strategies to improve productivity in the mse sector

8/3/2019 Strategies to Improve Productivity in the Mse Sector

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STRATEGIES TO IMPROVE

PRODUCTIVITY

IN THE MSE SECTOR

PAPER PRESENTED AT THE AFRICA

INDUSTRIALIZATION DAYON

22nd November, 2006

AT

KICC NAIROBI, KENYABY

Dr. CHARLES M.M. ONDIEKI,

MSc. (Mech. Engg.), PhD (BAdmin.), MKSAE


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Introduction

Despite the critical and significant role played by MSEs innational development the sector has over the yearsexperienced many binding challenges and constraints to therealization of its full potential with the result that there hasbeen very little vertical growth in the sector.

This has resulted to the missing middle. Lack of vertical growth has inhibited the translation of the

sector into a vibrant sector to be an engine of growth and toprovide sustainable economic development and generatesignificant employment and wealth.

This scenario has been attributed to, amongother constraints, Low education levels, and

Inadequate markets.


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MM MMME 14%

LE 21%

MSE 65%

Schematic Diagram illustrating the Missing Middle

in the MSE Growth

(Ref: Based on Data from GoK Statistical Abstracts)

LE Large Enterprises; ME Medium Enterprises; MSE Micro and Small

Enterprises; MM Missing Middle.


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Introduction (cont)

Although many policies have been formulated to

address the missing middle, very little has beenachieved in spite of the heavy funding that hasbeen spent to implement these policies.

This is because new policies continue to be

formulated to address more or less the sameproblems that previous policies were meant totackle. This has also been attributed to poorleadership and governance, corruption, and theabsence of a proper framework to regulate and govern

the MSE sector. The result is that very few of the MSEs graduate

to the Medium Enterprise level to fill the MissingMiddle


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Proposed Strategies to Improve Productivity

in the MSE Sector

The author believes that the most critical

MSE constraints are:

Inadequate markets, and Low education level

To overcome these two critical constraints

to the MSE development, this paper

proposes the following two strategies:

Strategy of linking MSEs to Markets, and

Strategy of raising the level of education to

university degree


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1. Strategy of linking MSEs to Markets

y The education levels for the majority (over 60%) of

the operators in the MSE sector is primary educationand below. Market Linkages is the most appropriatestrategy that can be used to improve productivity ofthese operators with low level of education.

The paper, therefore, proposes an intervention thatwill be specifically focus on the market linkages linking the MSEs to the Markets (e.g. High VolumeBuyers). The main objective of the intervention will be

to facilitate better leadership in group mobilization,formation and market linkages that are needed toimprove the MSE market position in terms of thequality and price of their products and services, andan increase in their bargaining power and leverage

with High Volume Buyers (HVBs).


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Strategy of linking MSEs to Markets

However, most MSEs in Kenya are eitherpoorly organized or belong to weakassociations that are unable to establish andmaintain longstanding market linkages with

High Volume Buyers (HVBs). To overcome this situation the paper

proposes the establishment ofMarketIntermediaries or Centres who will provide

training and information that will help theMSEs recognize quality inputs/products,produce quality products/services and offerquality customer service.


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Market Intermediaries will: assist in the formation and/or strengthening of viable MSE associationscapable of entering and honouring supply contracts with HVBs;

identify the existing and new HVBs interested in establishing win-wincommercial relationship directly with MSEs;

build the confidence and trust in the commercial win-win relationship

between the MSEs and the HVBs; and develop appropriate services (i.e. the provision of the necessary market

information;

offer feedback on product/service quality and market demand;

put in place mechanisms to ensure MSEs adhere to high product/service

quality standards; and provide a variety of other services: specifically, market research, product

development, training, input supply materials, tools and specializedequipment, provision of credits, and access to technology etc. that wouldenhance the honouring of the supply contracts.


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The Market Linkages Strategy will be able to: Strengthen the already existing MSE associations and make them

viable and capable of entering and honouring commercial supplycontracts with HVBs;

Form more viable MSE associations capable of entering andhonouring commercial supply contracts with HVBs;

Link and develop the longstanding direct commercial relationship

between the MSE associations and the high volume buyers. Improve the credibility and trust of MSEs among the HVBs

Identify more HVBs interested in establishing win-win commercialrelationships directly with MSEs;

Develop and organize training programs (marketing skills, qualitycontrol and packaging skills, customer care etc.) for the MSEs.

Increase awareness on the benefits of a market linkagesarrangement between the MSEs and the HVBs.

Increase awareness of MSEs on other marketing channels and betterquality control and packaging techniques


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The overall result expected from this type of intervention is improved market

access for MSE products/services. It is expected that at the end of thisintervention possible results/benefits may include: Increased number of viable MSE groups with direct longstanding market linkages

with High Volume buyers;

Improved skills among MSEs participating in the program on product/servicequality;

Increased number of lead High Volume Buyers with direct market linkages with

MSEs; Increased incomes through more efficient supply chains as the MSEs serve new

and lucrative markets, and therefore increased rate of savings;

Established forward and backward linkages with multiple buyers, includingexporters, processors, and domestic outlets;

Increased specialization among MSEs as they supply intermediate products;

Increased access to BDS thereby reducing the current divide between the formaland informal economies;

An expanded range of products within the production capacities of MSEs;

Improved work culture that is a closer fit with the discipline and standardsdemanded by the formal economy;

Increased number of MSEs accessing credits.


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2. Strategy of raising the level of

education to university degree

By far the most serious constraint is the low education levelsin the MSE sector. This single constraint has led to the rest.

More than 60% of MSEs have attained education level ofstandard VIII and below.

With this low education level the operators are unable to exploit

the available opportunities and new technologies for theirdevelopment.

Besides crooked MSE leaders and program officers from theGovernment, Development partners, NGOs and other privatesector organizations exploit them; these officers end up

enriching themselves at the detriment of the sectorsdevelopment.

This is so because the operators do not know their rights. Theyare also not able to organize themselves properly as most oftheir leaders have very little education; the leaders keep onwrangling and fighting for power.


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Strategy of raising the level of education to university degree

y Research results (Kimuyu, 2001; Ondieki, 2006; Mullei, 2003; Bosire, 2000,to mention a few) show that the entrepreneur's attributes notably operatorslevels of education and training exert systematic influences on theproductivity of enterprises. These results have clear policy messages. Giventhe importance of education in enterprise performance, increasing the poolofdiploma and degree level educated Kenyans from which small businessentrepreneurs are drawn is the most appropriate long-term strategy for

promoting profitable entrepreneurship. This paper, therefore, proposes to improve productivity in the MSE sector byraising the levels of education and training.

The paper recommends using the well equipped secondary schools (whichwill become constituents of universities near them) for degree programs forthe first three years, after which students will be transferred to the respectiveuniversities for the fourth and final year of their programs.

The paper further recommends the Government to establish skills upgradingcentres where the graduates of these programs will be trained on varioustechnical skills for 3 to 6 months depending on the type of skills required.

After the skills training the graduates will join the world of work in the MSESector.


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The Importance of Education and Training in

the MSE Development

All these studies recognise the importance ofeducation (to impart knowledge) and training (toimpart technical and management skills) in businesssurvival and/or development over time in the MSEsector. They conform to the view that knowledge andskills are very powerful tools in many respects, andspheres of modern living.

These studies, therefore, underscore the importanceofhigher levels of education in developing the MSEsector. Higher level of education and trainingraises/upgrades the operators understanding andproficiency. Education imparts knowledge ofmathematics, science and literacy, and training

imparts skills for doing various jobs.


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the MSE Development

Thus, education and training can contribute to an

ability to respond more effectively to technological and

economic change. Education and training equip

MSEs to master a series of important challenges totheir future growth. These challenges include the

following:

product design and development;

product diversification;

quality improvement;

planning and waste management;

logistics; and

Marketing.


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the MSE Development

Therefore, those entrepreneurs with higher level of

education are most likely to succeed, whilst those with

low level of education i.e. primary education level, are

most likely to fail; unfortunately most MSEs in Kenyaare in this latter group. Higher education levels do

seem to be a factor in enterprise success. Higher

education levels improve enterprise success by:

allowing for higher levels of training;

facilitating the keeping of business records;

permitting production of better quality products;

Improving customer service.


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The Importance of Education in the MSE

Development

The principal requisites for any business success are: creativity and innovative capacity;

theoretical knowledge, including literacy and numeracy;

business skills; and

Capital.

Education addresses the first two of these needs.

In responding to the educational needs of MSE

entrepreneurs, considerable levels of education isneeded to make a positive impact on livelihoods andproductivity improvement. This is evident in mostNICs and the industrialized countries where more than70% of the MSEs are University graduates.


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Strategy of raising the level of education/understanding

for those operators that are working

For those already working a curriculum similarto that foradult education programme can bedeveloped to be used to raise their level ofunderstanding and reasoning (the aim here,

though, is not necessarily to raise theireducation level to degree level).

The subjects for this type of curriculum will

include mathematics, science and literacy. High levels of literacy, numeracy and scientific

knowledge will help operators to shift betweentasks.


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Quote Mr. Sunny Bindras article in the Sunday

Nation of February 1, 2004

At this moment I would like to quote Mr. Sunny Bindras article in the SundayNation of February 1, 2004 titledIndias slow trek to an Economic Powerhouse.

Mr. Bindra a writer and management consultant in Nairobi starts ..in the early1980s Kenya was growing at a rapid clip and the future seemed entirely rosy. Onall measures .. Kenya seemed streets ahead of India, and India seemed to havean entrenched problem with poverty. 20 years later India is a major force in theworld economy, while Kenya is a nonentity. .. India is believed to be on thethreshold ofeight per cent annualgrowth in GDP, having achieved an annualaverage ofsix per cent since 1990. ..

The World Bank places Indias services sector in the globaltop five. . How?How was it done? Whats the secret? The secret to success in todays globaleconomy is knowledge.

India and Indians have made huge andsustained investments in knowledge.The country produces 3.1 million college graduates every year, this number,

too, is expected to double by 2010. In four years time, it will have nearly1,600engineering colleges.. India today sits on a deep source ofbrainpower: low on cost, high on IQ.

Indian research and development activity employs the best brains in the world, butcosts as little as a tenth of equivalent western programmes. .. If India can turninto a fast growth economy, it will be the first developing nation thatused itsbrainpower, not natural resources or the raw muscle of factory labour, as the

catalyst.]


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Apportionment of the School Fees paid for Degree

Courses

The average current fees for boarding secondary schools isbetween Ksh.20,000/= (for low cost public secondary schools)and Ksh.40,000/= (for high cost public secondary schools).

Using the highest figure of Ksh.40,000/= school fees per

student per year (this figure is far less than what is presentlypaid per student at the University per academic year of twoterms/semesters), and for a class of 40 students, the total feeswill be Ksh.1,600,000/=.

The money used for food and accommodation per student is

about Ksh.20,000/= per year (since the university student willbe at school for only two terms this figure is likely to be less peryear). This is about 50% of the school fees, which leavesKsh.800,000/= for tuition per class per academic year, and withtwo classes per school per year this figure comes to

Ksh.1,600,000/=.


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Apportionment of the School Fees paid for

Degree Courses

Most degree courses have 8 units per week each of 3 hours i.e.24 hours per class or 48 hours per week for the two classes.

One academic year has two semesters of 15 weeks each. Thetotal number of contact hours in one academic year for twodegree classes is 1440 hours.

Based on the contact hours, compensation per degree courseteacher at a part-time lecturing rate of Ksh.400/= per hour andthe school administration be paid at a rate of Ksh.200/= perhour to cover use of teaching facilities and generaladministration, the total payment to teachers and school

administration for the two degree classes per year will beKsh.864,000/= (e.g. 1440hrs x Ksh.600/=).

This leaves Ksh.736,000/= (e.g. Ksh.1,600,000/= lessKsh.864,000/=) for the two classes per one academic year.


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Apportionment of the School Fees paid

for Degree Courses

When the program is fully implemented (with three intakes thenumbers of degree classes per school will be six), the universityincome per year will be Ksh.2,208,000/=.

Assuming ten such secondary schools will be attached to theUniversity, the University income per year will beKsh.22,080,000/= when the program is fully implemented.

On the other hand each school administrations income fromsuch degree programs will be Ksh.864,000/= per year, and

The teachers will be earning a total ofKsh.1,728,000/= frompart-time lecturing per year.

The overall effect is that ofraising the incomes of both theschools and teachers and, therefore, improving their morale,besides increasing the number of students studying for degreecourses cheaply each year by effectively utilizing the secondaryschool facilities. The Government, the secondary schools, the

teachers, and the parents will be happy.


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THE END

THANKS

FOR

LISTENINGTO

ME

DR. CHARLES M.M. ONDIEKI(Lecturer, Egerton University and SECRETARY NJEMA)

22/11/2006

strategies to improve productivity in the mse sector

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