CLASS ASSIGNMENT ON: CHALLENGES FACING ENTREPRENURSHIP DEVELOPMENT IN THIKA COUNTY

HEE 4102: ENTREPRENEURSHIP DEVELOPMENT

PRESENTED BY: GEOFFREY G. KAMAU FANICE J. NAFULA MARY SITUMA WILBERFORCE SENELWA REBECCA GITHAIGA HD 413/2071/2011 HD 413/2073/2011 HD 413/2666/2011 HD 433/2069/2011 HD 433/2075/2011

PRESENTED TO: MUKULU, E. (PhD)

Submitted to the Entrepreneurship and Procurement Department in the School of Human Resource Development in Partial Fulfillment of the Requirements for the Award of Doctor of Philosophy in Entrepreneurship of Jomo Kenyatta University of Agriculture and Technology

November 2011

INTRODUCTION 1.1 Background Information of Thika Town

Thika town which is located in Kiambu County is 46 kilometers North East of Nairobi City. It is an administrative unit made up of four districts which were curved out of the larger Thika District namely; Thika West, Thika East, Ruiru and Gatanga Districts. The town which is the headquarters of Thika District is externally serviced by a dual carriage to Nairobi, a highway to Garissa and also a railway line. Internally, the town has a well-maintained road network. Thika Municipality measures about 93 square kilometers and has a population of 150,000 at night and 350,000 people, during the day (KNBS, 2011). Many of the people are employed in factories within the town. The main economic activities of Thika include agriculture, in particular, horticulture (pineapples and flowers), and coffee. The town, is nicknamed The Birmingham of Kenya as it is home to large industries including tanneries, textiles, footwear, food processing, motor vehicle assembly and cigarette manufacturing and over a hundred light industries. The service sector is also well represented with the growth & establishment of a number of educational & financial institutions making it home to three universities, tens of middle level colleges, hundreds of secondary and primary schools and dozens of financial institutions, and vibrant telecommunication and hospitality. Some of the attractions that draw visitors to Thika include the majestic Chania Falls, Thika Falls, Ol Donyo Sabuk National Park and historical sites like the Mugumo Gardens, Christina Wangare Gardens, which is in the heart of Thika Town. The greatest role in administration and registration of businesses in Thika is vested on the Local Authorities, beside other arms of the government.

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CHALLENGES OF ENTREPRENEURSHIP DEVELOPMENT IN THIKA 2.1 Endogenous (Internal) Challenges

These are challenges that arise from the internal environment of the enterprise such as inadequate enterprise management skills, inadequate education and training, inadequate finance, deficient human resources and technology. Largely all these are challenges that the enterprise can control. To a large extent these challenges are compounded by the inherent limitations of Micro and Small Enterprises (MSEs) due to their liability of smallness. MSEs are disproportionately affected by limited capital, unskilled labor, and inability to attract competent personnel, low levels of adoption of technologies, poor quality products and inadequate market access. Majority of enterprises in Thika are Micro and Small Enterprises so they are affected by; 2.1.1 Lack of Entrepreneurial Teams Management Skills

The typical owner or manager of a small business develops their own approach to management through a process of trial and error, thus they are ill prepared to face changes in the business environment and to plan appropriate changes to technology. The majority lack educational background hence they may not be well equipped to carry out managerial routines for their enterprises (King & McGrath, 2002). Little attention is given to capacity building of the human resource which is necessary for business growth. Preparation of business plans is seldom given importance and proper record keeping is not practiced as the majority of enterprises operate informally. 2.1.2 Lack of Access to Finance

Since the majority of enterprises are MSEs, they are faced with traditional challenges of accessing finance. They therefore turn to expensive financing such as shylock, Microfinance Institutions (MFIs), Rotating Savings and Credit Associations (ROSCAs), instead of the4

conventional credit from banks and equity in the stock exchange. Moreover women entrepreneurs are especially constrained as they lack the necessary collateral to enable them secure bank loans. Lending conditions which include high interests, availability of collateral, high bank charges and fees can be a big challenge to low earning entrepreneurs. Financial constraints remain a major challenge facing MSEs in Kenya (Wanjohi & Mugure, 2008) and this is the situation in Thika as well. 2.1.3 Poorly Skilled Human Capital.

Human capital is the most critical resource in an enterprise. The ability of an enterprise to attract and retain competent Human Resource is paramount to the success of an enterprise. In Thika, the majority of workers in farm-based enterprises are illiterate. Furthermore, most MSEs are not able to develop their human capital through education and training so as to improve enterprise performance. 2.1.4 Low Adoption of Technology

Farm and non-farm enterprises that adopt technology are able to be cost-effective and to create innovative and quality products that can compete in the local and international market. Despite various interventions as outlined in the Sessional Paper No.2 of 1992 on Small Enterprises and Jua Kali Development in Kenya led to the establishment of special business development services such as Jua Kali sheds. However, there is still low adoption of technology in these Jua Kali industries in Thika. For example, farmers are still using rudimentary farm implements and uncertified seeds leading to low farm productivity. The farm produce is often sold in its raw form without any processing or value-addition and poor handling and storage technologies result in high post-harvest losses. Whereas Thika produces a lot of milk, eggs and pineapples, farmers do not get maximum income due to lack of adoption of value-addition technologies. Many enterprises in Thika appear to be unfamiliar with new technologies and regard them as5

either unavailable or unaffordable. There also seems to be is a wide digital divide between the rural and urban Thika. 2.2 Exogenous (External) Challenges.

An enterprise may be influenced by the external environment in which it operates. Some of the external challenges include industry or market competition, policy and regulatory framework, technology, the economic environment, access to markets, infrastructure, the political environment and security among others. 2.2.1 Competition

New competitors emerge all the time thus reducing the market share for existing entrepreneurs. As a result of this, MSEs face stiff competition from both small and larger enterprises. Thikas proximity to Nairobi City has caused competition from Nairobi- based enterprises as customers prefer to purchase from Nairobis larger enterprises. Further, the emerging shopping malls such as Tuskys Supermarket are affects small estate shops and kiosks as more customers prefer to stock the monthly major purchases from these bigger shopping outlets due to variety and other perceptions. Further small transporters (motorbikes, bicycles, and three-wheeled motorized vehicles) are losing their business to commuter vehicles which carry more passengers and charge less, due to improved intercity road network. 2.2.2 Unconducive Policy and Regulatory Frameworks

The Municipal Council and the County Council are mandated to regulate and licence businesses within their areas of jurisdiction. However, the licencing procedures are laborious, bureaucratic, tedious and duplicative. High licence fees are charged to some MSEs on daily basis and in some cases the Councils have had to demolish stalls owned by MSEs without notice. Other frustrations include confiscation of merchandise and dehumanizing treatment of merchants by the Councils. The large enterprises are not spared either for some complain of6

exorbitant council rates and cost of electricity. Together with this unpredictable government policies coupled with grand corruption, high taxation rates pose a great threat to the sustainability of businesses in Thika. Little interaction exists if any between the policy makers and the enterprises so as to pull a common understanding and goodwill in policy and regulation formulation and administration. 2.2.3 Poor Infrastructure

This includes roads, electricity, telephones, internet connection, water and access to markets. Infrastructure creates a conducive environment for enterprises to thrive. Although Thika is well served with good infrastructure, there has been a record of high crime incidences leading to the demise of some key entrepreneurs. Furthermore, the electricity supply is unreliable with frequent power rationing and blackouts results significant losses for entrepreneurs and some factories are incapacitated and unable to meet their production targets.2.2.4 Lack of Market Information

Enterprises in Thika especially MSEs who make the majority continue to rely on private and physical networks for market related information. Rural enterprises, largerly MSEs, are unable to interpret statistical data (Muteti, 2005). There are few or no linkages between MSEs and large enterprises to enable the MSEs to benefit in the value chains of various products. For example, small scale pineapple farmers of Kamwangi division cannot sell their produce to Delmonte and small scale coffee farmers of Gatanga constituency cannot sell their produce through Thika Coffee Mills. This means that large enterprises in Thika are delineated from small enterprises.

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The Political Environment

The 2007 Post Election Violence (PEV) displaced and relocated some MSEs and employees especially those working in flower farms to politically safer grounds. Although the reaction of the upcoming 2012 National Elections is not clear, the political undertones are clear as the region is predominantly pro current government and uncertainty is rife on what would be the outcome of these impending elections. The new constitution is also likely to bring about a lot of changes in the composition and structure of government and therefore policies affecting businesses after 2012 and the new constitution full implementation are very uncertain. 2.2.6 The Macro Economic Environment

There presently escalating inflation has affected the cost of fuel and other commodities. Employees are agitating for higher salaries and wages because of the high cost of living. Real estate developers in Thika have recorded a decline in sales of houses due to the high mortgage costs levied on their clients by banks which has been occasioned by the Central Bank of Kenyas review of the base lending rates. Furthermore, the cost of land in Thika has escalated rapidly making it difficult for entrepreneurs to purchase and develop land for business. In addition, the fluid performance of the Kenyan Shilling against the major World Currencies has affected many businesses that rely on imports for their inputs and supplies. In the international economic environment, there are growing concerns on quality of products originating from certain countries in the international market. This has resulted in the adoption of ISO certification and Eurep-Gap protocols for many industries in Thika. Quotas set by trading blocks are also limiting the exports and imports of commodities from certain countries.

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CONCLUSION AND RECOMMENDATION

Whereas the general environment in Thika is conducive to entrepreneurship, the MSEs are disproportionately constrained against the larger enterprises. It would be necessary for the policy framework to be proactively directed towards recognizing the unique challenges of MSEs such as the ones in Thika. Administration of Policies by the Local Councils should be friendly to enterprises, avoiding excessive ambition in revenue collection but creating a participatory approach to encourage more voluntary compliance as the enterprises realize value from revenue levied from them by the local authorities. A department for Business Development Services Support should be established in the Local Authorities offices to assist entrepreneurs in various services that would make nascent entrepreneurs easily start successful businesses as well as support those already running. So the government role should extend beyond regulation to facilitation of business. Training in managerial and technical skills for SMEs and setting up business information centres will improve the business management skills of entrepreneurs. Infrastructure services should be improved and zoning for businesses may assist in locating key infrastructure requisite to them.

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REFERENCES King, K. & Mcgrath, S., 2002. Globalisation, Enterprise and Knowledge: Education, Training and Development in Africa. Wallingford: Symposium Books. Kenya National Bureau of Statistics (2011). http://www.knbs.or.ke/detailed_population_results.php. Reviewed on November 25, 2011. Republic of Kenya (1992). Sessional Paper No.2. Small Enterprise and Jua Kali Development in Kenya. Nairobi: Government Printers. Wanjohi, A. (2008). Challenges facing SMEs in Kenya. http://www.buzzle.com/articles/challenges-facing-smes-in-kenya.html

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