Kenyan entrepreneur Joanne Mwangi has been in business for 19 years, running East African marketing firm PMS Group. Mwangi has worked with leading corporate companies in the region, but it was only four years ago that she started bidding for government contracts.
Although she has built a successful company, Mwangi says not doing business with the state for many years denied her big opportunities. Speaking at the recent Under 35 Multimillionaire Economic Conference in Nairobi, Mwangi urged young entrepreneurs not to limit themselves to working with the private sector only.
“The biggest spender in this economy will always be government so if you are not doing business with government it means you are already fishing in a pond when there is an ocean right next to you. This is the easiest way for you to actually become a multi-millionaire.”
Last year, the Kenyan government made it mandatory for at least 30% of government contracts to be awarded to enterprises owned by young people, women and people with disabilities.
The affirmative action will see these three groups gain access to billions of shillings worth of government contracts by supplying, for example, flowers and milk and delivering services such as cleaning, garbage collecting, event organising, couriering, taxi services, IT, photography and videography.
“For the first 15 years I worked with the private sector and serviced every blue chip company in Kenya. Yes, I made money. However, [corporates] are very profit driven. They push margins down, they demand the highest levels of quality, they stress you day and night and harass you… for a maximum of 10%, [and] if you are very lucky, 20% margin,” said Mwangi.
“On the contrary, [with government] you are able to make a margin of about 30%. Yes, they will also harass you and they will demand a lot from you, but for 30% margin I am ready to burn the midnight oil.”
Eunice Thirikwa Wafula, a director of IT services firm Talinda East Africa, says her first experience of doing business with government was not a pleasant one.
“For some time we actually avoided government because our first deal with government did not go very well. We had to wait for 18 months to get paid [and] after that experience we just decided to focus on the private sector,” she recalls.
When the government announced affirmative action last year, Wafula applied for a certificate and qualified for the Youth Access to Government Procurement Opportunities programme.
“We have been successful in getting some contracts. Government is the biggest buyer. Whether it is tissue paper, pens or photocopy papers, government buys more than any other organisation. At the end of the day there is more money to be made in doing business with the government.”
Wafula notes that it is critical for entrepreneurs to learn how government works and to understand the procurement processes and requirements.
“I have realised that if your concept makes sense and solves a problem, you will get the deal. I have not bribed anyone to get a job. If anything, I think private sector is more corrupt than the public sector.”
Have a varied client base
Danson Muchemi, CEO of online payment gateway JamboPay which has worked with several ministries and government agencies, says small businesses should diversify their clientele since payment for services rendered to government “can run into years”.
JamboPay was established five year ago and started doing government jobs two years ago. Today, state work makes up 20% of the firm’s portfolio.
“We started bidding for government contracts because we wanted to diversify our clientele and have a bit of stability. This year we have won government tenders worth KSh. 3bn (US$34m) and the reality is we would not get deals that big from private sector. It would happen but it would take a very long time.”
However, Muchemi says he, too, had some fears about working with government.
“I thought it would be hard and that there would be a lot of bureaucracy. The engagement with government is not well defined and documented. There were a lot of grey areas,” he says.
“Yes, it is harder to get government tenders but it is a misconception for young people to assume that they can’t get a contract because their business is small or it does not have a lot of money. You can do business with government from day one. You should start with smaller jobs, build a portfolio and take on the big guys.”