Kenya’s small and medium enterprises (SMEs) continue to be disadvantaged when competing for public sector contracts as government put in place various initiatives to reform the procurement system.

While access to Government Procurement Opportunities (AGPO) has set aside 30 per cent of public procurement opportunities for women, youth and persons with disabilities, other “disadvantaged groups” such as micro and small businesses have not been identified to benefit from such reservations.

A new study by the Kenya Association of Manufacturers (KAM) shows that while the organisation is looking to promote local manufacturing by prioritising local goods, the exclusion of SMEs undermines their growth potential. It says due to their role in creating employment and enhancing innovation, SMEs play a crucial part in the manufacturing sector.

“Their exclusion from public procurement opportunities could also worsen the marginalisation gap as smaller manufacturers will be sidelined and miss out on opportunities which are essential for the growth and sustainability of SMEs,” the Public Procurement Study report warns.

It is estimated that SMEs constitute 98 per cent of all businesses in the country, generating approximately 30 per cent of the gross domestic product (GDP). Kenya has an estimated 1.5 million registered SMEs and more than five million informal SMEs.

Speaking during the report launch, Industrialisation Secretary Erastus Gatebe the government has put in place various initiatives to reform the public procurement system.

These, he stated, include Local Content Policy, Public Procurement Regulations, access to AGPO which has set aside 30 per cent of public procurement opportunities for women, youth and persons with disabilities and Buy Kenya Build Kenya Strategy.

Unaddressed challenges

According to the report, despite SMEs’ major contribution, they still face a lot of unaddressed challenges including limited access to credit, inadequate managerial training, slow adoption to technology and its advancements, and stringent regulations and laws that hinder their growth.

The study also revealed that local manufacturers in the country lack a centralised register, emphasising the need for a national electronic register for them.

Additionally, despite there being laws and policies promoting the local industry, the context of local manufacturing and public procurement is still unclear with the manufacturers saying there is a great need to develop an agreed definition of local products.

“The definition of local supplier is confused with citizen contractor and the combination of shareholding for the purpose of applying margins of preference. There is also a challenge of confusing local suppliers with local goods, mostly that awarding a local supplier is synonymous with supply of local goods, when in fact there is no direct correlation because suppliers import goods,” read part of the report.

KAM also stressed the need to prioritise local manufacturers and products over foreign entities, disadvantaging them from bidding and winning public tenders.

Arshit Shah, KAM director noted that domestic producers find difficulties accessing government procurement opportunities because they are often unable to compete with foreign suppliers as they are generally perceived to be producers of inferior products compared to imports from developed countries.

“They are also unable to compete both in terms of price and quality from foreign goods, and they lack policy support to guide promotion of domestic consumption,” he added.