Let’s change tack in addressing SME challenges

Wednesday, January 22nd, 2020 00:00 |
Economic growth. Photo/Courtesy

We are increasingly experiencing the difference made by small and medium-sized enterprises (SMEs) which have, over the years, become a reliable business segment through which Kenyan investors have innovatively built agile strategies to meet the dynamic needs of different communities.

In striving to meet market needs, SMEs have gradually cemented themselves into key stakeholders and an integral part of the systems meeting market demand and driving socio-economic progress at both national and regional levels.

They are also the key drivers of diversity, often proving more gender-inclusive and reaching their clientele through more innovative approaches and with more appropriate products than the larger enterprises can provide.

The challenges that the SME sector faces have been well documented, and tended to be in access to markets, capacity constraints and inadequate access to financing and other supporting services.

The sector is characterised by instability and high business mortality rates. Most are also informal and not compliant with business regulatory standards.

To support the emerging SMEs, there is need to shift beyond the old traditional approach of addressing their issues such as access to finance, capacity, skills independent of the national and international supply chains.

There is need to structure solutions to SMES not as a parallel system to the formal supply chains, but to resolve how best to integrate SMEs and the informal sector into the formal supply chain.

To achieve this, we need to restructure the way we do business to include informal traders and SMEs as key contributors to formal supply chains.

This is to establish systems that will include traditionally subsistence sectors such as smallholder farmers and pastoralists, and rural non-agriculture sectors such as cottage industries and processors as members of formal contracted supply chains that meet the national and international standards.

We will also need to establish ways to formalise market relationships and contracting systems between markets and SMEs, and create conditions where there will be a supportive environment which will provide the sector with the resources and capacity needed to be contracted partners servicing an increasing share of the growing local, regional and international demand.

A key step will be the introduction of tailor-made and innovative approaches at product supply chains level to reenergise and drive SMEs to coordinate with each other within structured supply chains.

This needs to be in ways that will enable the informal sector to function in a coordinated environment to enable them reach the economies of scale and efficiency needed to meet the standards in local and international supply chains.

The question is; what can be done to enable SMEs to conduct business at a global level from an advantageous position?

How can SMEs and the informal sector become reliable contributors to local and international supply chains?

What are their strengths and how can we leverage this to make these businesses sustainable sources of growth for our future?

We can begin to identify markets and sectors where SMEs can be coordinated to contribute to the supply of agriculture and manufactured products to enable them play this role. 

A key step in this direction is for formal public and private sector markets/buyers to begin to engage SMEs by creating trading and contracting systems that include SMEs and the informal sector as an integral part of the supply chain.

We need to restructure the way they are engaged and ensure as a part of supply chains, they have the requisite capital and skills needed to meet local and international standards.

In this way SMEs will not just create jobs but productive jobs that will make a long-lasting contribution to poverty reduction.  —The Writer is the CEO of Kenya Association of Manufacturers. [email protected]

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