Factors which cause the failure of Small and Medium Enterprises (SMEs) in Kenya

KAAA CEO Lucy Muchoki

                               KAAA CEO Lucy Muchoki

The Small and Medium Enterprises (SMEs) propel the engines of many African economies but in some countries they have shown zero success due to the many challenges they are facing. In Kenya for instance, the SMEs are easy to start because citizens are creative, innovative and full of business ideas the reason why they are quite many.

However, the biggest problem faced by these enterprises is that they don’t last in the market for long time before being phased out by well-established businesses. “Majority of these entrepreneurs are left in a worse situation than they were before after the collapse of their businesses. They are left with no place to fall back to since all their resources have been drained by their fallen enterprises,” the Kenya Agribusiness and Agroindustry Alliance (KAAA) Chief Executive Officer Lucy Muchoki observes.

According to the KAAA CEO, one of the least understood aspects of entrepreneurship is the reasons behind the failure of small businesses a puzzle that the Alliance is working on and determined to solve.  While it may seem to be a matter of luck, in reality there are mistakes that kill many small businesses before they even get off the ground and most of the common evidence points to failure attributed to the entrepreneurs

There is no entrepreneur who starts an SME with an intention to fail. However, it is the failure to plan and lack of technical know how that often leads to business failure. “Thorough planning, ensuring the viability of the enterprise, identifying potential risks, developing risk mitigation plans, market identification and appropriately structured finance are critical for the success of an SME, “ Madam Lucy adds.

Generally, it is recognized that local SMEs face unique issues which affect their growth and profitability hence, diminishing their ability to effectively contribute to sustainable development.  This calls for more emphasis on the promotion of the local manufacturing industry to reduce reliance on imports. “SMEs are said to face a “liability of smallness.” Due to their size and resource limitations, they are unable to develop new technologies or to make vital changes in existing ones,” Lucy adds

There is evidence that SMEs have the potential to initiate minor technological innovations to suit their circumstances but for them to fully develop and use this potential, they need specific policy measures to ensure that technology services and infrastructure are provided. Policy enhancement in revitalizing the SME sector should not be only government engineered, but all the stakeholders in development should take frontline. “In collaboration with Kenya Private Sector Alliance (KEPSA) and Kenya Association of Manufacturers (KAM), KAAA engages its members and other stakeholders to identify pertinent sub sector and cross–cutting issues that affect the Agricultural value chains,” Lucy says.

An entrepreneur displays her product at a SME's training organized by KAAA

An entrepreneur displays her product at a SME’s training organized by KAAA

According to KAAA CEO, appropriate attention should be accorded to the agro processing SMEs to guarantee them a great future and strength within the local, regional and global economy.  “The Alliance focuses on key areas that determine the success of any Small and Medium Enterprise such as Finance, linkage and facilitation of business planning and management training to help quip entrepreneurs with technical, financial and business skills. In addition KAAA helps in ,identification of friendly investment climate, investment and value chain analysis, marketing strategies and linkages, formulation of investment proposals and packaging and branding,” adds Lucy.

Strengthening the SME sector in Kenya is a process that requires critical measures being undertaken by all the sectors of development in order to realize an integral growth in the sector. On its part, the Kenya Agribusiness and Agroindustry Alliance recruits local SMEs, trains and register them as KAAA members. This has greatly impacted on their growth and development since the Alliance closely monitors and guides them.

KAAA SMEs undergoing training

             KAAA SMEs undergoing training

Lack or Inadequate business managerial training and experience has seen the closure of many small and medium enterprises in Kenya. “Most of these enterprises are sole proprietorship business type and managed by their owners who might have a little or no managerial skills and experience at all meaning that the business is in no room for creativity and innovation hence risks being faced out by competition or bankruptcy when no financial records are being kept. “In this regard, KAAA has established regular managerial trainings for small scale entrepreneurs,” Lucy says.

Most SMEs in the rural areas have the potential of growing and becoming successful but due to the poor state of roads and other essential infrastructures their prosperity and morale is highly affected. “KAAA works closely with the National and County governments to ensure such infrastructure are put in place the benefit of both large and small business countrywide,” the KAAA CEO adds.

Most small businesses lack access to sufficient market information since most of it is packaged for the large and well-established businesses. Being a resource center, KAAA has come up with an educative and informative TV program which aims at enlightening the small businesses with the crucial information that could see their enterprises prosper.  “The program will be aired on a national television to make sure a large target audience is reached,” KAAA CEO adds.

The change in technology has seen many SMEs to close down due to the high cost of adopting these technologies some of which are relatively expensive and beyond the purchasing capacity of these entrepreneurs. This has forced some out of business since their products have become outdated and they are unable to update to the new technologies. “To ensure this issue of technology is solved, the Alliance is working closely with the Ministry of Industry, Trade and Cooperatives to come up with artisan villages which will be equipped with modern machines at the county level and the products from the villages will be show cased at the national level to expose them to markets and attract partners,” KAAA’s Executive adds.

High taxation and duty rates have made many small businesses to close down since the gap between expenditures and profits is not favorable and some have even suffered losses leading to their closure. “In order to safeguard the SMEs existence, KAAA is clustering them into groups to ensure bulk purchasing of raw materials which in return will lower the cost,” she says.


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