SMEs set to create more jobs, says KPMG poll

More than three quarters of small and medium-sized companies in Kenya are planning to hire more workers in the near future, an annual survey has found, partly pointing to increased sales and optimism that the economy will recover.

The Top 100 SMEs survey conducted by KPMG and the Business Daily found that 77 percent of the 186 firms that fulfilled all the vetting requirements were either very likely (37 percent) or likely (40 percent) to employ more workers. This is an improvement from 68 percent in 2018, according to the findings released Wednesday during a breakfast meeting ahead of the annual gala during which the winners will be unveiled in Nairobi Thursday evening.

The findings come in the wake of a generally rising optimism in Kenya’s growth prospects after the national government and the 47 counties started clearing pending bills that had hurt cash flows for businesses, with SMEs being the hardest hit.

Liquidity is further expected to be boosted by the removal of the legal ceiling on interest rates that commercial banks charge on loans. The cap was removed in November after three years, creating room for SMEs to borrow and for banks to price their risk.

Mounting pending bills and reduced flow of credit had been the two main shackles on the Kenyan economy. That worsened the jobs situation in an economy that has struggled to create modern, decent employment opportunities for the largely skilled youthful population, with some firms opting to lay off staff to protect their profit margins and remain afloat. For example, about 10 percent of the more than 1,200 SMEs that have featured in the annual Top 100 SMEs awards in the last 12 years have closed shop due to various challenges, according to KPMG.

The SMEs in the 2019 survey cited competition as their biggest challenge at 22.6 percent followed by cash flow challenges (17.4 percent), operational costs (16.5 percent), poor economic performance (10.8 percent), government policy (6.7 percent) and regulation (6.3 percent), among others.

According to the survey, the SME business leaders’ optimism in the economic growth outlook remained elevated with 73 percent of them saying they were either very confident, (19 percent) or confident (54 percent) in Kenya’s growth projection. The confidence levels are slightly higher than last year’s 75 percent.

“They have high confidence in economic outlook going forward and significant level of confidence in growth prospects within their respective industries. That resonates with the 77 percent confidence that they will be hiring,” said KPMG East Africa chief executive Benson Ndung’u. “What this tells us is that there’s consistency when they are planning for growth and are investing in technology, and that’s what you want to see in the disruptive economy we are operating in.”

About 78 percent of the managers of the businesses, more than half of which are family-owned, reported increased sales compared with 62 percent in 2018 and 64 percent the year before.

A fifth of the firms (22 percent), majority of which have an annual turnover of between Sh100 million and Sh300 million, suffered reduced orders compared with 38 percent last year and 36 percent in 2017.

Improved strategic focus and governance, expansion, new products as well as increased investment in marketing and technology were some of the major drivers of sales revenue cited by the managers.

SMEs form the bulk of businesses in Kenya and are key to delivering President Uhuru Kenyatta’s goal of creating in upwards of 800,000 decent jobs under the manufacturing pillar of his socio-economic transformation plan, the Big Four Agenda.

Small-sized factories in leather and textiles business, for example, are set to be given incentives under the Big Four Agenda such as access to affordable capital through the proposed merger of State-owned development financiers; the Kenya Industrial Estates, Development Bank of Kenya and Industrial Development Bank of Kenya.

They will also be helped in accessing new exports markets and expanding the existing ones largely in Africa through the Integrated National Exports Development and Promotion Strategy that was unveiled in July 2018.