EFFECT OF DEVOLUTION ON SMALL AND MEDIUM ENTERPRISES PERFORMANCE IN KENYA

Abstract

The rationale for considering decentralization in anti-poverty programs is that it might have positive effects on the economic development. Decentralization brings the government closer to the people. Local officials are better informed on the local needs, and are thus more capable of providing the optimal mix of local policies. While the SMEs subsector constitute close to 80% of employment, it only contributes to about twenty percent (20%) of the Gross Domestic Product (GDP) in 2011 in Kenya. This implies dismal subsector performance despite its potential contribution to employment, income and equity as was asserted in the ILO report in 1972. The performance of the SMEs in Kenya is linked to several constraints among which the regulatory and institutional framework is alleged to be one of the factors. SMEs in Kenya are threatened for survival as a competitive enterprise. The purpose of the study was to establish the effect of devolution on small and medium enterprises performance in Kenya. The study adopted a descriptive survey research design. The target population of this study composed of representatives of the various industries including the matatu, dairy, supermarkets, jua kali and small manufacturing companies in Nairobi and its environs. The target population of this study was therefore 1015. The study used stratified random sampling method to select 10% of the respondents who formed a sampling frame of 102 respondents. Data was collected using questionnaires. Data was analyzed using descriptive statistics done with the help of software program SPSS version 21 and presented using frequency tables. In addition, multivariate regression model was applied to determine the relative importance of each of the two variables with respect to SME performance. The study revealed that that fees and levies, affect the performance of Small and Medium Enterprises in Kenya to a moderate extent. The study concluded that fees and levies, cess and rates by the county government affect the performance of Small and Medium Enterprises in Kenya. The study also concluded that SME financing mechanism, fair trading practices, capacity development, mechanism for value addition and increase in supply, distribution and access to goods and services affect the performance of Small and Medium Enterprises affect the performance of SMEs in Kenya. The recommends that the county government should use the finances collected from fees and levies, cess and rates in proper and controlled manner with a goal of improving the working environment for the SMEs in Kenya. The study also recommends that the county government should put in strict measures to ensure that there is no corruption in the fees and levies, cess and rates collection process to ensure that the amount collected do not go to the hands of few individuals and that a substantial amount can be received to support the plans and policies of the county government. The study suggested that a similar study should be carried out in other counties to find out whether it will yield the same results. The study focused on SMEs, another study should be carried out to find out the effect of devolution on large companies.