[Column] Ndiritu Muriithi: Is Kenya’s informal sector getting sophisticated?
A surprisingly large number of small businesses in Kenya are in the manufacturing industry. Out of the 700,000 micro enterprises captured in the Medium, Small and Medium Enterprises Report 2016 published by the Kenya National Bureau of Statistics, 175,000 or 12 per cent are in manufacturing.
This is one of the biggest findings of the survey, a book we highly recommend as a must read to understand the critical role the ‘jua kali’ sector plays in the country’s economy.
Not surprisingly, most SMEs, 57 per cent of licensed and 63 per cent of unlicensed, are in wholesale and retail trade, and repair of motor vehicles and motorcycles.
The documenting of the manufacturing segment should probably lead to rethinking of the term ‘jua kali’ to create greater acceptance and attention especially among policy makers, bankers, service providers and Vision 2030 proponents to anchor small businesses within the economic pillar for support to harness the massive untapped potential.
The KNBS report indicates that the bigger (2,000) of the small manufacturing businesses are mostly in the medium size tier meaning they employ between 50 and 100 people, while the smaller (7,000) are small – employing 10 - 49 people.
The survey is the most comprehensive source of the vital data needed in scaling up the micro enterprises at national and county levels of government as it has classified activities using the normal international standard industrial classification (ISIC), in common use globally by the UN convention. This gives a clear view of what SMEs do.
42% of the smaller manufacturers are in clothing, 11 percent in furniture, 22% in food and 12% are making fabricated metal products.
Another point of interest is that 900 of the SMEs are in chemicals and chemical products, half of these being either small or mid-sized. In addition, there are 267 establishments in the manufacture of non-metallic mineral products and 152 in the manufacture of basic metals.
The above figures indicate these players are a far cry from the pejorative “jua kali”, and are increasingly in sophisticated industries.
There are 1,786 MSMEs in leather and leather products. They are either micro or mid-size but none in the small category. This data should help planners of the Athi River Leather Park to target small businesses for the facility.
‘Jua kali’ manufacturing shows that Kenya has a good base to grow its industrial sector, but only if we shift focus to small and mid-sized businesses. It points to an urgent need to realize the objectives of the Kenya Industrial Estates that were mooted to encourage industrialization at micro level.
It also means we must make it easier for SMEs to get licensed by removing the barriers to registration. Most MSMEs are in the economic activity with the least barriers to entry yet these easy businesses have least trickle down benefit to the macro economy. Most SMEs are in the service industry, with the largest number dealing in wholesale and retail.
They constitute 62% of all SMEs (4.57 million). This is evident by the large number of stalls, mitumba markets, kiosks and mini and large super markets across the country.
Out of the 4.5 million traders 80.5% are unlicensed whereas 19.5% are licensed. This shows that there are minimal barriers to entry in the trade business.
Accommodation and food service is the next large category with 9.05% of the SMEs in the country (about 670,500 SMEs). Out of which 20.5% are licensed and 79.5% are unlicensed. The barriers to entry are also few, but due to the additional food hygiene certificate required by the County governments, may are unlicensed.
Transport & storage comes third in the service sector having 3.16% of all the SMEs.Of these 6.5% are licensed and 93.5% are unlicensed. Out of all the SMEs, the transport & storage sector constitute the largest proportion of unlicensed business.
Ndiritu Muriithi is the Chief Economist Metropol Corporation