Kenya: Firms in Kenya Less Able to Scale Up Despite Increased Listings – World Bank

Firms in Kenya are less able to scale up despite the increased creation of new firms, World Bank has said highlighting a trend where many firms fail to pick up after launch.

The findings by the bank mirror a previous survey by the Kenya National Bureau of Statistics which revealed that almost 400,000 micro, small and medium enterprises (MSMEs) did not see their second anniversary in the last five years.

In its report dubbed from recovery to better jobs, World Bank attributed the weak entrepreneurship to shortcomings in the physical capital and infrastructure in addition to challenges in access to finance and the regulatory framework.

Other hindrances listed by the bank include poor internet across some regions, poor knowledge capital which affects quality research and poor management quality.

“Despite high levels of firm creation, firms in Kenya appear less able to scale up. Kenya has fewer people accessing the internet compared to peers and a smaller share of graduates in science and engineering. There is also a striking gap between Kenya and its leading peers on knowledge capital. On-demand factors, Kenyan entrepreneurs face an internal market that is smaller than other middle income countries (MICs),” World Bank said.

The report highlighted that the services sector is the key driver of job creation in Kenya, a grim picture for a country that seeks to grow like other developing countries in the Middle East which mainly depend on manufacturing.

The services sector dominates the firm landscape with 84 percent of formal firms and 83 percent of MSMEs being in the services sector.

This also represents a bad picture for the Uhuru Kenyatta-led government whose emphasis under the Big Four agenda included manufacturing.

“With services driving job creation, Kenya exhibits a new pattern of economic transformation that is emerging in Africa and which may differ significantly from the manufacturing-led transformation of East Asia and many high-income economies,” the report added.

Overall, the report noted that most of Kenya’s firms are informal, small, based in Nairobi, and in the services sector with 7.4 million micro, small and medium enterprises (MSMEs) compared to over 138,000 formal establishments.

Of all the formal firms, only three percent were reported to have 50 or more employees against one percent of firms that had 150 or more employees.

“The majority of MSMEs (94 percent) are unlicensed micro firms, with fewer than five employees. Nairobi hosts 36 percent of formal firms, and 14 percent of MSMEs,’ the report noted.