Should counties support local SMEs?
Following an article by Macharia Kamau in The Standard about Small ICT firms fearing that they may lose out in county contracts for providing ICT services for management of revenue collection, my colleague Kachwanya and I, Washington, had an online argument on the way the counties ought to go about the SMEs’ complains. I share with you our opinions and invite you to share with us what you think.
We are in a devolved system of governance in which counties are mandated to do own revenue collection in addition to the funding they receive from the national government and/or donor grants. Our laws, the Public Finance Management Act, requires that local governments come up with ICT systems that ensure transparency and efficiency in revenue collection and management. To this end, the counties have sent out invitations for Expression of Interest (EOI) to companies that can develop the required systems for the required management of revenue collection.
According to a report in The Standard, tech SMEs have expressed reservations on the framing of EOIs by the counties. The tech SMEs complain that the counties have stipulated conditions that favor the multinationals instead of giving local SMEs a priority.
“The EOIs have been designed in a manner that is hard for local small and medium firms… multinationals have bid for these jobs and given their muscle and the fact that they are looking for long term gain, SMEs might not have a chance,” said an official with a local firm.
However, the acting Kenya ICT Authority boss Victor Kyalo has said the chances are very high for small IT firms that are developing back-end solutions for county governments. “Everybody I have talked to seems to have a solution and there is a huge opportunity for companies to grow, if anything I see a situation where some companies will emerge in a huge way.”
At Kachwanya.com we apparently hold divergent views. I on the one hand hold that the counties are at a fragile stage that should not gamble by trusting SMEs and startups with big projects knowing very well that the startups are prone to failure. (Read: It’s not all bliss with startups when it comes to job creation). Kachwanya is of the contrary opinion. He holds that our national government and county governments are mandated to support our own as matter of first priority.
Here is the way I look at SMEs vis a vis big projects:
Are the tech SMEs justified in their complains? We know that most of the so called local tech SMEs are owned and managed by the youth. The Jubilee’s manifesto prioritized on the youth agenda and digital governance platforms in the run up to the general election. Consequently, they went ahead and launched the Uwezo Fund meant to help the youth and woman prosper in business and become self independent. Also, the Jubilee government has directed that 30% of all government tenders to be given to the youth. Despite these facts, the local governments have sent out EOIs for ICT infrastructure that are in favor of the big, well equipped multinational tech giants, and I think rightfully so.
As a country we need to prioritize on systems that work. It is okay to uplift the SMEs and startups by the youth but we cannot always do this at the expense of quality, reliability, and competence. The county governments, in particular, must look beyond local, national, and regional politics and ensure that policies, systems and structures they implement for the development of the counties are the best standards they can reasonably afford. If a small or medium enterprise is to win any tenders, then it must be because they justifiably meet the qualifications stipulated for the job at hand. We cannot afford to dish out tenders to SMEs or the youth merely because they pitch as local SMEs or youth/women.
Are the SMEs able to provide the necessary capacity for sustainable systems? Can they guarantee risks in case the systems fail? Are they able to provide competitive technical and administrative support for seamless operations of the systems? Are our counties able to withstand shocks that may result from system failures; systems of which do not have guaranteed warranties?
I would encourage the county governments to give priority to local firms (whether big or small) on the basis that they can provide the needed services that meet the requirements stipulated at the most cost effective rates. But in the event they do not get qualified service providers or suppliers from the local market, then multinationals are their only option. Just as the SME official pointed out, the multinationals have financial, equipment and capacity muscles that make them easily fit the bill.
The danger in giving tenders to local SMEs on the basis that they are local is that we will be gambling with the economy. The cost implications for mending systems that did not work are enormous. As the country is establishing the foundation of heightened economic development across the counties, we need to prioritize first in ensuring that the foundation is strong, stable, and able to support the development and growth of the county and national economy and in effect support startups and SMEs in general.
As you can read through the previous post of It’s not all bliss with startups when it comes to job creation, you will realize that in reality startups cause net unemployment given their failure rates. Since we do not have a viable system to evaluate whether the SME given a particular big project will be the lucky one to pull it off, we better entrust our resources to the multinationals to establish the county economies first then we can safely gamble with the SMEs later.
Kachwanya on the other hand hold the opposing view. Here is what he told me via chat:
I understand where you are coming from but I think you need to look at the bigger picture and understand that the country needs to embrace the local start-ups. And by this I mean not startups alone, even the other small businesses from other sectors need to be protected and nurtured to grow. I have nothing against Multinationals, but always feel that Kenya will achieve faster growth if the effort is put in place to help the SMEs grow.
The argument of quality always come come up but as country we can learn from what happened in the other parts of the world. For example China supported their own online search engine and social media site by enacting policies that locked Google and Facebook from accessing their market. If it were not for the policies that China adopted, Google and Facebook could still be the major players in that country too.And talking about the local situation, what is the function of a county or a country? To grow the economy, provide employment, and improve the lives of the citizens.
If the startups are supported, they will be able to provide the much needed employment opportunities for the youth. Although you have stated that generally startups create more unemployment that they do create employment, but when selected carefully, nurtured and given the required resources under suitable laws and policies then whatever SME selected for the county tenders shall surely prosper and grow into multinationals. As reiterated in The Standard, Victor Kyalo, the acting chief executive ICT Authority explained that local firms are set to gain as there is a likelihood that developing back-end solutions for county governments would prop up small IT firms into medium and even large enterprises.
I understand what you mean by gambling with startups and the high failure rates. But giving tenders to multinationals does not guarantee success either. You have to realize how expensive it is to get the reliable systems from the mulitnationals some of which do not work or are riddled with corruption; take the case with failed provisional voter tallying, the BVR kits, and Voter Identification kits that failed during the last general elections. IEBC gave the tenders to qualified multinationals but the systems still failed. At the end, there issue of quality but then there is issue of supporting the local startups. I would root for supporting local startups anytime and give them the capacity to provide quality products and services.
What’s your view?
Should counties give tenders to local tech SMEs as a priority or to Multinational tech giants?