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Growth firms best answer to jobs crisis
Exotic EPZ Managing Director Jane Maigua (left) points at assorted macadamia nuts during an exhibition at Strathmore University Buisness School. PHOTO | COURTESY
It took Jane Maigua and her co-founders 18 months to secure the capital required to establish Exotic EPZ’s macadamia nuts processing facility.
Struggling to secure local financing, they found support from an international importer interested in the nut supply from Exotic, providing the initial funding. Today, Exotic EPZ employs more than 100 individuals, mostly women and youth, while sourcing from 9,000 smallholder farmers across 12 regions in Kenya.
In 2022, World Data Lab (WDL) estimated Kenya’s working-age population to be 33.1 million. According to the Kenya National Bureau of Statistics (KNBS), 7.4 million micro, small and medium enterprises (MSMEs) employ 14.4 million people. Despite this, jobs remain limited and insecure for the 21 million youth (ages 15-35), emphasising the urgent need to create formal jobs to accommodate this growing population.
Growth firms offer a solution, representing a subset of Kenya’s MSMEs that drive economic transformation through higher growth, productivity gains, and job creation.
Studies highlight the crucial role of innovative financing solutions and support services for these enterprises to realise their growth potential. Increasing attention to growth firms is essential to address the challenge of youth joblessness.
MSMEs contribute almost one-third of Kenya’s gross domestic product (GDP), with predominant operations in wholesale and retail trade (38.3 percent), information and communication technology (20.6 percent), agriculture (13.6 percent), manufacturing (13.1 percent), and construction (14.5 percent). Most (98 percent) are micro-enterprises employing fewer than 10 people, including individuals at the bottom of the income pyramid.
Kenya’s economic transformation is evident, with agricultural jobs decreasing by 11.2 percent, and industry and services growing by 15.9 percent and 3.8 percent, respectively, between 2015 and 2022. The services sector is the largest employer (11.9 million jobs), followed by agriculture (7.5 million) and industry (3.7 million).
However, challenges persist, particularly for the 21 million youth, with 59.5 percent employed compared to 69.8 percent for the working-age population.
Established in 2017, Exotic EPZ was founded by three experienced Kenyan female professionals, recognising enterprises’ role in sustainable and inclusive development.
They faced challenges in establishing a viable business model, accessing finance, setting up facilities, and meeting food quality certifications. Fortunately, Exotic identified crucial support from Enterprise Support Organisations (ESOs), including the Export and Processing Zone Authority, TBN, Open Capital, Partners in Food Solutions, KCIC, and KCV.
ESOs play a pivotal role in shaping the growth of SMEs, offering services such as management consulting, technical assistance, and financial advisory. Kenya has an emerging ecosystem of more than 150 registered ESOs as of 2021.
Inclusive economic growth requires the generation of formal waged jobs and productivity gains. A WDL analysis of SMEs supported by 24 ESOs and funded by the Argidius Foundation between 2014 and 2021 showed significant increases.
These SMEs achieved revenue growth, secured financing, and generated 101,000 new jobs. Productivity also improved, with average revenue per full-time employee growing from Sh1.8 million to Sh6.5 million five years after support.
The value for money of ESOs varies considerably, with top-performing ones supporting the creation of new full-time jobs at costs as low as Sh30,000 per job. Coordination and focus on growth firms are crucial for the ecosystem to generate thousands of enterprises, not just hundreds.
Addressing gaps in the ecosystem involves building on strengths, extending high-quality ESO services to economic blocks outside of Nairobi, cultivating ambitious startups, and promoting coordination between the private and public sectors. ESOs, government, and donor agencies should adopt a coherent approach, supporting enterprises with the most excellent growth aptitude.
An MSME data hub at the KNBS would inform targeted interventions for firms with higher growth potential, creating more jobs in promising sectors.
Support for new financial products and institutions, alternative credit scoring, and patient capital is essential for diverse capital needs.
As Kenya aims not just for hundreds but thousands of successful enterprises, a comprehensive strategy that leverages successes addresses challenges and utilises data-driven insights is imperative.
The collective efforts of ESOs, government, and donor agencies, guided by the available evidence, can pave the way for effective and sustainable support to MSMEs. By focusing on growth firms, fostering innovation, and promoting targeted interventions, Kenya can harness its economic potential and create a more inclusive environment for SME growth.
