The government is developing a policy framework to ensure fair transactions between large companies and Micro, Small & Medium Enterprises (MSMEs) in the manufacturing industry to shield smaller players from exploitation.
The Ministry for Industrialisation, Trade And Cooperatives is developing a subcontracting policy which will govern contractual arrangements between large companies that source goods for their finished products and smaller local companies that supply them.
The government’s proposed guidelines will be shaped after the Japanese model that regulates the Asian country’s motor vehicle industry. Under the Japanese model, smaller companies provide brake pads, side mirrors and other parts for car giants such as Toyota, Nissan and Honda.
The business practice is widely regarded as a key source of productivity and efficiency for car and machinery industries in Japan.
Speaking during the launch of this year’s SME Fest at the University of Nairobi, Assistant Director for Industrialisation Matthew Nyamu said stakeholders were still in consultation and that details of the policy were still incomplete.
According to the Ministry, the larger players will provide a market for small and medium sized enterprises thus protecting them from being rendered obsolete by competition from foreign goods.
The move to create an official subcontracting blueprint is in response to lobbying from the Kenya Association of Manufacturers (KAM) whose membership of over 1,000 firms comprises 400 MSMEs. The body has been pushing for protection against delayed payments in the sector by setting a time limit within which the main subcontractor must provide a payment.
KAM reckons a conducive environment for subcontractors will see MSMEs meet rising local demand for goods and services, create jobs and increase the purchasing power of local consumers.
In more developed economies such as Japan, large companies are forbidden from refusing work from a subcontractor without reasons attributable to the supplier, delaying or reducing payments agreed upon and unjustly setting subcontractor proceeds below industry norms.
They are also barred from coercing a subcontractor to purchase particular raw products for goods if the final work meets set standards or punishing a subcontractor who reports unfair treatment to the authorities.
The large companies in turn are protected from demands of payments before delivery of goods or services or change in the content of work required.
The ministry expects that Kenya’s subcontracting policy will further encourage large manufacturers to contribute to capacity building in the sector through training programmes for small companies to ensure high quality of goods acquired.
Kenya is the most industrially developed country in the East African region. Manufacturing currently accounts for 8.4 per cent of the country’s Gross Domestic Product (GDP).