Small and medium enterprises in regionalism: a comparative study of Kenya and Rwanda

Abstract

The Small and Medium Enterprises (SMEs) dominate private sector enterprises in all the East African States. The SME sector in the region is considered as the engine of economic growth. The sector requires to be supported by a good trade development policy and other support systems. The Small and Medium Enterprises face numerous challenges during the initial stages of establishment and even as they develop. The SME challenges in Kenya and Rwanda manifest differently. Unique challenges such as lack of confidence in leadership, economic insecurity, evolving and shifting governance structures have indirectly impacted negatively in the SMEs establishment and development both in Kenya and Rwanda. However the two countries are at different policy, legal and regulatory framework dispensations. The prevailing business environment in each country directly affects the performance of Small and Medium Enterprises. There is need therefore to critically examine the business environment and sector performances in both countries with a view of finding out the circumstances behind either success or failure of SMEs. The study sought to examine and compare the business environment and the challenges facing the SME sectors in Kenya and Rwanda to establish what influences the sector performance. The objectives were to: examine the challenges facing the SME sector in Rwanda; examine the challenges facing the MSE sector in Kenya; and compare and contrast business environment and SME sector performance in Kenya and Rwanda. The findings may be used by policy makers of Kenya and Rwanda in finding ways of creating a favorable and supportive business environment for small and medium enterprises in both countries. Academia also will find the findings beneficial. The study employed both qualitative and quantitative research designs. Data was gathered through interviews, group discussions, reviewing of printed materials and electronic documents. In Rwanda, the study found that Rwanda has developed a more holistic business environment but it has taken the SMEs time to internalize the environment for their own establishment and development. It revealed that it requires more than a good policy, legal and regulatory framework for a vibrant SME sector to develop. In Kenya, it found that despite the unfavorable business environment existing in Kenya, there is a growing SME sector. It established that other non-policy support interventions and societal attributes and endowments are some of the crucial ingredients for a strong SME sector development. The study found that that there are common challenges in the two countries SME sectors such as lack of skills and expertise, inadequate information and capacity to analyze market information, access to credit and poor sector coordination and lack of quality control in Standard of products developed by the sector. The study recommends common and unique challenges should be addressed through sectoral specific policies and strategies. The study further recommends that the future work in SME and entrepreneurial development should examine in more detail the interplay between public governance such as country specific institutional factors and the societal role in developing entrepreneurship.