EFFECT OF EXTERNAL ECONOMIC FACTORS ON THE PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN NAIROBI COUNTY: A CASE OF SMALL AND MEDIUM ENTERPRISES IN KAMUKUNJI
Abstract
Purpose of Study: This study aimed to examine the impact of external economic factors—specifically interest rates, inflation rates, and exchange rates—on the growth and success of small and medium-sized enterprises (SMEs) in Nairobi County, Kenya.
Statement of Problem: SMEs in Nairobi County face significant challenges due to external economic fluctuations, with rising inflation, volatile exchange rates, and high interest rates increasing operational costs and limiting access to affordable financing. Understanding how these factors affect SME growth is critical to developing effective policy and financial support mechanisms.
Methodology: The study employed a purposive sampling technique to select SMEs from various industries in Nairobi County. Data collection involved structured questionnaires administered to SME owners and managers, interviews, and secondary data analysis from financial statements and economic reports. A mixed-method approach was used to analyze quantitative and qualitative data.
Results: The findings revealed that external economic factors significantly influence the growth and success of SMEs in Nairobi County, particularly in Kamukunji. High inflation rates increased operational costs, interest rate fluctuations limited access to affordable credit, and exchange rate volatility affected import costs and profit margins. These factors collectively constrained business expansion and financial stability.
Conclusion: The study concludes that SMEs in Nairobi County are highly vulnerable to economic fluctuations, which impact their financial viability and sustainability. Without proper mitigation strategies, these challenges could hinder long-term growth and success.
Recommendations: The study recommends that SMEs receive training on economic forecasting, financial management, and risk mitigation strategies. Additionally, government-backed credit programs, microfinance institutions, and subsidized loans should be promoted to enhance SMEs’ access to affordable financing and improve their resilience to economic fluctuations
Keywords: External Economic Factors, Performance
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