Here’s why small businesses in Kenya struggle to grow

Small and medium enterprises (SMEs) in Kenya are facing significant challenges when it comes to expanding both in the local and export markets. A recent SME policy index report has highlighted the struggles faced by these businesses, mainly due to poor regulatory environments. Additionally, Nakumatt Holdings, a struggling retailer in the country, has recently closed down three of its remaining six stores, indicating ongoing troubles in the business landscape. Reginald Khadzutu, an economic analyst, shed light on the issues during a recent interview on CNBC Africa. The SME policy index measures various elements that impact SMEs and micro-enterprises in Kenya. The index examines aspects such as business registration, importing, exporting, and overall business conditions in the country. According to Khadzutu, the latest index reading has shown a decline, with challenges such as difficulty in accessing affordable inputs and exporting to regional markets. Infrastructure bottlenecks and trade policies within the region have further compounded the challenges faced by SMEs. The regulatory environment in Kenya plays a crucial role in hindering the growth of SMEs and impacting the overall economy. Khadzutu emphasized that while regulation is a concern, the lack of support for main industries is a more significant issue. SMEs are typically meant to complement established industries by providing goods and services. However, without strong economic policies that support the growth of key industries, SMEs struggle to thrive and contribute to the value chain. For SMEs to thrive, Khadzutu stressed the importance of training, creating an enabling environment, and addressing issues such as taxation. He highlighted the need for tailored support programs that assist SMEs in various aspects of business operations. The government's role in fostering a conducive environment for SMEs was also discussed, with suggestions for intervention in areas like access to finance, professional support, and mentorship. Khadzutu also touched on the impact of interest rates on the economy, noting that the recent removal of the interest rate cap in Kenya has implications for the banking sector. However, he pointed out that the fundamental challenges in the economy need to be addressed for sustained market growth and investor confidence. The conversation also turned to the capital markets in Kenya, with observations about foreign investors selling off stocks and the need for a more attractive investment climate. While recent policy changes may lead to short-term fluctuations, the long-term outlook for market growth remains dependent on broader economic conditions and reforms. Lastly, Khadzutu shared insights into the Gift Appention initiative, a private sector-driven program aimed at addressing old age poverty in Kenya. The initiative focuses on providing social support to vulnerable individuals to prevent them from falling into poverty in their later years. By encouraging formal pension schemes and insurance coverage for domestic workers and other informal sector employees, the initiative seeks to promote financial security and reduce poverty levels in the country. Overall, the challenges facing SMEs in Kenya are multifaceted, requiring a comprehensive approach that addresses regulatory, economic, and social factors to support their growth and sustainability.