SMEs in Kenya

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In Kenya, the Micro, Small and Medium enterprises are variously referred. They fall under the popular informal sector called Jua Kali as they largely start in the open sun under no roof. The sector employs over 80% and is currently receiving a lot of government attention as its seen as the solution to the crippling unemployment especially for the youth. Over 65% of Kenyan population is youthful and unemployed. In 2008, Kenya experienced the post-election violence which left over 1,000 people dead and 500,000 displaced. And while this might have been politically instigated, the fuel was the youth unemployment and the grinding poverty. This realization has re-energised the government’s resolve to address the unemployment with such initiatives as kazi kwa vijana.


Contents

Overview


‘It is estimated that today, Kenya’s informal sector constitutes 98 percent of all businesses in the country, absorbs annually up to 50 per cent of new non-farm employment seekers, has an employment growth rate of 12-14 percent, contributes 30 percent of total employment and 3 percent of GDP’. To its credit, Kenya, unlike most developing countries, has in official development policies recognized informal enterprise as more than a residual employer for the survival of poor households. In its Sessional Paper Number 2 of 1992, Small Enterprise and Jua Kali Development in Kenya, the government identifies the small-scale and Jua Kali enterprise sector for support to assist it to "graduate into the formal sector" and to become a major player in the creation of new jobs and economic growth. Strictly speaking, the term Jua Kali refers to the full range of enterprises employing between 1-49 workers in all sectors. Access to technical and managerial training, work sites, involvement of Jua Kalis in technological innovation, and creation of a positive enabling environment are key elements in the Government’s Jua Kali development strategy’.[1]

The Kenyan economy has seen a rebound growing at 3% after experiencing a jolt as a result of the post-election violence of 2008. From a negative growth in 2001, the economy experienced a high of over 7% in 2007 before hitting the floor in 2008. Vision 2030, Kenya's development blue-print estimates a 10% growth by 2012 to support a vibrant economy towards a newly industrialized state by 2030. A major driver is the informal sector of SMEs.

Legal and Regulatory Framework

The legal requirements can be summarised to include registration of the company name with the Registrar of Companies, acquiring a Personal Identification Number (PIN) and Value Added Tax (VAT) with the Kenya Revenue Authority (KRA), Trade Licence with the ministry of Trade, and finally the Local authority licences.

Employees are registered for Pay As You Earn (PAYE) with KRA with monthly deductions depending on ones salary, the National Social Security Fund (NSSF), NHIF with a monthly contributions of Kenya shillings 320 but under review. Prudent to take insurance cover for the business and employees. [2]

Institutional Framework

To start a business in kenya is not easy although the government has tried to hasten the process. There is no one-stop in doing business and various institutions are involved namely:

  1. Registrar of Companies
  2. Ministry of Trade
  3. Kenya Revenue Authority
  4. National Social Security Fund
  5. National Hospital Insurance Fund (NHIF)
  6. Local Authorities like Nairobi, Mombasa, Kisumu etc.
  7. National Environment Management Authority (NEMA)

Many others are involved depending on the line of business.Howevewr for foreign investors, KenInvest offers facilitation and hastens the process.[www.investmentkenya.org]

Intellectual Property

Intellectual property protects applications of ideas and information that are of commercial value. It protects one's inventions and innovations. The rights stop others from piracy, counterfeiting, imitating etc. In Kenya three government institutions administer intellectual property rights. The Kenya Industrial Property Institute (KIPI), a parastatal in the Ministry of Trade and Industry administers the Industrial Property Act 2001 of the laws of Kenya covering Patents, Trade marks, Service marks, Industrial designs and Utility models. Copyright is administered by the Copyright Board of Kenya an office in the Attorney General Chambers under the Copyright Act 2001 of Kenya. The Plant varieties Act of Kenya is administered by the Kenya Plant Health Inspectorate Services (KEPHIS).

In 2006, Prof. Tom Ogada conducted a national intellectual property audit in Kenya,which revealed that between 1990 and 2001, Small and Medium Size Enterprises(SMEs), also known as (Jua Kali), was the most innovative sector, with a total of 116 patent applications at Kenya Industrial Property Institute (KIPI). They were followed by Industry with 45 patent applications. Research and Development Institutions had 14 applications; individuals from universities had 2 applications, while secondary schools had one application. Public universities were conspicuously absent.

The rationale for protection of intellectual property is to stimulate and promote further creativity.

  1. Industrial Property Rights (Patents, Trademarks, Industrial designs, Utility Models, Topography of integrated circuits and Geographical Indications)
  2. Copyright (Literary and artistic works)
  3. Protection of New Varieties of Plants
  • Protection

Intellectual property is protected by national laws, which are unique in each country. Some countries including Kenya have become signatories to multinational treaties and agreements, which provide some form of harmonization in the protection of intellectual property. Kenya is a member of the following Organisations, Protocols, treaties and agreements:

a. World Intellectual Property Organization WIPO

b. African Regional Intellectual Property Organisation – ARIPO

c. Trade Mark Law Treaty- now Singapore Treaty on the Law of Trademarks

d. Paris convention for protection of Industrial Property.

e. Madrid Union (Madrid Agreement & Protocol) on International Registration of Marks.

f. Nice Agreement on classification of Trade and Service Marks.

g. We use Vienna Classification although not members of Vienna agreement

h. Patent cooperation treaty - PCT

i. Berne convention on Copyright

j. Nairobi Treaty on the Protection of the Olympic Symbol

k. UPOV for New Plant varieties

l. Trade Related Aspects of Intellectual Property Rights (TRIPS). [3]

Challenges and Bottlenecks

The biggest challenges and bottlenecks in doing business in Kenya range from institutional as a result of the many institutions involved, too many licences adding to cost of doing business, access to credit, lack of energy and its high cost, lack of roads and other infrastructure.


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