Although Kenya has been able to produce some African corporate champions such as Safaricom, Bidco and KCB, the concept of a multi-billion shilling homegrown brand is still a relatively recent arrival on the Kenyan business landscape.
SMEs and the informal sector have always been, and still are, the backbone of the economy. They comprise nearly 90 per cent of all businesses in the country and account for a total of 82 per cent of total job opportunities.
Therefore for the sake of the overall economy, developments that fundamentally redefine the Kenyan business environment need to be assessed on the basis of the impact that they have on SMEs and the informal sector.
One such development that has not escaped the attention of the Kenya National Chamber of Commerce and Industry (KNCCI) is high interest rates.
Interest rates have increased astronomically this year. Commercial bank lending rates have in recent weeks risen to highs of 27 per cent from 19 per cent at the beginning of the year.
The primary effect of higher interest rates is that the cost of servicing existing debts increases while the incentive to take on new credit declines. Cheap credit is critically important for the survival and prosperity of SMEs and other businesses in Kenya’s informal sector.
In light of the prevailing high interest rates, SMEs and informal businesses now need an SME fund that can offer an alternative source of cheap credit. How this will be done, however, is still up for debate.
Similarly, there is a need to solve the problem of high interest rates once and for all. This entails broadening our vision and looking beyond the role that the Central Bank of Kenya (CBK) plays.
Rising interest rates are linked in an inextricable way to declining exports and rising imports. The economy needs to be restructured, particularly with regard to increasing exports.
We have to go back to the basics of business and fully understand that any business cannot survive, let alone prosper, without a sustainable and robust market.
In the same way, exports cannot pick up if we do not engage other countries with a view of creating new markets or expanding existing ones.
The real solution to the current account deficit—as well as the resultant weak shilling and the attendant high interest rates—lies in putting more emphasis on economic diplomacy.
We need to reconfigure our relations with our foreign partners and shift them to a more economic footing.
Only through such measures can we grow exports, increase financial inflows into the economy, prop up the shillings and consequently put a permanent, fair and unanimously acceptable ceiling on interest rates.
Low and predictable interest rates will greatly favour SMEs and informal businesses, which are currently crushing under the weight of usurious interest rates.
Mr Kittony is chairman of the Kenya National Chamber of Commerce and Industry.