Bill to formalise SME sector in the offing

November 22, 2011
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, NAIROBI, Kenya, Nov 22 – Kenya could have a legal framework that facilitates the creation of a conducive environment for the growth of the Micro and Small enterprises in the next one year.

This follows the drafting of the Micro and Small Enterprises (MSE) Bill which seeks to formalise the small businesses and give them a leg-up to enable them make a greater contribution to the economy.

The MSE Bill is being championed by Tetu Member of Parliament Francis Nyammo who reckoned that if passed, the legislation will address the disconnect that exists in the sector’s job creation and its contribution to economic growth.

“They have been creating wealth; they have been creating employment… they have therefore provided stability for this country. Why don’t we support them more to continue the good work they have been doing?” he wondered.

Kenya has one of the most vibrant informal sectors on the continent but which has largely remained ignored when it comes to policy formulation.

The sector has only been guided by the Sessional Paper Number 2 of 2005 on Development of Micro and Small Enterprises for Wealth and Employment Creation for Poverty Reduction.

According to this paper, the sector contributes 18.4 percent of Gross Domestic Product (GDP); employs over five million people and accounts for 74.2 percent of the total persons engaged in employment.

This number has risen in 2011 to stand at 80.6 percent of total employment created which translates to 440,900 jobs.

Despite the phenomenal growth and great potential, the sector referred to mostly as ‘jua kali’ has been operating in a tough environment, characterised by arbitrary increases in business transaction costs, harassment by local authorities, poor access to markets, limited access to credit among others.

The MSE Bill however aims to change all that and if enacted, it will be the first time in the country’s history that a law that supports the development of this sector will be formulated.

Once it is implemented, the micro and small businesses will be encouraged to join associations through which their interests can be better articulated.

An all-inclusive organisation, to be known as the Micro and Small Enterprises Authority will be established to develop policies that promote the sector, to play the oversight role, train the entrepreneurs as well as champion the uptake of technology and its development.

In addition, the authority will be charged with the responsibility of producing a status report on the industry in terms of growth, opportunities and challenges that could be impeding the sector from executing its mandate of poverty reduction and wealth creation.

To address the lack of credit constrain, the Bill proposes the establishment of a fund to facilitate access to affordable finance at competitive interest rates.

The objectives are noble, Nyammo said, and can only portend good tidings for the sector and the country as a whole. And although the Act will not be cast in stone and will have a provision for amendments, he vowed not to let ministries or politicians hijack or mutilate it.

This is especially after it emerged that there might be a tussle between the Ministries of Trade, Labour and Finance on which agency is best suited to host the initiative.

Nyammo however held that the programme should be domiciled at the Ministry of Trade, which he believed would effectively champion the course.

But as the country embarks to this journey, it will try and benchmark itself against those countries such as the Asian Tigers that have a well-developed SME legislation.

Countries such as Malaysia provide a perfect example where an SME regulatory framework has helped realise the set out objectives and even gone as far contributing to moving the nation from the list of the developing states to that of the developed.

Former Ambassador to Malaysia David Njoka explained that the government pays a lot of attention to this sector which also has the Prime Minister’s ear.

“The Prime Minister chairs one of the organs of the Small and Medium Enterprise called the National Council- which is an assembly of all other stakeholders of the economy-twice a year,” he disclosed.

Further, the Malaysian government supports the delegates to hold exhibitions and trade fairs where the entrepreneurs are given a platform to showcase their wares and services.

All these factors have combined to form one of the largest SME sector in the world where start-up firms have opportunities to graduate into medium and large companies.

Through exploiting this potential, the industry’s contribution to the economy, as at 2008 was 51 percent, while it accounted for 65 percent of the employment and 99.2 percent of the total business enterprises.

“Specifically, the sector helps in reducing imports and promoting exports and thus saving on foreign exchange. It provides an avenue for technology transfer; serves as a vehicle for the development of managers and entrepreneurs as well as the promotion of inter-enterprise linkages,” Njoka outlined some of the benefits.

While welcoming the move to have an MSE regulation as timely, the former envoy challenged the government to fast track the implementation of the law so that the country can begin to accrue the benefits that come with prioritising the small businesses.

Regards,

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