Micro and Small Enterprises in Africa

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Micro and Small Enterprises in Africa

• Characteristics and Contribution to Development

By Dorothy McCormick Institute for Development
Studies, University of Nairobi 30 October 2008
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MSEs in Africa

• What do they do?
• Who works in them?
• Where are they located?
• How do they start? Change?

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Kenyan MSEs by Sector
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Kenyan MSE Owners

• Gender
• 52 male and 48 female
• Women predominate in trade and particular service
  and manufacturing activities
• Age mean age of 35 years
• Education
• 90 have at least primary
• 35 have secondary or better

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Kenyan MSE Workers

• 70 of businesses have no workers other than the
  owner
• Many are casual workers, trainees, and,
  especially in rural areas, family members
• Terms and conditions of work vary greatly

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Enterprise Location
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Start-ups

• What attracts people into business?
• Hope for better income, preference for
  self-employment, skills, family background in
  business
• Lack of alternatives
• What resources do entrepreneurs have?
• Own savings
• An idea of what they want to do

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Business Life

• Mean age of a Kenyan micro business is 6.9 years
• Few outlive the founder
• Most are under-capitalised
• Few can access credit for expansion or working
  capital
• Many suffer from poor infrastructure, insecurity,
  extremely competitive markets, and an
  unfavourable institutional environment
• There is little information on new
  micro-enterprises such as technology firms,
  business process outsourcing, etc.

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Closures

• Urban enterprises more likely to close than rural
• Age at closure
• 3 years for urban businesses
• 5 years for rural
• Main reasons given for closure
• Lack of operating funds
• Personal reasons
• Lack of customers

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Overall Importance of MSEs

• To African economies
• Contribution to GDP ranges from about 15 to as
  high as 70
• Goods and services offered
• To households and individuals
• Significant proportion of households earn some or
  all of their income from MSEs
• Higher earnings
• Convenience
• Lower prices

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Sectoral Importance
Textile and Clothing Firms in Kenya, by Tier Textile and Clothing Firms in Kenya, by Tier Textile and Clothing Firms in Kenya, by Tier Textile and Clothing Firms in Kenya, by Tier
Tier Firms (N approx.) Firm size Market(s)
1 60,000 MSE Domestic less than 10 export some output to neighbouring countries
2 150 Small to large Mainly domestic, a minority of firms export to Africa or one or more European countries
3 45 Large to very large Export to USA, Europe
Source Own data 2000 CBS et al 1999 Kenya 2001 EPZ Authority Investment Promotion Council. Note Tier 1 data is as of mid 1999 Tier 2 is for 2001 Tier 3 data is as of early 2003. Source Own data 2000 CBS et al 1999 Kenya 2001 EPZ Authority Investment Promotion Council. Note Tier 1 data is as of mid 1999 Tier 2 is for 2001 Tier 3 data is as of early 2003. Source Own data 2000 CBS et al 1999 Kenya 2001 EPZ Authority Investment Promotion Council. Note Tier 1 data is as of mid 1999 Tier 2 is for 2001 Tier 3 data is as of early 2003. Source Own data 2000 CBS et al 1999 Kenya 2001 EPZ Authority Investment Promotion Council. Note Tier 1 data is as of mid 1999 Tier 2 is for 2001 Tier 3 data is as of early 2003.
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Challenges to MSE Development

• Markets and competition
• Resources
• Technology
• Infrastructure
• Institutional environment

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Meeting the Challenges

• Business community
• Government
• Non-governmental organisations

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Thank you!