[Column] Ndiritu Muriithi: The vital role of SMEs in job creation and economic growth
Contrary to popular thinking, the informal sector in Kenya, commonly known as jua kali employs more people than the formal sector.
Despite this critical role in the economy, however, the industry is largely out of the radar from a policy point of view, creating a need to formally position small businesses into the national agenda.
In the US, for instance, the head of the Small Business Administration is a Cabinet- level position, attesting to how seriously they take SMEs.
Since the Kenya Bureau of Statistics published the ‘Small & Medium Establishments Basic Report 2016’, those who have read or heard of it have asked questions, one of the most interesting being: do the establishments create quality jobs?
An establishment is an economic unit that produces goods or services from a single physical location. The survey found 7.4 million such establishments, while other estimates place the number at 10 million.
Employment is defined as performance of work for pay, profit or family gain. The survey found that Micro Small and Medium Enterprises (MSMEs) employ 15 million people, six million of whom are engaged by licensed establishments.
It is important to note that full-time employees accounted for 80 per cent of total paid employment in licensed MSMEs in 2016. That is 3.2 million workers, four times the total number of public sector employees at 700,000, and nearly twice of total employment in large private sector at 1.7 million.
The presumption here is that a job that requires skills may be defined as a quality job, while those that require no skills are poor quality.
The survey defines skilled workers as “...by reason of their knowledge and vocational capacity are given tasks, which are particularly difficult, involving varied responsibilities”.
The key ‘measure’ here is level of knowledge and vocational capacity. It seems reasonable therefore to use the education of the workers as a proxy for the level of skills.
Today, 2.5 million workers in licensed MSMEs have a certificate, diploma, higher national diploma or degree. In addition, 34 per cent receive training on the job, 16 per cent receive training in marketing, 13 per cent in management and 12 per cent in ICT.
Another way to make a meaningful assessment of a “quality job” may be to consider the level of pay. In this respect, the higher the pay the higher the “quality” of the job.
The full-time employees of licensed MSMEs earn a total of Sh64 billion per month, working out to an average of $200, or about twice the minimum wage for government and industry.
If the MSMEs are the source of 3.2 million regular full-time jobs, what informs the quality jobs scepticism?
First, MSMEs have traditionally suffered a perception problem. Conventional wisdom is that they are, well, jua kali, a euphemism for poor quality products and services.
Second, there are over eight million survivalist micro enterprises. These are low-level-one- person efforts, mostly unlicensed and with poor growth prospects.
Third, lack of proper data. The 2016 MSME survey is the first in-depth collection of data undertaken by government. Hopefully, the data will help improve the perception of this important segment of the economy.
Ndiritu Muriithi is the Chief Economist Metropol Corporation