From India, lifeline for SMEs

It’s most likely that your mobile phone and the software that runs it were assembled in India. India’s burgeoning small and medium enterprises are a contrast of what you see along Ladhies road towards Nairobi’s Industrial Area, where men sweat it out to curve out products from heavy metal.

The collaboration signed recently between the Kenya Industrial Estates and National Small Industries Corporation of India is expected to enhance technology transfer and lift informal operators. The project will include assisting the businesses access market and credit.

“This will facilitate technology transfer in specific industrial sectors to set up small industries and realise industrial partnership,” said KIE Managing Director William Shimanyula. If the incentives that have propelled India are anything to go by, Kenya is just taking baby steps.

For India, it has been a combination of aggressive policy and calculated risks. Its SMEs contribute 45 per cent of GDP and 40 per cent of the country’s exports, while supporting 42 million of people. Attempts at industrialisation in the Kenya have suffered false starts.

The most serious attempt was Export Processing Zones, which have registered mixed success, mainly because they were anchored on the American market through the African Growth Opportunities Act. That is why a fresh attempt through collaboration with India to open up cottage industries in rural areas could offer new impetus.

An estimated three million unemployed youth are expected to benefit. KIE had been starved of funds and riddled with mismanagement in the 1990s, but was revived in 2003 with funding from UNDP. NSIC, which operates under Ministry of Micro, Small and Medium Enterprises in India is involved in promoting growth of SMEs through providing technology, marketing and financial backing.

It’s this model it is hoping to replicate in Kenya. KIE will facilitate and assist NSIC in holding machinery and equipment expositions to promote adoption of technologies from India. Industrialisation minister Henry Kosgey said the initiative will help utilise the idle capacity at KIE, which has 42 free sites and 3,000 shades. Start-ups will benefit from business incubation where they will be trained in how to use various technologies.

According to Mr Kosgey, the new initiative fits within the Vision 2030 and the ministry’s five-year strategic plan. The initiative comes at a time when the government plans to create SME parks to spur the growth and expand regional markets from 7 to 15 per cent.

Industrial linkages

With poor roads, high taxes, spiralling energy costs and policy gaps, Kenya remains hostile. The skills training through village polytechnics that offered the foundation for cottage industries drastically reduced in the 1990s, with some surviving on shoe-string budgets or stuck with obsolete technology.

The secretary for micro, small and medium enterprises in India, Mr Dinesh Rai said they would link up the local entrepreneurs with their peers in India. India will also assist in formulating policy and institutional framework for SME development.

They will carry out industrial surveys to identify potential opportunities for the small and medium enterprises. These include incentives, tax waivers, capital subsidy scheme for expansion or technology upgrade. Others are bulk holding and marketing and ISO certification. Mr Rai said 75 per cent of the cost in certification is provided by the government in India.

“There is credit guarantee mechanism to encourage the commercial banks to lend to the SMEs.” This removes the need for collateral. India’s $5 million fund, introduced six years ago, is accessible by at a low rate of 1.5 per cent with a small administrative fee. Almost all commercial banks are members of this scheme.

They have incubation for innovations through research and development parks, while export promotion through publicity and market surveys are provided. Commercial banks have been given lending thresholds for SMEs, which ensures steady credit supply.

India has also reserved procurement of certain items for local SMEs. Its government has heavily invested in SMEs development, which contrasts with the cavalier attitude that Kenya has displayed towards the SMEs, that support about three million people.

SMEs In Kenya are mainly in retail and wholesale business, with few involved in manufacturing. Most of the SMEs in Kenya stagnate, and remain small creating what analysts call the ‘missing middle.’ The reasons range from lack of credit and appropriate technology and limited access to markets.