How Kenya Can Turn Its SMEs Into Growth Engines Like Germany Did

I’m rather fascinated right now by a man named Ulrich Bettermann. In pictures, he’s an unprepossessing, old, somewhat overweight German man. There’s very little about him on the Internet in English, which is odd, considering the stature he has.

A jua kali artisan in Nairobi. Kenya needs its own support mechanism to grow the small and medium enterprises sector. Photo/FILE

A jua kali artisan in Nairobi. Kenya needs its own support mechanism to grow the small and medium enterprises sector. Photo/FILE

In case you’re wondering who Herr Bettermann is, and your German is not up to scratch, then listen up.

Ulrich Bettermann’s adventures read like they’re off a thriller, and for good reason. Remember the Russian businessman Mikhail Khodorkovsky? He was once the richest man in Russia, until he crossed Vladimir Putin and was then thrown into the gulag for 10 years.

When Putin released Mr Khodorkovsky abruptly last December, Mr Bettermann is the man who dispatched his private jet to pick him up in Russia and transport him to Germany. And this is not the only exciting moment Mr Bettermann has had.

The man who had requested for the jet was Hans-Dietrich Genscher, the former German Foreign Minister. Back in the 1980s, Mr Genscher and Mr Bettermann had been caught in accidental crossfire between Iranian and Iraqi forces in the first Gulf War, including their hotel being targeted by a Scud missile in the middle of the night.

The point about all this is not to illustrate how Mr Bettermann is an adventurer. It has to do with the nature of his day-to-day job, which is as chairman of a company known as OBO Bettermann.

It is a manufacturer of what it calls (in typical German fashion) ‘electrotechnical’ infrastructure. This sounds dull, but it has vaulted the century-old company to revenues in excess of 400 million euros (Sh48 billion), 30,000 product lines and offices and operations in dozens of countries.

It is the classic German ‘Mittelstand’ company, and the Mittelstand has been the engine of German economic growth for decades.

Many definitions exist about what companies actually constitute the Mittelstand, but there is agreement that the typical Mittelstand company will have revenues in the millions of euros.

They typically produce machine tools, intermediate goods (such as OBO Bettermann), and have a focus on producing for export. Many (including, again, OBO Bettermann) are family-owned, and focus on one product or line.

Many credit them for powering the German economic engine, and provide a large proportion of employment in the country.

Why is this important to us? Many have said that Kenya, and East Africa, needs to grow its small and medium enterprises, if we are to solve the vast unemployment crisis in the country and the region.

Not to blow our trumpet, but the Business Daily’s ‘Top 100’ makes a start in identifying and celebrating these companies, but what the survey does is just a beginning. For us to be truly competitive, we need to look at what makes Mr Bettermann and his ilk such formidable competitors.

The first thing is that these companies do not just compete at national or local level.

Many of them are global leaders in what they do, and they are the default choice for quality and precision.

Even when there’s cheaper competition (especially from China), companies such as Heidelberg (in printing) and Schoder GmbH (which produces precision engraving tools) are still global leaders.

Right sets of skills

Second, the German education system, with its emphasis on hands-on skills and apprenticeships, ensures that these companies get the workers they need, with the right sets of skills, training and experience.

The desultory manner with which we treat all aspects of our education fills economic planners with the shivers, as the education system becomes almost totally detached from the needs of the marketplace.

The third is the importance of longevity. OBO Bettermann is a 100 years old, and many companies in the Mittelstand are decades old. Such longevity (without distracting mergers and spinoffs) enable these companies perfect their craft, and innovate to an admirable degree.

The fourth lesson, which is a rather contrarian one, comes from Brazil. Brazil also has a legion of SMEs, which the government has tried to encourage.

However, what has happened is the classic case of perverse incentive. The government created a simplified tax system for smaller companies (similar to the KRA’s turnover tax for companies with turnover lower than Sh5,000,000). It helped bring lots of companies out of the shadows and into the formal environment, which was a huge success for the Brazilian government.

However, what it soon realised is that these companies were reluctant to get out of this bracket, which restricted the growth of the Brazilian economy and its ability to absorb a growing labour force.

Many countries are fond of extolling their SME sector, seeing it rightly as the source of growth and jobs. Few, however, have been as successful as Germany in actually supporting the sector.

Outside of rhetoric, the government supported the Mittelstand through a programme called Kurzarbeit (literally ‘short time work’), which enabled smaller companies keep workers through the recession, instead of having to lay them off to conserve competitiveness.

What’s clear is that Kenya and East Africa needs its own support mechanisms for these companies.

Maybe in a few years, the fascinating adventurer-cum-captain of industry will actually have been born in Machakos, not Menden.

– Business Daily