other lim­i­ta­tions from the sur­vey are; lack of ac­cess to cap­i­tal, lack of mar­kets, stiff com­pe­ti­tion, poor in­fra­struc­ture and in­se­cu­rity.

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