A Cyclic Approach to Growth for All

Published on 26th July 2005

I recently wrote an article in the previous issue of the African Executive about the two major economic drivers- education and access to credit.  Conventional wisdom dictates that a focused mind, despite all odds shall persevere.  That explains the story behind companies like Mabati Rolling Mills in the manufacturing Industry, Safaricom in the communications industry and Nakumatt, a retail outlet.  Two of these won prestigious awards in the recently concluded Company of the Year Awards (COYA) while the third is making great strides in the retail business and redefining where and how Kenyans shop.

 

I have made an attempt to weigh the variation between the big and small companies. The division between wealthy and poor in this country is perfectly correlated to the large-small business division, only that the latter is slowly closing up. Due to this change it stands that the gap between the rich and the poor can also be reduced. 

 

The informal sector (popularly known as Jua-Kali) has for a long time received little attention except for the few creative minds that reach the media cameras on a few celebrated occasions.  Hardly is the focus put on the contribution the sector makes to our economy.  It is a fact that 18.2% of our GDP is contributed by this 5 million people strong sector.  In addition, our economy has been sustained at the hardest times by this sector for instance when donor bodies froze AID to the country or during the travel advisories to the country that almost left the tourism industry in jeopardy.

 

Although most of the small traders operate under harsh conditions, they still manage to survive- not because there is an inner passion for results, or envisaged workable concepts for the future but because they have responsibilities to tend thus the need for money.  The need to provide for a family or even oneself puts them on a daily struggle for the sake of making ends meet. 

 

A trader, talking to a BBC correspondent in a recent interview explained his success story that started 9 years ago- 1994 when his business transformed from a mere off road stall to a kiosk, shop then a supermarket and later supermarkets only with a bit of financial education and credit access through a Micro finance Bank in Kenya.  His loan portfolio has gradually shifted from as low as Ksh.10,000 to Kshs.450,000.  The rest of the story is like a dream come true as the trader is almost embracing a chain of well-managed stores under his portfolio. 

 

To many small traders intending to wade forward, the worry is usually over when the transition should kick off.  While majority do not see this as possible, the change believers are more worried over when the business can stop operating as a small entity and start gearing up their efforts for growth.

 

Hurdles always form the foundation of any thriving business.  Mr. Kimanthi Mutua, Managing Director, K-Rep Bank, stresses that the small informal traders have the potential to transform their small businesses to large corporations (“from metal bashing to manufacturing”).  He perhaps reckons the K-Rep story- rising from a small NGO to the now fully pledged bank. 

 

Undugu Society’s director shares a similar ideology but adds that the Micro finance Institutions have an important role to play in the process.  It is the Micro Finance institutions that can best serve the small traders out of the formalities in the mainstream economy.  A market advantage arises due to the move by many large commercial banks that have now started tapping into the previously non-capitalized market.  With the issues like risks associated with lending, the start up lending may not be in good taste.  This is probably why many banks have opted to give operating loans rather than start up since the risk of default will be highly minimal.

 

The availability of credit however is not enough.  It reminds me of a group of mothers we trained on how to use beads to make and sell chains and household decorations.  However, it turned out that our training on market theory was not enough as we had to show them where the market was- more practically- in the end, it took our marketing skills to sell them to university students with the returns going back to them.  This however offered a temporary solution, a market that would have been tough for the elderly women.  Our biggest sale, in a Germany trip would have been the concept to embrace, but still again, how many of them would have access to such a far off market?

 

In my opinion, only a cyclic approach, only if stressed upon could save the informal sector.  This takes the efforts of both the large corporations and the government.  It has been argued that globalization and the nationalization of companies has slowly seen the death of the Micro Enterprise.  Michael Joseph, the CEO of Safaricom Ltd, one of the most respected companies in East Africa argues that the small traders have a great role to play in the economy.  He gives the example of traders who through buying of airtime are contributing to government revenue through taxes, which means that they are indirectly participating in the growth agenda. 

 

Other than that, there is the direct contribution through manufacture of phone accessories and repair.  Other industries can adapt such concepts by contracting their clients to supply their general purchases.  For example, banks can contract their account holders in various industries to supply the goods they deal with at time of need.  When such a symbiotic relationship thrives, the last of the troubles, which is the government, can be fought jointly by private, large and small firms.

 

But how?  Just think of it this way, while the large corporations today worry about taxes, the middle worry about the dying markets due to increased competition.  Consequently, the very small worry about the capital.  The point is, if the relationship strengthened the fight over increasing taxes, it would be fought by more players. A proper mechanism should thus be brought into place to cater for the small businesses.  Mr. Moturi, a researcher with KIRDI argues that government’s role is crucial in the growth of this sector.  However, they (government) have not done much other than being seen demolishing structures and harassing traders.  Their failure to amend the registration process has also been a great inhibitor to development.  They should come up with a more inclusive system of operation, regulation and support.  If well advised, the informal sector cannot only create systems that work for them but also create employment for the good of many.  We are yet to see some effort on this.  Mr. Kibaki, the nation’s president at one time speaking to his constituents in Nyeri said, “the banks have their doors open for all to access credit…” Is that enough for a clueless mind, a mind that only knows debit and credit in the family setting and not in the business context?

 

 

 

 

 

 

 

 

 

 


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