the 'invisible middle' - CiteSeerX

25th ISBA National Small Firms Conference: Competing Perspectives of Small Business and Entrepreneurship

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THE ‘INVISIBLE MIDDLE’: A CRITICAL REVIEW OF SMALL BUSINESS DEVELOPMENT AND THE POLITICAL-INSTITUTIONAL ENVIRONMENT IN KENYA

Judith Esuha and Denise Fletcher Nottingham Business School The Nottingham Trent University Burton Street Nottingham, NG1 4BU Telephone + 44 (0)115 848 6028 Fax: +44(0) 115 848 6512 E-mail: [email protected] and [email protected]

Paper presented at the 25th ISBA National Small Firms Conference: Competing Perspectives of Small Business and Entrepreneurship

___________________________________________________________________________ The ‘Invisible Middle’: A Critical Review of Small Business Development and the Political-Institutional Environment in Kenya


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Abstract Research in the less developed countries has clearly shown that small enterprises both in the formal and informal sectors have failed to evolve into medium-sized firms (Ferrand, 1999; GEMINI, 1991). Studies conducted in Kenya (Baseline, 1999, McCormick, 1988; Marris and Somerset, 1971) suggest inaccessibility to markets, capital, and management skills as some of the major constraints to the growth of small-scale enterprises in Kenya. The inability of smallsize enterprises to grow and graduate to medium- size has created a sectoral vacuum commonly referred to as the “missing middle”. The existence of this phenomenon across Africa underscores the need for further research in this area. Since small enterprises dominate the industrial scene in Africa, a better understanding of this sector can help in facilitating Africa’s industrialisation. There is also need for a better understanding of the adaptive strategies and transformation process of the successful medium-sized enterprises. This paper analyses four medium sized indigenous businesses in Kenya and highlights that the notion of the ‘missing middle’ in terms of small business development and growth is a misnomer. Indeed, business owners ‘manage’ the hostile political and institutional environment in order to successfully grow their businesses but they do this by adopting a mix of four approaches/strategies. These are ‘choosing markets carefully’, ‘keeping clean’, developing a ‘family culture’ and maintaining ‘low visibility’. This leads to the conclusion that the issue for small business development and growth in Kenya be more appropriately understood as the ‘invisible middle’. Key words: Political-institutional environment, missing middle small and medium- size enterprises, Kenya; Introduction: Business Development in Kenya One of the issues uppermost in the minds of Kenyans is whether the long-awaited economic recovery will be realised and whether the country will meet its target to industrialise by the year 2020. Statistics from the Central Bank of Kenya indicated that the country’s economic growth has been low, recording only 1.1 per cent GDP growth between October 2001 and February, 2002. The decline in economic growth coupled with a population of growth of over two percent has aggravated the poverty situation in the country. Besides, unemployment, dilapidated infrastructure, corruption, insecurity, declining donor resources and the high cost of production have exacerbated the country’s economic problems. Today over fifty per cent of Kenya’s population live below the poverty while a large number of Kenyan professionals are seeking better opportunities in other countries. Although, the Kenyan Government has tried to put in place measures aimed at increasing productivity and speeding up the industrialisation process, indigenous capital appears to be underdeveloped. ___________________________________________________________________________ The ‘Invisible Middle’: A Critical Review of Small Business Development and the Political-Institutional Environment in Kenya


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This paper seeks to contribute to the understanding the ‘indigenous missing middle’ phenomenon by exploring the effect of the political environment on four indigenous mediumsized companies in Kenya who have successfully achieved growth. In the first section, the debate about the ‘missing middle’ is elaborated. The second section of the paper discusses the role of the political-institutional environment for business growth and development in Kenya. The third section presents the research design. In the fourth section the field work based on four medium sized companies is presented and analysed. The analysis highlights how business owners successfully ‘manage’ the hostile political and institutional environment by adopting a mix of four approaches/strategies. These are ‘choosing markets carefully’, ‘keeping clean’, developing a ‘family culture’ and maintaining ‘low visibility. This leads to the conclusion in the fifth section that the issue for small business development and growth in Kenya be more appropriately understood as the ‘invisible middle’.

1. Barriers to growth of African -owned Enterprises: The ‘Missing Middle’ Debate Although the small business sector in Kenya has been growing rapidly over the past few decades, it is widely commented on that individual enterprises have not experienced much growth. The number of these organisations stands at over 1.3 million while private formal medium and large firms in Kenya are estimated to be 42,000 (Baseline, 1999). Despite the fact that Kenya has been independent since 1964, it is frequently cited that the indigenous formal business sector remains significantly underdeveloped. This underdevelopment is often been attributed to small- scale enterprises’ inability to grow and graduate to medium –size enterprises and strong barriers to direct entry in to the medium-scale private formal sector (the middle) – referred to as the ‘missing middle’. Researchers have come up with several explanations to the seemingly persistent existence of the missing middle in most African countries. In Kenya, for instance, the absence of the indigenous middle scale enterprises has been strongly linked to an essentially dysfunctional political economy. For example, Hiambara (1994: 160) argues that corruption and patrimonialism are “the leading obstacles to further wealth accumulation in the post-colonial Kenyan state”. A typical but sombre political problem in many countries in Africa has been the nexus between centralized political power and wealth. Thus, the weak yet autocratic state is often thought to undermine the development of private property and to convert key economic roles into political appointments, thereby distorting development and channelling the political priority into a quest for control of state patronage. This political autocracy has entrenched patronage politics rather than addressing these countries’ developmental needs. For instance, in many African countries, an indigenous firm can only grow up to a certain ceiling before top government officials or senior politicians demand a share in the enterprise. In essence, many of these countries the politicians are terrified of autonomous indigenous economic power centres. The fear is that those with economic power might use their economic power to oust them from office. Ironically, the large foreign and resident alien -owned enterprises are often exempted from this containment as they are perceived as “harmless”. Thus, they either lack political ambition or can be easily ___________________________________________________________________________ The ‘Invisible Middle’: A Critical Review of Small Business Development and the Political-Institutional Environment in Kenya


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expelled from the country if they behaved contrary to this expectation. Accordingly, those with material ambition do not go directly into business but instead seek to control the state in order to gain from the privileges associated with influential government/ political offices. Another area of concern is the fragmentation of the economic class into an ethnically based identity. Cowen and MacWilliam (1996: 136-137), contend that both the Kenyatta1 and Moi2 regimes created conditions which encouraged wealth accumulation on the basis of ethnicity. Such conditions would seem inimical to the development indigenous middle-scale entrepreneurs who depend critically on the effective performance of the state’s enabling role in the economy. An illustration of this line of reasoning can be found in the argument sometimes made, that the emergent Kikuyu business class was stifled3 more or less intentionally as a result of the consolidation of the Moi regime. Accordingly, Kalenjin political power could only be maintained by establishing corresponding economic strength both absolutely and in relative terms to the Kikuyu supremacy it sought to displace. Another dimension of the complexity of Kenya’s ethnic- based indigenous capital is the presence of a dominant Asian formal sector. Hiambara (1993, 1994) points out that through much of the Kenyan debate the question of indigenous Asian capital has been largely ignored. Similarly, most studies on Kenyan capital have often left out Kenyans of European origin despite the fact that they play a vital role in the country’s foreign trade. However, since the focus of this paper is on barriers to growth of indigenous capital, the minority capital dimension will not be explored further. Investigations into the constraints to micro-enterprises’ growth and graduation into the middle-scale have revealed a number of constraints. These include access to capital (Baseline, 1999; Ferrand, 1999: 84, Marsden, 1990: 18); the cost of associated with formalisation (McCormick, 1999); risks associated with capital accumulation within a single enterprise (McCormick, 1988, 1999) poor technology (Coughlin 1988). Others include managerial bottlenecks (Marsden, 1990; Marris and Somerset, 1971, McCormick, 1999: 153) weak linkages between different sectors (Ferrand, 1999:88; Coughlin, 1991; weak institutional environment (McCormick, 1999: 1536) and lack of competitiveness, (Marsden1990: 17). Despite what appears to be pro-indigenous policies by various African governments, the development of an indigenous African private sector - especially in the manufacturing sector- seems to be lower than expected. Thus, in addition to the general problems encountered by both indigenous and non-indigenous business owners- inaccessibility to capital, markets, good infra structure and security-the indigenous business owners face certain unique problems. Some of these problems are linked to their historical path, social structures and the political environment. In Kenya, the political-institutional environment is often cited as a major impediment to indigenous capital formation. In summary, the literature on Kenya contains no complete convincing explanation for the lack of the middle-scale enterprises. In this regard two major difficulties can be identified: First, the apparent lack of a theoretical framework which is able to draw together the various strands of evidence into a cohesive explanation. The second problem lies in the ___________________________________________________________________________ The ‘Invisible Middle’: A Critical Review of Small Business Development and the Political-Institutional Environment in Kenya


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scantiness of in-depth empirical studies into the middle-scale enterprises in Kenya. This paper seeks to contribute to this understanding by exploring the effect of the political environment on the emergence and growth of four medium-sized companies in Kenya. 2. Socio- political barriers to business development in Kenya A survey of sixty third and fourth students at an international university in Kenya in February 2002 revealed the following as the major socio- political factors hindering economic/ business development in both Kenya and the other African countries (see table below). Each student was asked to identify and explain at least five major socio- political barriers. Table: Socio- political barriers to business growth in Africa (Kenya) Socio- problems identified by the students 1. Political risk, civil unrest and insecurity 2.Corruption and weak legal frame work 3. Dependency syndrome 4.Poor leadership, governance and general mismanagement 5. Illiteracy and lack of technical skills (education system) 6. Poor policies and lack of policy implementation 7. Diseases and ‘epidemics’ 8. Negative impact of the colonial rule 9. Rapid population increase 10. Cultural beliefs, practices, values and taboos 11. Brain drain 12. Ethnic/ tribal diversity and division

Response (%)4 73 63 52 38 33 23 22 17 17 12 12 8

Source: Esuha, J. K. 2002- Unpublished. According to this survey, political correctness and connection is crucial to a businessman’s success. Business owners with political links enjoy privileges that are not easily available to an ordinary citizen. For instance, some of the respondents cited a situation where ‘politically- connected businessmen are able to acquire huge loans from banks even without collateral securities. Corruption was cited as the second major barrier. The respondents felt that these were a product of the weak legal framework, which could not assure people of fair judgement and justice. Kenya was ranked the fourth most corrupt country by transparency international last year. A further survey by the same organisation this year in Kenya ranked three government departments as the most corrupt5. The judiciary was ranked sixth among the most bribery-prone institutions. The survey concludes that, if corruption is eliminated, the overall salaries of Kenyans would increase by thirty percent. Corruption in Kenya had raised the cost of living by fifteen percent on households and up to 1.4 percent of turnover for companies. Corruption also was cited as the biggest barrier to business development at a regional conference in Kenya. During the conference, East Africa's ___________________________________________________________________________ The ‘Invisible Middle’: A Critical Review of Small Business Development and the Political-Institutional Environment in Kenya


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most respected Chief Executive Officer (Manu Chandria) said “ it used to be Toa Kitu Kidogo (give me something small), then it became Toa Kitu Kikubwa (give me something big) but today is Toa Kila Kitu (give me everything). Also studies by Marris and Somerset (1971, 1988) emphasised the sense of a gap between the traditional society of the indigenous entrepreneur and that of the modern capitalist. They point to such features as the perceived need to escape from the tradition obligations of kinship. Other social barriers have often been cited but lack empirical backing, such as, the burden of kinship obligations and the high value placed on the ownership of land or stock thus’ potentially diverting resources from expanding a capitalist enterprise. In examining how some indigenous business owners have succeed in what is perceived as a hostile environment to indigenous formal businesses, we concur with Kilby’s observations: Kilby (1988) identifies four groups of activities, which an entrepreneur must undertake within a small or middle-sized enterprise. These include managing exchange relationships, political administration, management control and technology. However, in the case of Kenya, Kilby concludes that the major source of difficulties in the enterprise was in the area of management control and technology. He argues that these weaknesses could be traced to social structure such as an absence of transmutable antecedent roles and inhibitory social structures. In his conclusion, he blames the failure of the small-size enterprises on the lack of continuity between social structure associated with traditional means of production and those associated with capitalistic enterprises. In this paper however, managing the political-institutional environment is emphasised.

4. Research Design This study adopted an interpretative approach (Burr, 1995) in order to examine the meanings and interpretations of the owners of the four focus enterprises. The study adopted an embedded multiple-case design (Yin, 1994) focusing upon the four business units as the primary units of analysis. As the study explored the extent to which the political environment impedes the development of the indigenous medium-size sector, the field work focussed on indigenous successful medium-size enterprises that started small but experienced rapid growth over the post independence period (1963-2002). In order to explore comparative patterns, the four businesses were selected from different trading sectors. In each of the four selected enterprises three areas were explored: the entrepreneurs’ profiles and success strategies; critical incidents of business success and their perception of the political environment as an impediment to the growth of business. The case study enterprises were selected from an initial sample of fifty successful indigenous enterprises that were used during the pilot study. Selection of the four enterprises was based on accessibility and credibility of the information given. The case study information was collected through in-depth interviews. These interviews were supplemented and compared with other materials such as documentary ___________________________________________________________________________ The ‘Invisible Middle’: A Critical Review of Small Business Development and the Political-Institutional Environment in Kenya


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evidence and real setting observation. However, access was one of the major problems encountered in the data collection process. As this study seeks to create an understanding as to how some indigenous businesses have been successfully able to manage the barriers to the emergence of an indigenous formal middle, the main research questions are as follows; 1. Do you think the current political environment in Kenya is conducive to rapid business growth? Please explain your answer. 2. Please list (starting with the most pressing barrier) some of the socio- political barriers to business growth in Kenya 3. Show how you successfully managed to overcome each of these barriers and managed to grow? 4. Do you think patron client relationships exist between politicians and business interest groups in Kenya? If yes, do think this is partly to blame for the underdevelopment of the indigenousformal sector? Please explain. Background information of the four successful indigenous owner- managers The four case- study enterprises varied in terms of annual turnover, number of employees, major products and management style, however, they shared one common thing; they started very small but had managed to overcome the barriers to indigenous businesses and had grown. This part of the paper examines and analyses the factors that led to the growth of these four enterprises in an environment that is perceived to be hostile to indigenous businesses. In particular we examine what the owner-managers say about the Kenyan political environment and the survival strategies. Below are statements about how these entrepreneurs started their businesses (also refer to the appendix for more background information). Owner- manager A “I started

business in high school. I used to buy scones at a whole sale price and resell them to the other boys at a retail price, making a 50% profit. Later on I began lending other students money at an interest. Real business began when, I was in the university; I used to buy options from people intending to sell their property and would resell the property at a higher price than what the owner wanted. When I graduated from university I was employed in the Ministry of Trade and Industry. After working in this place for sometime, I soon realised that I would not ascend to the top as quickly as I had desired. I opted to take up post-graduate studies, in order to accelerate my promotion. I went back to the University of Nairobi, but later transferred to IMEDE (now IMD) Laussane, Switzerland, and completed my MBA in 1978.



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When I came back home, I was promoted to the position of Assistant Director of Industries. However, after obtaining the MBA, I realised I wanted to do big things, I looked at Kenya and thought capital would be an important commodity in the market. At the age of 33 (1980), I took early retirement from civil service and launched my own bank. I soon realised that the market was still sceptical about Africans getting involved in banking! Even the local people were very sceptical! In 1986, my banking career came to an abrupt end, due to the change in capital flow in the country. The banking crisis led to a takeover and consolidation of most of the small banks by the government. By the time of this takeover, my bank had grown from 1 to over 16 branches countrywide. To me this was the price of pioneering, the price I paid to become a more seasoned entrepreneur. After the takeover of my bank, I moved to stock broking business by buying off Dye and Blair Limited from Kenya Commercial Bank. At this moment, this company was making loses, but since my long term dream was to establish a financial services supermarket, I saw that in Dye & Blair Limited. I have been with this company for the last 19 years. Though, I do not consider myself a successful entrepreneur, other people think I have succeeded. Today I employ over 500 employees, with an annual turnover of over one billion Kenyan shillings (1 US dollar - KSh. 78). Owner-manager B “I started by selling insurance policies on the street, then I was hired by an international Insurance company to perform special duties- agency coordination. Later on, I was asked to train and develop agents for the company. And then, I was asked to develop an employee benefits division. I worked with the insurance company for five years in different positions. In 1976, I felt, what I was earning was not enough to sustain my family. I had lived in poverty as a child and I desired to give my family a better life. I also knew that my father was poor, not because he was lazy. My father worked very hard, and despite his hard work as a forest worker, we continued to live in poverty. I knew I could give my children a better future if I worked harder. My biggest role models were the Kenyan athletes who had come from very humble homes to become world beaters: I was convinced that was possible in other fields toonot just running. This gave me courage to confront the World. I quit the company and started my own insurance business. My turn annually turnover is over 1.4 billion Kenyan shillings”. Owner- manager C “I was in the banking sector, previously with an international bank for 32 years. Then when I retired, I went on to start a bank in partnership with three of my friends as shareholders” Owner-manager D “I first worked as an editor/ writer with a leading Kenyan magazine. While there I was forced by circumstances to automate my operations and in the process discovered there was little technology in Kenya to meet my needs. I tried importing this technology from abroad but it was very expensive. In the process I taught myself DTP programming and then data mining/ ___________________________________________________________________________ The ‘Invisible Middle’: A Critical Review of Small Business Development and the Political-Institutional Environment in Kenya


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communication. I was later employed by PriceWaterhouse to help them do what I had done for the magazine company and after working with them for five years. I set out to start my own business.” Findings: About the socio- political environment The owner- managers were asked a number of questions that were meant to address the major problem areas in running an indigenous business in Kenya. Due to the sensitivity of the research topic, some questions were included so as moderate the study and make it more acceptable to the respondents. However the main focus of this study was to explore the effect of the political environment on the indigenous businesses. Since political issues are often considered sensitive, the research questions included a social dimension which though not directly related to this particular study, was intended to make the questions more neutral and therefore acceptable to the respondents. In table below, therefore the responses in italics are more related to the political environment, while the others are not.

Figure: A summary of the findings

Company/ Questions

Company A

Company B

Company C

Company D

1. Do you think the current political environment in Kenya is conducive for rapid business growth? Please explain your answer.

No, in a system where appointment to key positions is not based on meritother things such ethnicity, sexism, nepotism etc. work. Such a system cannot boost business growth!

No, the answer certainly lies in the government’s reports on the country’s economic growth. Kenya’s economic growth has declined over there last few years. This is because the government has not put in place good policies

No, there are too many constraints; in particular dispute resolution is very slow. Corruption is also rampant. This slows down many other company operations.

No, there is a lot of uncertainty in this country. For example, one can never win a government bid on merit. In any case, they do not bid, they use corrupt means to determine the winner well before the actual bidding.

Besides resources are not utilised well, for instance allocation of natural resources

The government does not assist local/ smaller investors in any way- we lack

The judiciary system too is corrupt and one



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are not based on the highest return.

incentives. The government has compromised in a number of areas. For example, some of the cabinet ministers are actively involved in dumping cheap transit goods in the market, killing local companies, yet he is silent about this issue.

The government practices the politics of exclusion, if you do not support them; they exclude you from the national resources. As a poor country we need to practice the politics of inclusion- we should allocate our resources based on the highest returns.

can not win even a very genuine case. I lost 7.4 million Kenyan Shillings to a partner who defrauded me but up to now I have never found justice. I do not trust any lawyer and will never ask for their services ever, I will study law and represents myself in court if need be! This is a bandit country!

Our politicians have no sense of legacy, they do not care about the country’s future African families are larger hence hard to save for investment

2. Please list (starting the most pressing barrier) some of the socio- political barriers to business growth in Kenya

Corruption, dishonesty indiscipline, lack of self motivation,

I encounter very few such problems because I have put in place measures to counter them. However, I encounter some difficulties when dealing with Indians and Pakistanis- they are so closely knit and is very hard to penetrate them.

Corruption, high taxation, political scenario, poverty

Corruption, legal framework, low employee productivity



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3. Show how you successfully managed to overcome each of these barriers and managed to grow,

It is very difficultone has to put in place extensive measures- because one cannot afford to trust even some managing directors. This is very expensive and consumes a lot of the CEO’s time.

I understand my industry very well. I have been in this business for a very long time and I understand the market well. Over time I have put in place control mechanism that counter many of the problems business people encounter in their day to day business operations. For instance to stop theft of company property- I have ensured that my workers are treated well. I have given them one of the best working environments one can find in this country. I have also embraced technology and use it to minimize fraud and other such things.

I have remained clean thus stifling the growth of my company. It is hard to get anything moving without getting involved in a corrupt deal, so if you choose otherwise you have a price to pay- slower growth.

I’m in a high- tech industry and my choice is a deliberate one. This industry is complex and it would not be attractive to corrupt people who want quick easy money. This keeps them off and we are happy because this is what has made us succeed in business

Poverty is another major problem - it is very strenuous to make it in a country where most of the people are poor. There will always be pressure on you to help or bail out someone!

We also deal with few but large corporate clients and therefore we do not advertise. We prefer the low profile because it keeps us invisible to the predictors. If you advertise in this country you open up your company to all sorts of predatorsthe politicians, government officials, beggars and many other malicious people. We have a familylike organizational culture. We all truly care for each other. We work in teams and we are rewarded according to output.



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4. What traits do you consider essential for business growth in Kenya? Please explain

This varies with the size of your company. Smaller organizations require long hours of hard work, finding a good market niche, and good control mechanisms. But the large businesses require political connection, mental flexibility, ruthlessness, controlling costs, access to good credit and “low visibility”.

5. Do you think patron- client relationships exist between politicians and the business interest groups in Kenya? If yes, do think this is partly to blame for the underdevelopment of the indigenousformal sector? Please explain?

Yes, especially for the Kenyan Asian community. They pay patrons to secure contracts. However, P-C is not a popular strategy in our country, because it is a very expensive affair. The patrons here are more of predators and it is better to keep away from them

Ownership of the business idea you have in mind. You should have a passion for it and even be prepared to die for it. There should be no option called failure. I embrace the word of the James Baker, former USSecretary of State, Preparedness prevents poor performance. But the underpin to the 4P’s is discipline that is consistent and persistent; This wholesomeness is essential.

To lead by example and to encourage staff to work harder and remain loyal to the company.

Visionary, flexibility, understand the industry you are in, Entrepreneurial, relevance and superior work culture

Yes, most Kenyan Asians have enjoyed and benefited from political patronage. But,success depends ones ownership of his business idea, this success should be sustainable. Political connections cannot help without the competence to run the business.

Yes, business opportunities are passed on to relatives of powerful politicians or on ethnic basis.

Yes, there are bandits who will ambush anyone trying to succeed.



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Analysis of the findings There some empirical evidence that the political environment in Kenya is not conducive to the emergence and growth of formal medium and large-size indigenous enterprises. However, as depicted by the four cases above it is possible to run a successful business in Kenya. In this part of this paper we examine some of the winning strategies that have been adopted by these owner- managers. In particular, we will examine how these owner- managers have successfully ‘managed’ the political- institutional environment. The main political barriers cited include: !

Political appointments to senior government positions: The major worry was that such appointments, ultimately led to the mismanagement of public utilities that provide essential services such as electricity, water, and telephone services. There are no alternative providers since such services are under the government’s monopoly. This monopoly is at times used as a weapon against non-conforming business owners.

!

Politics of exclusion: The respondents also felt that the politicians were practicing a system in which those who do not support them are completely excluded from national resources, such as proper infra-structural facilities. This is meant to suppress anybody who might want to use his wealth to gain power. Thus, any non- conformist is intentionally stifled.

!

Politically motivated allocation of the country’s resources. Thus, the respondents observed that since the introduction of multi-party politics, politicians have often used national resources as an enticement for attracting votes. Thus, national resources are allocated, not on the basis of perceived return on the investment, but according to the anticipated votes from the area.

!

A weak and corrupt judiciary system: The respondents felt that the judiciary system is corrupt weak, and lacks the power to work without political coercion. Thus genuine contractual relations with clients are almost impossible and often business conflicts are slow and in most cases justice is not guaranteed.

!

Uncertainty emanating from the political environment. President Moi has announced he will be retiring this year. However, there is no clear indication on whether his succession will be peaceful, in view of an uncompleted constitution review.



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Indigenous Business Adaptation Strategies When asked how they have managed to succeed amid the hostile political environment, the owner-managers said they had devised a number of survival strategies. The following major strategies emerged: Figure: Successful Business Adaptation Strategies in Kenya

African Familylike organisational culture

Careful selection of markets barriers to entry

Strategies for managing the socio-political environment

Low visibility Keep clean

African ‘Family-like’ Organizational Culture This approach was evident in three of the cases the successful business. In these companies, the business owner plays a paternal role and is directly involved general well- being of his employees. He visits sick employees and pays for the medical needs, pays tuition fees to pursue further education and educates the employees’ children. These business owners felt that developing a family-like organisational culture was essential for the business’s success. Team work was often stressed and close supervision de- emphasised. Instead the employees’ performance was accessed based on the end results or set targets. The familylike atmosphere is evident to anyone visiting these companies. This strategy enhanced the quality of the companies’ product/ service delivery giving them a competitive edge in the market.



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Choosing Markets Carefully The respondents observed that industries that were high-technology in nature and complex attracted very few corrupt people. The reason is that corrupt people seek for easy deals and were reluctant to invest their money in ventures that have a long incubation period. Given the unstable political scenario in Kenya, few politicians would want to invest in long term ventures. To minimise risk it would seem attractive to them to go for easy entry and easy exit industries. Moreover, it would be easier to conceal corrupt deals in such industries. Another method under this strategy was to avoid markets where direct competition with foreign or alien resident owned was imminent. Keep clean Another approach is the ‘keep clean and avoid problems strategy’, under this approach the business owners strive to keep their operations as clean as possible. Both the company’s physical facilities and operations are kept spotless. In doing such business owners are able to seal loopholes that would otherwise be used by corrupt government officers against them. In the long run this strategy improves the company’s efficiency, in that it is able to deliver superior services/ products to its clients. Besides, since the company is perceived as a victim, it is able to benefit from sympathetic customers. Although this strategy helps to keep business owners away from the corrupt officers, it is said to stifle growth. The argument here is that if you do not ‘grease’ your transactions they will take longer to be processed. This is harmful to a company and can slow down its operations. However, it keeps the company away from predators. Low visibility The idea here is that the more visible the company is to politicians and other government officials, the more vulnerable it is. To reduce this vulnerability, indigenous business owners prefer to keep their business invisible. A number of methods are adopted under this strategy among them: dealing with few but large clients, not advertising in the mass media, entering an industry that deals with intangible products, diversifying into unrelated areas of business, jointventures with foreign companies or registering the company in another country. Most of these strategies are not unique to successful businesses in Kenya; however in Kenya they are not used competitive but survival tool. Under this approach, indigenous businesses adopt a low profile so as to keep ‘predators’ away. Although this approach has been used successful by a number of business owners, it has some potential shortcomings. For instance, it is not suitable for a business that targets a large consumer market. It may also make it difficult for purposes of tax revenue collection by the



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government. To some extend this approach explains why the indigenous middle in Kenya is invisible. Conclusion In this paper the literature commenting on the role of the political-institutional environment for indigenous business development in Kenya has been critical reviewed. Through interpretive analysis of four medium sized indigenous businesses in Kenya, it is concluded that the generalised notion of the ‘missing middle’ is something of a misnomer when evaluating small business growth. Indeed, it is found that business owners ‘manage’ the hostile political and institutional environment in order to successfully grow their businesses but they do this by adopting a mix of four approaches/strategies. The key strategy is one of maintaining ‘low visibility’ as a protective measure. The other successful strategies include ‘choosing markets carefully’, ‘keeping clean’ and developing a ‘family organisational culture’ This leads to the conclusion that the issue for small business development and growth in Kenya be more appropriately understood as the ‘invisible middle’. In terms of policy implications, perhaps a more enabling political-institutional environment might just be what Kenya needs to achieve its industrialization target. Appendix Company/ Questions

Company A

Company B

Company C

Company D

Age

53

53

62

43

Marital status

Married

Married

Married

Married

Educational qualifications

B.com, MBA, LLB

B.Sc., MBA. LLB

B.com

Information Technology

Major products

Financial services and stock broking

Financial services and insurance

Banking services

Programming services and training

Duration in the business

10 (19) years

26 years

10 years

10 years

Number of employees at the beginning.

1

3

8

1

Number of current

Over 500

55

38 (previously 51)

50 Permanent 50 Casual



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Notes

1

Kenya’s first President (1964- 1978). The late President was from the Kikuyu community

2

Kenya’s current President (1978 – 2002). He is a Kalenjin

3

According to grapevine in Kenya

4

Each student was required to list five socio-political responses starting with what they perceived as the most pressing one. The percentage of response was calculated bases on the number of students out of the total of sixty who listed it as a problem. E.g. 44 out of 60 students cited political risk, unrest and insecurity as a problem.

5

Sunday Nation, 'Revealed: Kenya list of Corruption' January, 19, 2002, no 12908

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East

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