Depressed and irregular earnings among small firms in Kenya has greatly impacted on employees salaries and overall well-being, according to a new study
At least 75 per cent of the firms that account for 70 per cent of new jobs in Kenya earn less than Sh240, 000 per month, the study by Financial Sector Deepening (FSD) Kenya and the Financial Access Initiative (FAI), a research center of New York University study shows.
According to the survey, the average income for small businesses in the country has dropped from an average of Sh400,000 per month in the past decade.
Consequently, disposable income for employees working for such like firms has been shrinking every year, dropping from an average of 16.8 per cent of total salary in 2003 to almost nil last year.
Dubbed 'small firms', the study blames the low revenue on the tough business environment since the advent of Covid-19.
"Kenyan firms experience volatile earnings. Revenue and expenses fluctuate in unpredictable and hard-to-manage ways from month to month,'' the report reads in part.
The findings come at a time the government plans to pass more levies and taxes to both employers and employees, muted earnings notwithstanding.
The proposed Finance Bill, 2023 has listed a number of revenue mobilisation measures that directly affect employers and employees, including the introduction of a contributory Housing Fund of three per cent of the salary to be matched by employers.
The government has also hinted at hiking the mandatory National Health Insurance Fund (NHIF), months after revising employees' contributions to the National Social Security Fund (NSSF), which is matched my employers.
Employees earning above Sh500, 000 will also part with at least 35 per cent of their salaries to the government in the form of Pay-as-You-Earn if the bill is passed.
According to the survey only half of the small firm employees got paid eight months or more in a 10-month period; a quarter of employees worked at the same firm for fewer than five months of that period.
Even so, the research shows that small businesses in Kenya are more resilient compared to peers.
"Kenya has a high number of firms that have been open for seven years or more compared to peers in the study, including Nigeria, Uganda, Ethiopia, Indonesia, Fiji and Colombia," the study says.
Furthermore, Kenyan firms seem to offer a bit more stability of employment to key employees compared to firms in other countries in the study.
In Kenya, the research was carried out in Kisumu, Kwale and Nairobi between October 2021 and October 2022.
In general, the study concluded that stability and growth is a priority for the entrepreneurs interviewed. According to the research, these companies face high volatility in their income and expenses.
They cited “rising costs and supply problems” as the main barrier to achieving their vision of growth and stability
"This level of revenue affects the quality of life for employees, with approximately two-thirds of staff interviewed reporting struggling to have enough money to obtain necessary items for their families,'' Timothy Ogden, MD FAI at New York University said.
According to him, every time they are able to seize an opportunity, they have to contend with a wave knocking them back--particularly because of a lack of liquidity and working capital.
The study was focused on three industries - light manufacturing, agri- processing, and services – which all play a vital role in Kenya's economic development and sustainability.
Approximately 60 per cent of small firm owners in Kenya have bank accounts, which they use for business purposes.
However, usage of accounts is uneven with the majority of these firms moving less than a quarter of their transactions through bank accounts.
When requesting loans, the firms analysed say that working capital is a bigger need than investment capital.
They frequently look to sources other than banks, such as their own suppliers, for loans, and rarely take any operating risk that could result in negative monthly cash flow.
These facts help confirm their need for working capital to cover liquidity needs.
“This study is instrumental in unravelling the intricate dynamics of the financial behaviours, challenges, and aspirations of small businesses across the globe including Kenya,'' Tamara Cook, CEO FSD Kenya said.