The private sector continues to be a critical driver of job creation and economic growth. However, several factors can undermine the private sector and, if left unaddressed, may impede development. Through rigorous face-to-face interviews with managers and owners of firms, the World Bank Group’s Enterprise Surveys benchmark the business environment based on actual experiences of firms.
This blog focuses on surveys conducted of 781 Kenyan firms across five regions (including Nairobi and Mombasa) and six business sectors—i) food, ii) textiles and garments, iii) chemicals, plastics and rubber, iv) other manufacturing, v) retail, and vi) other services.
Under Kenya’s new constitution, the country recently embarked on several major business reforms that promoted a more market-friendly environment. Some examples of positive benefits include boosts in public investment in infrastructure, increased interest from foreign investors, and lowered transaction costs from information technology improvements. The Kenya Enterprise Surveys sheds light on how the country’s private sector fared amidst these reforms.
More firms use financial services than before
According to the Kenya Enterprise Surveys (ES) data, the use of financial services has improved since 2007. On average, 44% and 41% of Kenyan firms use banks to finance investment and working capital, respectively. The corresponding figures in 2007 were much lower at 23% and 26%. Moreover, the percentage of Kenyan firms with a bank loan is 36%, which is on par with the global average yet higher than the average of countries in the same income group (do note that when this survey was conducted, Kenya was classified as a low income country, having since graduated to a lower middle income country).
Lower losses from crime but high security costs
In 2013, Kenyan firms experienced lower losses from crime such as theft and vandalism than in 2007, although this came hand in hand with rising security costs. Security costs entail any costs firms experience in protecting against crime including alarm systems or security guards. Security costs in Kenya have increased between 2007 and 2013. More firms pay for security and they also pay more: 4% of total annual sales in 2013 vs. 2% in 2007. The enormous security costs faced by Kenyan firms stand out in cross country comparisons. Not only more Kenyan firms pay for security but they also pay more than other countries at the same income level as well as all countries with ES data. Specifically, about 82% of Kenyan firms pay for security in contrast to 58% in all countries surveyed by the ES team. Moreover, Kenyan firms pay more than double the amount of security costs as a percentage of sales than all countries with ES data.
Informal businesses are perceived to be the biggest obstacle to business operations in Kenya
Approximately 24% of firms in Kenya perceived the informal sector as the biggest obstacles to their businesses. This figure is twice as high as the one in 2007. Moreover, the improvement in firms’ experience in dealing with crime and financial services is consistent with the change in firms’ perception of the business environment. The percentage of firms choosing access to finance and crime as the biggest obstacle for their day-to-day operations declined significantly from 2007 to 2013. The same holds true for tax rates and transport.
For more details on the Kenya survey, please see the Country Highlights. The raw survey data can also be obtained here upon registration.
This post is from a blog series that shares highlights from the Enterprise Surveys conducted in several countries. Previous postings in this series are available below: