Kenya’s manufacturing hub raised hope for the flailing SMEs sector. So why did it fail?

When Joseph Gitile started his soap manufacturing business in 2017; he was exuberant and very optimistic that within a few months he would be Kenya’s next millionaire. In January, reality dawned, and he had to painfully shut down his business after accumulating millions of shillings, not in profits – but debts and unpaid bills.

Joseph is not the only one to experience such a similar fate in Kenya. His business is one of a whopping 400,000 that were, according to the government, shut down within the same period after less than two years in operation. This is even before the socio-economic devastating effects of the coronavirus pandemic began to ripple the country.

Analysts argue that most small and medium enterprises (SMEs) fall within their first two years of operation due to a dearth in technical know-how to navigate the murky waters of entrepreneurship. “The major problem with SMEs in our region is a lack of incubation, knowledge, skills, and networks. Not just money,” says Dr. Makau, who lectures business courses across Kenya’s top universities.

Thus it came as no surprise that in July 4th 2019, Kenya’s manufacturing body geared up for a whole new approach. It decided to set up a Manufacturing Hub, that would target Small and Medium Enterprises who are in manufacturing and value addition and have an annual turnover of less than 250 Million shillings. 

The hub was initially scheduled to kick off later that month. Fast forward, it is still a concept on paper.

That strikes a different contrast to its launch, in which speaker after speaker said, the hub had great aspirations.

It was targeted to address the major challenges affecting SMEs in the country including unfriendly policies and regulatory regime, tedious and lengthy process in quality standards and certifications, access to markets, access to affordable finance, and poor governance structures.

One key feature of the Hub that was earmarked as “very enticing to the youth” was the lack of limits to the number of SMEs who would be selected to join. Members would pay an annual subscription fee of 10,000 shillings per year, and a one-off entrant fee of 2,500 shillings.

This amount was said to be cheap and affordable for most young people since it was way lower the price of successfully launching a business (Kshs. 15,000) in the first place.

mansamedia.africa can also exclusively reveal details about the hub, which, was to comprise of three clusters. The first cluster was to consist of incubation that was primarily for all registered enterprises in the country worth less than 20 million shillings ($200,000). 

These enterprises would benefit from access to services that included incubation for their business, support in taxations, materials support kits for manufacturing, free legal advice, business support, and rescue advice. Besides, entrepreneurs would be facilitated to attend finance festivals, IFC Diagnostics, and Boot camps to network and train them on the Kenyan market.

For members worth between 20 million and 100 million shillings ($200,000 and $1 million), they were to have exclusive access to markets, finance, compliance support, logistic linkages with supply chains within and outside the country, study tours in foreign countries, and domestic market focus through sub-contracting and routes to markets. 

Meanwhile, members with a turnover of more than 100 million shillings were to be granted acceleration of products for scale-up and growth, link to large companies, governance and business planning training, linkages programs to institute of directors, trade finance, and targeted financial models.

Speaking during the launch, Kenya Association Manufacturers Chairman, Sachen Gudka noted that the Association was keen on supporting the development of inclusive, innovative, sustainable, and competitive SME sectors in Kenya and the region.

“In line with the Association’s core mandate, the Hub will focus on furthering fact-based advocacy to promote the global competitiveness of manufacturing SMEs. 

“This is aimed at instilling SME policy and institutional sustainability on matters legal and regulatory, fiscal policy, intellectual property rights and patenting, and regulatory compliance services, among others.” 

Dr. Karanja Kibicho, the Principal Secretary at the State Department of Interior added, that the national government will fully support the move, in line with its key objective of boosting SMEs. 

“The Government is keen on growing SMEs as demonstrated by the Government’s directive for relevant ministries to devise SME – specific strategies to unlock the potential for small businesses in the country.

“We are keen on exploiting existing Memorandum of Understanding between Kenya and other States to grow our SMEs. We will also ensure that other state departments exploit these MOUs.”

Particularly, the hub was to be a key legacy achievement of the Jubilee government.

Since President Kenyatta was re-elected to office in 2017, his government has pursued manufacturing as a key component of the Big 4 agenda. The government has widely encouraged young people to start enterprises across the country and to that effect set up loan schemes such as the Uwezo Fund and the Youth Enterprise Development Fund to offer low-interest loans to entrepreneurs. 

It also set up an autonomous independent body, the Micro Small and Medium Enterprises Authority (MSEA) to advise these businesses, and provided numerous incentives like lowering electricity charges to entice manufacturers.

However, none of these moves have had any notable achievements.

The fund schemes have been marred with corruption charges leaving many Kenyans like Joseph hopeless and increasing the burden of unemployment and poverty. 

Joseph is still figuring out his next move as he counts his losses. He imagines what it would have been if everything had gone on smoothly as planned.

For millions of other young entrepreneurs across the country, this hub was to be a fresh start. A conducive platform for their business to be productive and profitable at local and regional levels. Only time will tell if their hope not to endure a similar fate will be realized by the manufacturing hub.

Until when? We wait.

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