Ease of Doing Business in Kenya Index Means Nothing to Kenyan SME Development, by VICTOR OTIENO
The other day the World Bank released its latest report on Ease of Doing Business in which Kenya had reportedly moved up 21 places from 113th last year to 92nd in the 2017 report.
The World Bank program evaluates countries on 10 key indicators: Starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, resolving insolvency, enforcing contracts, and trading across borders.
The assumption in the ranking is that there is a direct correlation between foreign direct investment activity in a country and the country’s position on the Ease of Doing Business index. The effort by the Kenyan government to improve the county’s ranking is noble and commendable, but it doesn’t help the cause of local SMEs who are major contributors to Kenya’s GDP and employment.
The ease of doing business index is a superior performance indicator for any government but is outwardly focused, in that it is predominantly used by foreign investors to assess whether to invest in a country or not.
A great team will focus on its strengths to beat a strong opponent and not focus on how good the opponents are. This means that to succeed, focus must be inward looking and not outward. Similarly, Kenya must focus inward and optimize all its resources to succeed.
In the long run, the success of a country is measured by the value it creates, which can be traded globally. In short, Kenya has to the build capacity of the Kenyan SME to be able to compete globally by exporting high-value goods and services.
The first thing the government must do, in consultation with relevant stakeholders, is to map out and develop a measuring framework for the existing and current entrepreneurship ecosystem. This enables one to know who the players in the field are and what role they play.
The analysis will enable projection of an ideal SME ecosystem state in which significant value is created.
Achieving this would help the government identify bottlenecks and opportunities from a bird’s view and develop relevant and appropriate policy interventions.
Kenya must, therefore, strive to develop a robust and comprehensive toolkit that identifies critical factors that affect SMEs in general such as policy, access to finance, infrastructure, markets, human capital, culture, research and development and macroeconomic conditions among others.
The critical factors must then be periodically measured, like the ease of doing business index, to see if there is any progress made and corrective action taken.
This will go a long way in improving the business ecosystem of Kenyan SMEs.