Effects of Inflation on the Performance of SMEs in Kenya

This paper aimed at assessing the impact of inflation on the performance of Small and Medium Enterprises (SMEs) in Kenya, focusing specifically on its influence on the export growth of SMEs. The study also sought to draw policy implications from its findings. The analysis utilized secondary panel data sourced from the World Bank Enterprise Survey for the years 2007, 2013 and 2018. The data source was chosen for its comprehensive coverage of relevant variables. The study employed the pooled regression model. Diagnostic tests conducted included tests for multicollinearity, autocorrelation, normality and stationarity. The study results revealed that contrary to the prior expectation of inflation negatively affecting the export performance of SMEs, a positive perception of inflation improved SMEs’ export by about 57.07%. It was further established that, holding all other factors constant, firms that used mobile money for supplier payments experienced a general decline of 0.84% in export performance. The study results further established that, in cases where firms opted for mobile money to receive payments from customers, their export value decreased by approximately 52%, contrary to the prior expectations of a positive link between digital payments and export performance. It was also established that using foreign technology licensed by SMEs increased SMEs export performance by 29.83%; however, having international certification to meet export standards declined SMEs export performance by about 31.19%. The number of establishments within a firm was found to have a significant influence on the study results, with an additional establishment marginally increasing export performance by about 8.18%. Lastly, the age of a firm also had some minimal influence since with an additional year, the export performance of SMEs increased by approximately 0.41%.