Discontinuity in development: Kenya’s middle-scale manufacturing industry

Abstract

This thesis concerns middle-scale enterprise and economic development, focussing on the case of Kenya. The distribution of industry in Kenya is characterised by an apparent underdevelopment of middle-scale enterprise compared with micro- and large-scale, a feature frequently referred to as the 'missing middle'. A further distinctive feature of Kenya's middle is the relatively strong involvement by entrepreneurs of Asian origin. The immediate objective of this thesis is to produce a better understanding of these phenomena, argued to be highly relevant to Kenya’s wider economic development. To understand the position of the middle in Kenya, a new concept frame is put forward based on a broadly institutional approach drawing on both new and old institutional economics. This frame sees the potential for middle-scale enterprise in terms of the economic and social context, with formal and informal institutions playing a role. The notion of discontinuity is introduced to describe interactions between elements of structure which produce an adverse exchange environment for enterprise. It is argued that Kenya has a generally hostile environment for middle- scale enterprise, characterised by discontinuities and uncertainty. Entrepreneurs from Kenya's Asian communities are able to escape these generic problems by use of informal social institutions, accounting for their relative success. Evidence from cases studies of middle-scale enterprises owned by Kenyans of both Asian and African origin, together with secondary data, broadly supports the argument. There are strong indications of discontinuities between large and middle- scale enterprise and within the formal institutional environment. Asian entrepreneurs are observed to rely heavily on informal social institutions to facilitate exchange. Such an option does not appear open to aspirant African entrepreneurs. Supporting the development of Kenya's middle-scale will necessitate addressing the discontinuities undermining its development. Simple deregulation and market liberalisation will not suffice.