Business Daily (Nairobi)
Mwaura Kimani
28 April 2008
Small and Medium Enterprises (SMEs) might find it difficult to thrive in future if they fail to tap into cheaper and renewable sources of energy, a UN agency has warned.
United Nations Industrial Development Organisation (Unido) says the SME sector's thirst for expansion will benefit from investment in renewable energy sources to fuel growth and ensure better returns.
Unido Kenya and Eritrea representative Alexander Varghese said increasing energy supply security and a transition to modern energy services could help ensure SMEs survive.
Among the various renewable sources of energy available for SMEs include small hydro power stations, solar energy, wind energy, bio-energy and geothermal, which are billed to be more affordable for small businesses compared to petroleum products and electricity.
"This is time for the SME sector to set up and tap into renewable energy markets for growth and development," said Dr Varghese.
"There is need to adopt an integrated approach to overcome technical challenges related to fluctuations of energy supply for the benefit of SMEs, "said Dr Varghese during a regional conference on SMEs organised by employers organisations in Sub-Saharan Africa, hosted by the Federation of Kenya Employers.
According to Unido, in its paper Energy Security in Africa, the continent's renewable energy potential remains untapped.
"Europe and America have already exploited 70 to 80 per cent of their hydro potential compared to Africa's five per cent, "said Dr Varghese.
Despite the market being awash with money and numerous business opportunities knocking, SMEs are still grappling with high fuel costs, key to their operations which is eating into their earnings.
Lack of capital for expansion and operation had been a key constraint to SMEs over the last few years until banks and other financial institutions tapped the potential.
In the last five years, private equity funds have been making a beeline for Kenya chasing the fast growing business sector especially SMEs.
Of the nine private equity funds currently operating in the market, five with a combined capital base of over $70 million (Sh4.9 billion) have targeted SMEs in East Africa. Besides being barred by stringent regulations from issuing initial public offerings to raise funds from investors, they are unable to service the high interest rates charged on loans.
"Strategic interventions and partnerships between SMEs and employers organisations would help assess the comparative advantage to benefit the sector in the growing economy," said FKE deputy national chairman Mugo Kibati.
Jolted to the core by the post-election crisis, the sector - which has been on an upward trend in the recent years in Kenya - is on a recovery path.
Most SMEs are struggling with cash flow issues despite providing the bulk of employment opportunities in the country, limiting their capacity to compete with large companies.The sector's growth has been boosted by increased demand and supply in the domestic market for their services, which are viewed as affordable.
Labour minister John Munyes, however, said some SMEs suffer from limited market access, lack of financial support, low technology schemes and inadequate workplaces due to lack of land.
The sector has attracted increased attention from financiers and the Government alike as it contributes about 18.4 per cent of the country's total wealth as measured by Gross Domestic Product (GDP) and 25 per cent of the non-agricultural GDP, while employing 74.2 per cent of the country's total labour force.
SMEs are defined as formally registered businesses with 5-100 employees and with an annual turnover of between Sh6 million and Sh100 million. Globally, SMEs contribute 53 per cent of jobs in developed economies and as high as 88 per cent of jobs in Japan.
These businesses also contribute to 45 per cent of economic growth in developed countries compared to 25 per cent in developing economies according to the World Bank database.
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