Special Paper No. 27 of 2019 on County Business Environment for Micro and Small Enterprises in Kenya

Abstract

Improving the business environment for MSEs is a catalyst to leveraging fully on the potential of MSEs in contributing to the development agenda of the country. The MSMEs Survey of 2016 estimates that the MSEs sector in Kenya contributes 23.6 per cent and 24.7 per cent of the gross value addition and national output, respectively. Equally, 14.9 million persons are engaged in the MSMEs sector, which is approximately 98 per cent of the total working population in the economy (registered as 15.163 million persons). The micro and small enterprises constitute about 81 per cent (12.28 million persons) of the total population working in the MSMEs sector. This paper has developed a County Business Environment for MSEs (CBEM) framework to facilitate in identifying key issues that require policy interventions in creating an enabling environment for the MSEs sector. The framework covers five areas critical for smooth operations of MSEs, including: worksites and adequacy of their infrastructure; market environment; financial and technical capacity; and governance and regulatory framework. A total of 20 indicators were considered and using the Distance to Frontier approach (DTF), various subindicators were constructed and used to rank the counties. There were significant disparities in performance across the various indicators and across the counties. Self-regulation ranked high among the indicators, implying that establishment of MSE associations strengthens the voice of MSEs in improving the business environment. Innovation and patenting scored lowest, reflecting the weak position that MSEs find themselves in coping with technological dynamics. On average, the counties that ranked high in enhancing business environment for MSEs include Nairobi, Nyandarua, Nakuru, Kisumu and Laikipia…