Legal Framework for Reversing the Waning Sustainability of SMEs in the Construction Industry Due to Payment Paralysis in Malawi and Kenya
Keywords:
SMEs, Construction, corruption, sustainability, contract, Payment paralysisAbstract
Introduction; Structural Adjustment Programs (SAPs) were introduced to the developing countries by the World Bank from 1980 to 2000, following a collective inability to service their loans. SAPs encouraged Governments to privatise non-strategic commercial activities, leading to emergence of Small and Medium Enterprise (SME) sector, taking 95% of trading entities; employing 40% of workforce in Sub-Saharan Africa. Unfortunately, many start-up SMEs in Africa fail within five years, inhibiting growth to compete with International SMEs particularly in the construction industry. This research was to identify the leading factor in causing failure of SMEs in construction Industry in Africa; case of Malawi and Kenya and develop a strategic framework to enhance sustainability of local SMEs. Methodology; Literature revealed twelve factors with negative impact on sustainability of SMEs. A questionnaire survey on 800 SMEs analysed with SPSS found that “payment paralysis” was the leading cause of bankruptcy to SMEs. Non structured interviews with 20No. failure cases and 5No. Policy/opinion leaders, to identify the major drivers of payment paralysis. Results; Delayed payments triggered “payment paralysis” which led the affected SME to bankruptcy. The study found major drivers of payment paralysis are Corruption, Weak Contract laws, Contract models permitting PEs to skew risks against the SMEs and high bank interest rates. Conclusion; A robust legal framework to bring order and fiscal discipline in construction industry involving enactment of laws which enhance sustainability of SMEs is urgently required. The research findings were shared in awareness presentations in Malawi, Zambia and Kenya. Positive results are manifest with “The Prompt Payment Bill 2020’ and others already prepared in Kenya.
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