Why Kenya’s small firms are a data ‘Tower of Babel’

In a January 2020 national address, President Uhuru Kenyatta spoke about the value of small businesses in the country.

Micro, small and medium enterprises (MSMEs), he said, were a “powerful engine” and the “lifeblood” of the economy.

President Kenyatta then made three claims about the number of these businesses, how many jobs they create and their contribution to the gross domestic product. 

We took a closer look at them. 

1. The MSME sector accounts for more than 80 per cent of all businesses in Kenya – Unproven

We contacted the presidency for evidence for these claims and will update this report with their response.

The 80 per cent figure is frequently cited, including by the Kenya National Chamber of Commerce and Industry in an April 2018 policy brief, and international organisations such as UK think tank Overseas Development Institute.

The chamber of commerce’s chief executive Angela Ndambuki referred us to Sahil Shah, when contacted about the chamber’s source for the figure.

Shah helped research the policy brief and is project lead for the Kenya Business Guide, a think tank that works to strengthen the country’s business environment. He told Africa Check that their data was from the 2016 survey by the national statistics office. But the majority of small businesses are not officially listed, he said. 

“You’d only be able to fact check the figure if they were all on a national business register, but the truth is … most of them are not,” Shah said.

Data from statistics bureau

The state agency responsible for small businesses, the Micro and Small Enterprise Authority, told Africa Check that it relies on data from the Kenya National Bureau of Statistics.

In October 2016 the bureau published the 2016 Micro Small and Medium Enterprise Survey. This, it said, was the “first comprehensive study” on small businesses in Kenya, succeeding the narrower Micro and Small Enterprise Baseline Survey of 1999. It confirmed to Africa Check that the survey was also aimed at getting more data on informal businesses.

(Note: In 2017 the statistics agency published a census of establishments, which was done from January to May 2017.  A staffer told Africa Check the census had only targeted formally incorporated establishments. It counted 138,190 of them.)

Official definitions of MSMEs

The 2016 survey adopted Kenya’s official definition of MSMEs as businesses that have fewer than 100 employees. These include working owners, full-time paid employees, unpaid family workers, part-time workers and apprentices. 

They were further classified as follows:

• Micro enterprises – those with 1 to 9 employees
• Small enterprises – 10 to 49 employees
• Medium enterprises – 50 to 99 employees

The survey added that the current law on small businesses, the Micro and Small Enterprises Act of 2012, further defines micro enterprises as those with an annual turnover of less than KSh500,000. Small enterprises have a turnover of between KSh500,000 and KSh5 million. The law does not give an upper threshold for medium-sized businesses.

How many small businesses are there in Kenya?

The 2016 survey estimated that there were about 1.56 million MSMEs licensed by the 47 county governments, and 5.85 million unlicensed businesses, making for a total of 7.41 million micro, small and medium businesses.

To estimate this, the statistics office sampled 50,043 licensed businesses from March to June 2016. An additional 14,000 households were targeted so as to capture household-based enterprises, which it said were largely unlicensed.

But the data agency doesn’t have a publication with the number of all businesses in the country, Collins Omondi, its director of macroeconomic statistics, told Africa Check. It is therefore difficult to establish what share of the total number of businesses 7.41 million MSMEs constitutes. 

For these to constitute 80 per cent, as Kenyatta claimed, Kenya would have 9.26 million businesses in total. We haven’t yet found any data that shows this. 

Calls for more data collection

In its 2016 survey, the statistics office called for “a comprehensive scientific MSME inventory”, to be updated every year.

Kenya’s tax authority has in recent years introduced laws aimed at collecting data on the number of small businesses, especially those that are not listed and which it has said form the majority.

But a spokesperson for the Kenya Revenue Authority, Paul Agonda, told Africa Check the agency did not have “recent data” on small businesses, and referred us back to the statistics bureau and the chamber of commerce. 

2. MSMEs create around 75 per cent of the jobs in the economy – Unproven

The 2016 Micro Small and Medium Enterprise Survey, published in 2018 by the national statistics office, estimated that smaller businesses employed 14.9 million people. 

The statistics agency told Africa Check that although data was collected in 2016, it was based on activities in 2015. It estimated that the number of jobs in the country was 15.2 million in 2015, meaning that MSMEs would have accounted for 98 per cent of all jobs in the country.

Official data on employment in the Kenyan economy during this period was in the 2015/16 Basic Labour Force Report. It sampled 23,852 households across each of the country’s 47 counties, from September 2015 to August 2016, with 21,734 (91.3 per cent) households successfully interviewed. 

It found that 17.9 million Kenyans had jobs, while another 1.4 million were classified as unemployed but recommended more research into informal employment. (Note: The most recent data from the statistics agency estimated that 17.8 million people were employed in 2018.) 

The labour force report released in March 2018 remains the most recent on jobs in Kenya, with the previous labour survey published in 2009. In June 2018 statistics bureau director-general Zachary Mwangi told Africa Check that the agency planned to conduct “annual and quarterly” surveys. 

The first annual labour force survey would be released in July 2019, Mwangi said. In the event, comparable data for 2015, the year the most recent small business survey covers, is unavailable, again making it difficult to work out their contribution to the country’s jobs.

Academic highlights ‘data sharing gaps’

Dr Forah Obebo lectures economics at Kenyatta University in Nairobi. He said the inconsistent data collection on small businesses was a challenge for statistics. 

“We know the nationally representative data was from 2015, and the data before that was published in 1999. But where is the Kenya Revenue Authority’s record? What is the national chamber [of commerce] doing with the information they have?” 

“Information in the counties is very difficult to get. There are information technology issues and some of the systems are manual or semi-automated … [and] do not necessarily create output you can use,” Obebo said.

He highlighted data sharing gaps and said that more interaction between organs of government could help statisticians “triangulate”. 

3. The contribution of MSMEs to GDP is currently at 30 per cent – Unproven

This claim further adds to the data challenge.

Micro, small and medium sized businesses contributed 33.8 per cent of Kenya’s GDP in 2015, the 2016 MSME survey by the Kenya National Bureau of Statistics found.

This would mean they would have contributed about KSh2.13 trillion of the the GDP, which for 2015 was KSh6.3 trillion.

But the small businesses survey gave the contribution of small businesses as KSh1.7 trillion, which it said was the gross value added in 2015 against a national total of KSh 5.7 trillion. This is  30 per cent – Kenyatta’s figure. 

Published in 2016 with 2015 as the reference year, the MSME survey remains the most recent nationally representative data on the sector. It estimated that there were 7.41 million small businesses in total.

But Kenyatta  said this was the figure “currently”. Kenya’s most recent GDP was estimated to be KSh8.9 trillion in 2018. One would need to compare the 2018 contribution of MSMEs against this figure, not the estimate from 2015. Without Kenyatta’s office clarifying his evidence, we can also only rate this claim unproven. 

The lack of comparable and reliable data is a real concern in working out the significance of such an important sector of Kenya’s economy.

This report was written by Africa Check, a non-partisan fact-checking organisation. View the original piece on their website.

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