Political Risk Management for Kenyan SMEs
The importance of the SME sector to the Kenyan economy is well documented but least appreciated in terms of arms length targeted service by major players in the SME eco system.
Case and point is the consistent loss of property through unexplained fire of traders at Gikomba market which is the heart of informal trade in Kenya. Although business support providers have a presence such as; at least seven financial institutions, insurance, county offices among other, traders are yet to reap any real benefits from them rather the equation is inverted. The support service providers are only takers meaning they collect fees, levies without providing significant real value to the traders.
The Kenyan SME sector continues to face systemic, cyclinic and ad hoc challenges. Systemic challenges are the traditional challenges of access to finance, unsupportive polices, access to market, access to information among others.
Cyclinic challenges are challenges that come after a certain period of time such as political risk and drought. Finally ad hoc challenges come up every so often such as natural disaster and possibly terrorist attacks.
Political risk is fast becoming a thorn on the flesh for most SMEs in Kenya and Africa generally. For example the period prior and after the 2017 Kenya elections upto until the famous handshake; SME in Kenya experienced business slowdown of which some are yet to recover from to date.
The situation is further compounded by heavy government local borrowing and delayed payment of its obligation to SMEs a situation leading to a mop up of liquidity in the economy at the same time robbing SMEs of cashflow ; the lifeblood of business.
Political risk for Kenyan SMEs in Kenya in 2019 is manifesting in the following forms; high levels of sovereign debt, state action to promote state owned companies or companies of high ranking government officials, referendum and national census.
SME have three tools at their disposal to manage these political risks. The first is insurance; insurance is critical for SMEs who have property and operate in hot spot areas where there is a high probability of insecurity during periods of political instability.
Second is hedging through product or market or business diversification. In simple terms SMEs can manage their business political risk for example by opening shops selling the same product in different counties (Market diversification ), setting up a business in a different sector or different county or countries (Business diversification ).
Third is retaining profits in first and second quarter of the year to be utilized during the lean periods of political uncertainty combined with business continuity and crisis management plans.
https://viffaconsult.co.ke/political-risk-management-for-kenyan-smes/