Small and Medium Enterprises and Devolved Government System: an Assessment of the Regulatory and Institutional Challenges Affecting the SMEs Development in Kenya

According to the UNCTAD Secretary General in 2006, small and medium enterprises (SMEs) are considered as sources of employment, competition, economic dynamism, and innovation. SMEs have the capacity to achieve rapid economic growth, while generating a considerable extent of employment opportunities (Reddy, 1991:2).The importance of the SMEs in Kenya was first recognised in the International Labour Organization report (ILO) in 1972 on ‘Employment, Income and Equity in Kenya’ (ILO, 1972).The report underscores the SMEs as engines for incomes and employment growth. The SMEs create close to 80% of Kenya’s employment (African Economic Outlook, 2011 report2). While the SMEs subsector constitute close to 80% of employment, it only contributes to about 20% of the GDP. This implies that the SMEs subsector has been performing dismally despite its potential contribution to Employment, income and equity in Kenya.