Determinants of Growth in Small and Medium Enterprises in Kenya

Abstract

Small and Medium Enterprises (SMEs) form the bulk of enterprises in Kenya. These small and medium enterprises contribute 80 percent of total employment in Kenya and generate 92 percent of all new jobs in the country. Small and medium enterprises in Kenya have a population of over 7.5 million. They contribute 40 percent to the Gross Domestic Product (GDP) of the country. Research has shown that in most countries, small and medium enterprises generate by far more employment opportunities than big companies or the public sector. Employment is a major source of livelihood in many countries of the world. Due to lack of employment in the rural areas, many people migrate to urban centres in search of work. This constrains resources such as housing, schools, creates insecurity and springing up of slums. Growth of SMEs is therefore of paramount importance as this would make the enterprises open branches in rural areas and thus cubing rural to urban migration. Small and medium enterprises in many countries have grown from micro enterprises to even large organizations at the same time generating a big number of jobs. Some of these enterprises open branches in the rural areas where they employ a number of workers from their neighbourhoods. Migrating to urban centres therefore becomes unnecessary. This growth to any country eases the pressure on the resources in the urban centres in different fronts. Studies have shown a number of factors that determine growth of SMEs in many countries of the world. This stud y sought to establish factors that determine the growth of small and medium enterprises in Nairobi City County whose growth and expansion to rural areas could check the rural to urban migration. Growth of SMEs has a number of factors that influence it but little has been written on the determinants of the growth of the manufacturing SMEs in Nairobi City County. The study sought to establish access to market information, quality of produced goods by SMEs, volume of produced goods and efficiency in production of the goods as important determinants of SMEs’ growth. The study used exploratory approach and a descriptive survey which was carried out using questionnaires as the research instrument. This research instrument was served to owner managers of different SMEs in the manufacturing sector who operated in Nairobi City County. The subsectors of interest were those manufacturing metal items, wooden furniture, textiles and leather goods. The study investigated how the four factors: access to market information, quality of goods produced, volume of goods produced, efficiency in production of goods and use of electrical power as a moderator influenced growth of SMEs in Nairobi City County and by extension Kenya. Analysis of the data collected was done using a statistical software. From this study, it was found that the four variables influenced growth of SMEs in Nairobi but are not the only ones. The results obtained showed that they influence growth up to 68 percent, meaning there are other factors that contribute the remaining 32 percent. It was concluded that the four variables form the bulk of the factors that determine SMEs’ growth in Nairobi City County. It is recommended that further studies be carried out to establish the factors that contribute the 32 percent of SMEs’ growth in the County. This information can be used by policy makers in the government to develop SMEs, generate more jobs and alleviate poverty.