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Kenya’s MSME Policy Environment Ranks at 3 out of 5, needs to be reviewed towards global best

The Kenya Private Sector Alliance (KEPSA), the apex body of the private sector, recently launched the Micro, Small and Medium Enterprises (MSME) Policy Index to provide policymakers and market players with a tool to monitor and evaluate progress achieved in implementing policies meant to support MSMEs.
The tool, developed in 2018, is part of the KEPSA SME agenda and builds on the Kenya Rising Star and Scale-Up programme (KRISP) for SME and Entrepreneurship Development in Kenya that was developed and presented to H.E. President Uhuru Kenyatta for endorsement during the 6th Presidential Roundtable (PRT) in May 2016. The main objective of the KRISP programme was to foster development of a resilient Kenyan economy by supporting SME devel- opment, nurturing entrepreneurial culture and expanding opportunities for wealth and employment creation.
KEPSA has previously been involved in efforts to organize the SME sector through formation of Micro and Small Enterprises Federation, and enhancing the reg- ulatory environment through enact- ment of the MSE Act 2012 – which also set the framework for estab- lishment of the MSE Authority and MSE Fund. On 29th May 2019, KEPSA also hosted a Presidential Roundtable bringing together large producers, SMEs and small trad- ers to facilitate trade linkages and reduce importation of illicit goods.
The MSME policy Index is the first of its kind in Africa and borrows from the best practices in ASEAN countries. It was motivated by KEPSA desire to ensure inclusion of SME policy issues in the busi- ness environment reform agenda and that the year on year improvement in Kenya’s ranking on the World Bank’s Ease of Doing Business is being felt by businesses of all sizes across the country.
The Index is based on eight-pol- icy dimensions and outlines recom- mendations that are highly neces- sary for MSME development across the policy space, legislation, regula- tions, programs, and MSME support systems and is intended to support the government in setting targets for MSME policy development by identifying strategic priorities for improving the business environment to stimulate the growth of MSMEs and the entire economy.
The index is drawn from a total of 75 indicators that are relied upon in measuring the extent to which each policy dimension is either sup- portive or not supportive of the MSMEs.The eight policy dimensions include:
Enabling governance and busi ness regulatory environment;
• Reliable infrastructure and access to inputs;
• Human capital and entrepre- neurial skills development;
• Access to MSMEs financing; Effectiveness of MSME repre- sentation;
• Supportiveness of framework for business development;
• Market linkages and expan- sion initiatives;
• Innovation, ICT adoption and technology transfer.
Speaking during the launch of the Kenya MSME Policy Index cum KEPSA Member’s gala dinner, KEPSA Chief Executive Officer, Ms. Carole Kariuki, said the tool had been used for the first time in Kenya and Africa as a whole to assess, gauge and rank the MSME policy environment and to determine how the MSME policies influence eco- nomic growth and development.
“The tool will help in identifying local and international best practices in facilitating MSMEs growth,” Ms. Kariuki said.
Dr. Chris Kiptoo, the Principal Secretary, State Department of Trade, Ministry of Industry, Trade and Cooperatives applauded KEPSA for launching the tool. “The Index must be applauded as a purposeful tool for interrogating and monitor- ing progress in policy implementa- tion,” he said.
On his part, KEPSA Head of Policy Research Analysis, Victor Ogalo, said that the Index will provide a basis for engaging the government in policy dialogue and exchange of best practices.
“The index will enable stake- holders to systematically and ana- lytically assess the MSME policy space while identifying gaps in both policy development and implemen- tation,” Ogalo, said while presenting the inaugural findings of the MSMEs Policy Index.
Given the critical contributions of the MSMEs in the economy, the tool will provide credible and scien- tific ways of tracking and facilitating policy dialogue, program coordina- tion and to promote good practices in the country.
According to the 2017 Kenya Bureau of Statistic (KNBS) data, approximately 1.6 million licensed MSMEs have been established in Kenya providing up to 85% of employment. These enterprises are a key driver towards the achievement of Kenya’s Vision 2030. However, MSMEs only contribute about 20% of the total GDP which signals the lack of correct policy for MSME development in Kenya.
“MSMEs are the bedrock of our economy,” KEPSA Chairman, Nicholas Nesbitt, said. “The launch of this instrument is an indication of the focus we have to leverage div- idends of small businesses to unlock our economy.”
In the baseline survey that was
conducted for one year from 2018, in partnership with Management University of Africa (MUA), Kenya’s MSME Policy Index ranks at 3.0/5, with half of the eight policy dimen- sions ranking below the neutral index of 3/5.
“The study concludes that Kenya’s MSME policy environment is currently largely not supportive to MSME development and needs to be reviewed and strengthened towards world benchmarks such as ASEAN mean index of 3.7/5,” Ogalo highlighted.
Reliability of infrastructure and access to inputs (3.38); governance and business regulatory environ- ment (3.30); policy reforms seeking to improve access to SME financing (3.17); and, innovation, ICT adop- tion, and technology transfer with- in SMEs (3.06), are some of the dimensions where Kenya has fared favourably.
On the other hand, half of the dimensions including human capital and entrepreneurial skills develop- ment (2.98); frameworks for busi- ness development (2.87); market linkages and expansion (2.80); and MSME representation (2.50) ranked below the neutral index.
The study targeted registered and licensed MSMEs with 2018
Single Business Permits (SBPs) in Kiambu, Machakos and Nairobi Counties. The three counties were chosen due to their high concen- tration of MSMEs and their close proximity to each other.
A total of 1,152 MSME owners out of the 118,726 formally regis- tered and licensed MSMEs across the three counties and from diverse sectors of the economy were sampled at county and business category level.