Why the SME Sector is a Money Bank and Cannot Just be Ignored 

 July 13, 2016

By  BTK Staff

The African economy has been growing at a steady rate, unlike in the 20th century. During the 21st century, the economic growth of African countries has been accelerated by the growth of SME sector.

The Small and Medium Enterprises has outgrown the large companies by far and also employ many people, unlike the large corporations. In Kenya, the maximum number of employees in an SME is 1000 people while for medium enterprises, the number of employees ranges from 150 to 1000 people. Micro-enterprises have up to 10 employees while small businesses employee’s range from 10 to 50 employees.

According to the Kenya Economic Survey 2011, the SME created 80.6% of jobs in that year, confirming the significant of SME in reducing unemployment. Out of 503, 000 jobs created, the SME sector created 440, 400 jobs. The formal sector only contributed 62, 600 jobs, which amounts to 12.4%.

Fact File

  • The SME sector contributes over 80% of job creation annually.
  • The SME sector contributes 3% of Kenya’s GDP.
  • In 2011, SME sector created 440, 400 jobs out of 504, 000 jobs created.
  • In 2011, SME sector contributed 80.6% of employment while formal sector added 12.4%.
  • 50% of SMEs are in Retail and Commerce.
  • 30% of SMEs are in Manufacturing and production.

In Kenya, the SMEs are privately owned and receive little support from the government. Unlike in Kenya, SMEs in Ethiopia are funded by government and they also contribute significantly to job creation. There is a minimal contribution by the private sector.

The Kenyan government has been instrumental in growing the SME sector by providing credit facilities to entrepreneurs as well as enacting laws that are friendly to the Small and Medium Enterprises. The Women Enterprise Fund, Uwezo Fund, and Youth Enterprise Fund are examples of SME credit facilities provided by the government.

In developing countries, the SME sector has played a significant role in the growth of the economy. The banking industry is now venturing into areas dominated by SMEs, unlike the previous practice where banks were located in big towns and were a preserve of the government and civil servants. In fact, the sector generates 90% of all businesses conducted in Kenya.

According to the International Labour, the industry makes 30% of total employment, and it covers up to 15% of job growth rate in Kenya. The Kenya National Bureau of Statistics reports that the SME sector contributes 3% of Kenya’s GDP, therefore making Kenya one of the most promising economies in Africa.

Further, out of the 900, 000 micro and small enterprises, 50% are in retail and commerce. The retail industry entails establishments such as car wash, hardware businesses, retail sale of clothing and footwear, restaurants, etc. The other 30% comprises the productive and manufacturing sectors which include the manufacture of grain products, manufacture of starch and oil products, meat processing, etc.

When the Small and Medium Enterprises grow into large companies, they create space for start-ups. The start-ups absorb new people, including fresh graduates who are just from school. The growth of these start-ups allows for decent employment opportunities for the youths. Enactment of better laws by the government will contribute substantially to the growth of SMEs.

BTK Staff

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