Problematic Sectors Of Doing Business In Kenya Economics Essay

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Small business is an important component of the business environment of any country, in terms of employment and contribution to economic growth. The small business sector can play a major role in creating jobs and wealth in any economy. Consequently, the sector has recently drawn muck attention from policymakers in both developed and developing countries. (Ntsika, 1999: p.166) However, the growth and welfare of small business is often constrained by such issues as lack of available human resources, lack of management skills of the owners, lack of credit, corruption, and poor infrastructure, depending on the country.

The small businesses usually do not function with other organizations, encyclopedia, but they have their own unique attributes and features. Organizational structures, rather than the usual in large organizations are quite different with those in the small organization. This report will be discussed the small organizations in the importance of the global economy, and emphasize the structure of small organizations in Kenya. Moreover, this report will also examine on the economy, annual inflation, corruption and the informal sectors of the country.

2.0 Kenya's Economic Structure

Kenya is an East African nation situated along the Indian Ocean with a prominent coastal line and shares its borders with other East African countries, such as Somalia, Tanzania, Mozambique and Sudan. In terms of land area, Kenya is the 47th largest country in the world. Therefore, subsistence agriculture and the barter of goods formed the foundation of the Kenyan economy in the early days of independence. Kenya economic structure is highly dependent on agricultural production. After independence, the country has received substantial foreign aid, although the industrial sector still remains underdeveloped. As a result, the country has to import a mass number of its consumer goods. Kenya's economy suffers from a high population growth rate and uncontrolled corruption. The Kenyan Shilling is the official currency of the nation. Nairobi, the capital city, is central to Kenya's economic profile.

In Kenya, agriculture contributes nearly 21% of the country's GDP, and it provides employment to more than 75% of the working population. Kenya's major agricultural products include tea, coffee, wheat, sugarcane, fruits, vegetables and dairy products. Since 1997, traditional methods of agriculture and over dependence on the weather conditions are impacted by productivity. But for the Industrial sector, it's only accounts for 17 percent of the country GDP. Almost 25% of working population is engaged in the service and industrial sectors. There are many sorts of major industries such as horticulture, oil refining, cement, tourism, ship repairing and small-scale consumer goods manufacturing. (EconomyWatch, 2009.)

Kenya's economic structure has been favorable to private and foreign investment

since independence. The country gains considerable amount of international donations for developmental and budgetary support. International Monetary Fund (IMF) and The World Bank had also provided a significant amount of donations for the development of infrastructure and to control corruption at the administrative levels. Moreover, one of the main donators of Kenya is the US. Under the African Growth and Opportunity Act (AGOA), the US provides donations to Kenya's apparel industry. Nevertheless, there was some restrictions imposed by some of the previous governments and they intended to promote the Afticanization of trade. In 1993, IMF signed with Kenya an economic reforms agreement. According to that agreement, the county removed trade restrictions, subsidies and the liberalized business climate in country. The government also canceled the integrated customs union and the non-tariff trade barriers in 2004.

Most Problematic Sectors of doing business in Kenya

Generally, Kenya's economy suffers from uncontrolled corruption, high population growth rate, access to financing and inadequate supply of infrastructure. According to the researches of the World Bank and the African Development Bank, corruption and lack of accessing to financing are the most problematic sectors account by 17.0 and 15.6 of GDP per capita (int'l $) respectively in 2009. Policy instability and Inflation rate are also the major factors of doing small business in Kenya.

Corruption in Kenya

While a certain level of corruption goes on in every country, corruption in Kenya is a particularly large problem. The average urban Kenyan has to pay 16 bribes a month to get his regular affairs arranged. "Corruption and corrupt leaders both deepen poverty and make it difficult for ordinary people to get ahead as a result of their own efforts. There is increasing evidence that costs of corruption disproportionately affect the poor, who do not only suffer from lack of services and efficient government, but who are also powerless to resist the demand of the corrupt officials." (G. Mwabu, pg.29). This paragraph explains that it can be assume that corruption is one of the major and main causes of poverty in Kenya. The relation between corruption and the poverty can have overwhelming result on the Kenyan. In Kenya, tribal loyalty is one of the factors that fuel the corruption problem. Kenyan are first and primary to their families, after that their clan and their tribe. Member of the same tribe or tribe often try to link with each other even with illegal corruption. In the 2008, the anti-corruption organization Transparency International published Corruption Perception Index, Kenya was rank in 147th out of 180 countries, that means there are only 33 countries are more corrupt and the 180th country was Somalia. According to the facts, Kenya corruption is a complex phenomenon and it won't be easy to attain a society with zero tolerance of corruption in the short of even in medium term. In the Figure 1, it's show the categories of corruptions occur in the various kinds of organization and its percentages.


Fig. 1 Categorization of Corruption by Organizations/ sector of Occurrence (KACC annual report, pg.6)

Accessing to Finance

In the Kenya economy, the small businesses have become significant players, but at the same time they have to face with the restrictions that limit their development. One of the main restrictions that the small businesses are facing in Kenya is lack of access to financial services. On the other hand, the slow rate of the firms' growth has been attributed to the lack of access to financial resources (Nkurunziza 2005). The main reason that restricted to access the finance is since Africa's small and medium enterprises have little access to finance, which lead to obstruct their appearance and eventual growth. Most of their capital sources are come from their retained earnings and informal savings and loan associations, which are unpredictable, not very secure and have little scope for risk sharing because of their regional focus. Access to formal finance is poor because of the high risk of default among small and medium enterprises and due to inadequate financial facilities. Small business in Africa, more exactly in Kenya, is very difficult to get the conditions set by the financial institutions, because poor guarantees and lack of information are the risks for the ability of the small business to repay their loans. Some of the major factors that cause the small businesses find it hard to access the finance are: the interest rates, multiple transaction costs, lack of transparency, people borrow and do not pay back, slow in processing loans, and corruption.


Inflation rate (consumer prices)


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While the inflation rate is rising the cost of living in Kenya is also rising. Nairobi the capital of Kenya was ranked 88 on a list of the 143 most expensive cities.