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Factors Affecting the Performance of SMEs in Kenya

Peter Musila 2 weeks ago

Today, the basic role of small and medium-sized enterprises (SMEs) in determining the economic growth of developed and developing countries is obvious for all governments.

Small and medium-sized enterprises (SMEs) potentially constitute the most dynamic firms in emerging economies. The empirical evidence from around the globe shows that the ubiquity of SMEs has grabbed the world’s attention. The role SMEs play in the economy cannot be underestimated.

They do, however, encounter difficulties. Small businesses are increasingly facing competition from their peers and large corporations in specialty markets that were long thought to be exclusive to small firms. The negative perception of SMEs is a severe challenges.

Potential clients perceive small businesses as lacking the ability to provide quality services and cannot simultaneously satisfy more than one critical project. Often, larger companies are selected and given business for their clout in the industry and name recognition.

Lack of planning, improper financing, and poor management have been cited as the leading causes of the failure of small enterprises. Regardless of the high failure rate by SMEs in Kenya, their enormous contribution to the entire economy cannot be overlooked.

 SMEs have been identified as stepping stones for industrialization. Robust economies like the United States of America and the United Kingdom trace their development from the growth and development of their SMEs.

Currently, SMEs cover more than 95% of all firms in Sub-saharan Africa. Small and Medium Scale Enterprises are primarily found in various economies that account for two-thirds of employment levels in most countries. In Kenya, the SME sector contributes an estimated 18% of the GDP and creates employment for 80% of the workforce population.

This means that most SME entrepreneurs are operating at the bottom of the economy, with a significant percentage falling among the 53 percent of Kenyans living below the poverty line of USD 1 per day. The latter is mainly for subsistence and engage in economically uncompetitive activities both in urban and rural areas.

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