Small, medium and micro enterprises’ growth under the devolved system of government in Kenya

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A key argument supporting devolution reforms is that it can facilitate local economic development and therefore enhance SMME growth and productivity. However, empirical evidence linking devolution and SMME development outcomes particularly in developing countries are scarce. This study therefore explores how the devolved system of government outputs affect the business environment and the growth of SMMEs in Kenya through the lens of the soufflé theory of decentralization. A qualitative methodology was employed using a multiple case study design with six SMMEs from the wholesale and retail sector in Kenya. Data was collected through semi-structured interviews, documentary evidence and observation. Twenty six interviews were conducted with SMME owners, representatives of Business Member Organizations and subnational and national government officials. Data analysis was carried out using Atlas.ti version 8 software. This study deduced that the devolved system of government in Kenya failed to provide a conducive business environment thus limiting the growth of SMMEs in subnational regions. Unfavourable business regulations were identified as the key challenge affecting SMMEs in subnational regions, hence increasing the cost of doing business and limiting access to markets and resources. Further, contextual barriers such as corruption, limited administrative and fiscal capacity, poor political leadership, poor intergovernmental relations and public participation inefficiencies limited the subnational governments’ capacity to support and promote SMME growth. Therefore, the study made an empirical contribution by exploring how the political, administrative and fiscal dimensions of devolution affected the growth of SMMEs in a developing country context. Extant literature focussed mostly on the effects of the fiscal dimension on SMME growth outcomes in developed countries. Few studies employed a multiple case study method which provided an in-depth understanding of contextual issues that affected subnational governments in their quest to grow SMMEs in Kenya. The study also contributed to decentralization literature by proposing a theoretical framework linking the dimensions of devolution to SMME growth, hence extending the soufflé theory of decentralization. Previous decentralization studies primarily applied the theory in relation to rural development and service delivery outcomes
A thesis submitted in fulfilment of the requirement for the degree Doctor of Philosophy in Finance to the Faculty of Commerce, Law and Management, Wits Business School, University of the Witwatersrand, Johannesburg, 2022
SMME growth, Devolved system of government, Soufflé theory of decentralization, UCTD