The Small Business Environment in KenyaAs a developing country in Africa, Kenya has a flourishing number of small and medium enterprises, generally referred to as small businesses in the context of this report. Most of the businesses have to compete with already established multinational companies and have to deal with numerous challenges enumerated hereunder. This report is written for purposes of shedding light on the challenges and opportunities that exist in Kenya’s small business sector. More so, it is meant to provide the Kenyan government and international donors with pointers about the specific areas that need attention in order to make it easier for small scale investors in the country to establish business and compete fairly with other larger enterprises in the country and if possible, elsewhere in the world. The Kenyan government categorises small business as all enterprises that have less than 250 employees (Mbithi & Mainga 2006, 5).
This category is further sub-divided into micro enterprises (0-9 employees), small enterprises (10-50 employees) and medium-scale enterprises (51-249 employees). A different definition offered by Kimuyu and Omiti (2000) describe small businesses as labour intensive businesses which use high labour capital ratios to produce similar products which are produced by larger companies using technologically advanced techniques.
The third definition offered by Kimuyu and Omiti (2000) suggest that small businesses are enterprises that involve minimal capital, and are usually started by individuals. As a result, their growth progress is much slower, while their access to financial support from mainstream financiers is limited. Synopsis of the small business setting in AfricaIn Africa, small businesses usually take the form of a family owned business, where the entrepreneur dedicates his/her own efforts in the growth of the business.
Usually, some businesses exist without government registration and licensing. However, as different governments in the continent become more vibrant in regulating and offering assistance to small businesses, a lot more business owners are seeking government recognition by applying for operating permits and licenses (Wanyama 2005, 35). In the Kenyan context, small businesses started attracting government attention in the early 2000s. Before this, the sector was mainly known as the informal jua kali business sector (ibid, 35). In a bid to curb the rising unemployment rates, which had hit the 10 million mark in the country by 2005, the government of Kenya, with financial assistance from United Nations Development Program (UNDP) started upgrading the small business infrastructure in the country, while encouraging all small scale business owners to register their businesses.
The life span for most small businesses in Kenya depends on whether a business is properly managed, grows and is able to put up with the competition. The GDP contribution of the same on the other hand was estimated to be approximately 13 percent (Daniels 1999, 55).
General business environmentThe general small business in Kenya is characterised by low entry barriers, and a unique potential of employment creation (Kimuyu 2001, 3). These factors however have their positive and negative impacts on the survival and expansion prospects of the small businesses. As Kimuyu (2001, 3) observes, the low entry barriers means that a lot more small scale enterprises are willing to invest in specific businesses. This in turn creates stiff competition, which results in the ruin of poorly managed or less efficient businesses.
Considering that most small businesses in Kenya are sole proprietorships, there is a great possibility of business failure where the proprietor has limited knowledge or lacks the capacity to engage in basic business survival tactics such as marketing. In regard to the small business sector’s potential to employment creation, Kimuyu (2001, 3) observes that the absence of vital information especially regarding the structure of small businesses in Kenya remains a curtailing factor since government or donor programs cannot effectively address the challenges or increase development in the small business sector without such information.