If billions are pumped into big businesses, Kenya would be having regional multinationals.
Kenya Kwanza government made one important pledge. That it would provide loans to small and medium sized businesses at low interest rates to boost such enterprises.
Indeed the hustler fund was established. It is called Financial Inclusion Fund. Sh50 Billion was pumped into the fund. However, in 2024 September, the government published a report that indicated hustler fund default rate (portfolio at risk or non performing loans) was almost twice the normal average of other lenders, like SACCOs and banks.
What could be the reason? Probably this being government money, borrowers did not feel constrained to repay. Lack of a security made borrowers feel safe to default. Whatever.
But there is a true but disguised reason low repayments rates by small businesses. Previous governments attempted similar ideas via youth fund and women enterprise funds. Funds that target women generally do well. Why do they generally perform less than original aims? Remember Uwezo Funds?
Of course there are businesses that have grown out of these interventions. But when one compares the billions poured by governments into such schemes, does the output commensurate with the public investment over the years? Remember these are public funds that could have delivered public goods like water, roads and schooling.
Small businesses
The answer to the above conundrum lies elsewhere. The fact is, small businesses are "disguised unemployment". Majority of Kenyans hustling in small businesses would be more than happy to transition into more stable jobs.
Kenyan economy does not have sufficient stable jobs in the formal sector hence Kenyans "hustle" as small business persons.
Therefore, the trick should be to flip the logic . The government should change focus - we fund large businesses to expand and absorb the hustling unemployed Kenyans disguising as small businesses.
An example of advantages of large businesses is South Korea. Almost everyone in South Korea works in a single business called Samsung. It's revenue accounts to almost a quarter of the country's gross domestic product. Add some few other large companies like Hyundai and LG and notice a combined revenue that is almost half of South Korea's GDP.
TSMC, a company that deals with computer chips, accounts to 25 per cent of Taiwan economy. The same case with Huawei in China. Add Toyota in Japan. Or Tata in India .
The same applies in the West. Facebook, Tesla and Google in USA. Car manufacturers in Germany. Oil and shipping companies in Middle East.
Large companies offer countries distinct benefits. First, they tend to be very productive. They are sites of "concentrated knowledge "where top minds of professionals like accountants, in-house lawyers, engineers on the industry floor all pulling towards a certain direction. That mix can only boost labour productivity. Knowledge is generated by a crowd instead of lone individuals.
Second, they harness economies of scale. They buy inputs (for example machinery) cheaply since they purchase in bulk.
Third, uptake of new technology is faster in larger businesses. This boosts productivity.
Finally, these large companies have better market networks and linkages. It takes time to build such.
Mckinsey Global Institute have published a paper titled "A new look on how corporations impact the economy and households". It lists economic gains that flow to households via eight pathways from large corporations. Suppliers payments, investments, tax, capital income, labour income (salaries), consumer surplus, negative and positive spillovers.
Large businesses
Kenya, and Africa generally, does not have sufficient large businesses. Africa has almost nil representation in Fortune 500, an annual global measure of top successful businesses. Kenya does have few large companies but unfortunately they are in service industry like banking. It is very difficult to develop as a country while bypassing industrialisation straight into service sector.
Countries with a strong service sector but poor industrial base tend to be unequal and offer lower employment opportunities. Banking, for instance, employs mainly graduates almost exclusively. A large proportion of Industries employees include high school graduates.
But most importantly, Industries (particularly agro processing) establish longer value chains that can possibly lift rural economies - payments to farmers.
African governments can grow large corporations through various tactics. Like in East Asia, governments can use macro and fiscal economic instruments like window guidance where banks are encouraged to offer cheap credit to these poverty alleviating large businesses.
Tax incentives can be considered. Direct government capital injection in form of loans (not take overs) is an option. Provision of free land is another possibility.
Building a national corporation champion is a smarter move that lifts everyone up.
Large businesses that can add value to farmers mangoes in dry Kenyan regions. Or large sugar companies that can assure western farmers regular payments. Or large businesses that can export camel milk to Dubai. Or East African Breweries division that buys sorghum from poor farmers.
If billions were pumped into such businesses, Kenya would be having regional multinationals.
Large corporations can lift millions out of poverty.
Dr Irungu Kangata is the Governor of Muranga County. email [email protected].
