Nairobi ranked most favourable business destination for SMEs
A view of Uhuru Park and the Nairobi Skyline.
What you need to know:
- Research, however, shows SMEs less satisfied with what the county is doing to create an enabling business environment for them.
- The research ranked Samburu, Garissa, Tharaka Nithi, Lamu and Marsabit as the five worst performing counties.
Nairobi is the most favourable county for small and medium enterprises (SMEs) to do business, pipping Nandi, Kiambu, Nyeri and Kirinyaga. This is according to a study by the Kenya Institute for Public Policy Research and Analysis (KIPPRA).
The research, conducted on SMEs in all the 47 counties, shows that while Nairobi managed to maintain its number one ranking, within the past three years, SMEs were less satisfied with what the county is doing to create an enabling business environment for them. In 2019, the county got a score of 45.24 percent, while in 2022, it got a score of 37.04 percent.
This was unlike all the other counties in the top five positions, whose ratings increased marginally. Nandi’s ratings rose from 21.19 per cent to 35.6 per cent, Kiambu’s from 28.12 per cent to 34.67 per cent, Nyeri from 25.87 per cent to 34.01 per cent and Kirinyaga from 13.17 percent to 33.8 percent.
The research ranked Samburu, Garissa, Tharaka Nithi, Lamu and Marsabit as the five worst performing counties. It however revealed that in the past three years, these counties’ performance in creating an enabling environment for SMEs improved, aside from Garissa.
Due to deterioration in security, Garissa’s ranking dropped from 15 to 46. Other counties to record marginal declines in ranking included Meru, from position 11 to 42 and Tharaka Nithi from position 23 to 45.
“The research used the KIPPRA-developed Public Affairs Index and County Business Environment for Micro and Small Enterprises (MSEs) framework to score the performance of various indicators in governance and business environment for micro and small enterprises,” noted KIPPRA Executive Director Dr Rose Ngugi.
She was speaking during a dissemination workshop, attended by both national and county government officials as well as private sector players.
She said the Public Affairs Index helped provide a framework to support these counties by identifying emerging areas of policy concern in implementing their development agenda.
“The index was organised in 10 pillars namely fiscal management, economic performance, human development index, environment, essential infrastructure, transparency and accountability, crime law and order, justice, social welfare and county Covid-19 preparedness,” she noted.
Meanwhile, the County Business Environment for MSEs (CBEM) framework, made up of 30 indicators, provided a tool for monitoring the progress in improving business environment for growth and survival of MSEs in the counties.
Financial inclusion
In 2019, KIPPRA developed the first version of CBEM covering four critical areas that support growth and development of MSEs, including worksites and related infrastructure, market environment, technical capacity and governance and regulatory framework.
The CBEM 2022 extends this work to capture emerging issues affecting MSEs business environment including intellectual property, internet connectivity within the worksites, trade participation in market environment, participation in policy and regulatory framework formulation under governance and regulatory framework, financial inclusion and risk preparedness and management.
According to the research, most SMEs reported that within the past three years, there was significant improvement in how county governments addressed elements such as self-regulation whose score grew from 54.58 per cent to 74.15 per cent, access to markets (30.87 per cent to 71.17 per cent), crime and public security (31.98 per cent to 70.8 per cent), ease of access to road infrastructure (31.03 per cent to 70.54 per cent) and access to knowledge and skills (19.87 per cent to 50.11 per cent).
The SMEs however identified intellectual property, innovations, internet connection, access to savings and credit facilities and access to incubation services as some of the most neglected areas that inhibit their growth and development.
To promote financial inclusion among SMEs, the report recommends uptake of alternative sources of funding, use of non-traditional collaterals, capacity building on credit guarantee schemes as well as promotion of financial literacy amongst SMEs by their respective lobby groups.
To promote technical capacity and skills improvement, the study recommends establishment of incubation centers, creation of awareness and capacity building on intellectual property and patenting, as well as promotion of mentorship and apprenticeship.
Some of the interventions the study recommends in governance and regulatory framework include creation of awareness on existing policies and legislative framework by enhancing participation of MSEs in the policy making process.
The study also recommends a reduction of bureaucracies on worksites and amenities as well as strengthening of state revenue collection systems to minimise corruption.
To facilitate growth in production, the study recommends increasing the number of common manufacturing facilities, increasing the number of worksites and related infrastructure, as well as provision of key amenities such as water, electricity, waste management, public toilets and internet in these worksites.
Interventions that the study recommends to boost the market environment include enhancement of awareness and uptake of government procurement opportunities, promotion of cross county and international trade for MSEs, as well as enhancement of the mechanisms to protect MSEs against unfair competition.
