Growing Informal Sector is Driver of Kenya’s Job Market

The informal sector acts as an important shock pillar for Kenya’s economy gripped by a fairly lengthy period of sluggish jobs and income growth.

It employs a significant amount of the people who are supporting the majority of the households in the country their purchasing activities of the various household consumables and capital goods significantly contribute to the Value-Added Tax.

The sector contributes in excess of 35 percent to the Gross Domestic Product and employs close to 80 percent of the workforce.

It includes home businesses, domestic workers, street vendors, small-scale artisans, car repairs, bakeries, and livestock traders and the sector makes a huge contribution to the economy.

According to the Kenya National Bureau of Statistics for 2015, the economy generated a total of 841.6 thousand jobs of which 128.0 thousand jobs were in the modern sector while 713.6 thousand were in the informal sector, during the period under review.

The main challenge is how they contribute to taxation and are policy makers noting the sectors contribution.

It is disheartening that Nairobi’s Commercial Court ordered hawkers operating from the city centre to designated places within the city statin that they cause immense suffering to other street users.

Chief magistrate Peter Muholi further dismissed cases filed through the street vendor’s lawyers to bar the county officers from interfering, harassing, intimidating, unlawfully arresting or confiscating the hawkers’ goods or items while at their designated areas at plot zero.

This is not the first time such orders have been issued.

On July 13 2016, Nairobi County formed a sub-committee tasked with restring order and sanity in the central business district. A crack down on informal sector.

Subsequently, 500 Inspectorate Officers and 100 have been enrolled to its fire brigade team to meet the demand for city Askari’s to deal with the spiraling number of hawkers within the central business district.

The training will commence in early December and run up to March next year before the officers are deployed in various parts of the city.

However, the County Secretary Robert Ayisi is on record stating that there is no alternative location to place them.

Evans Kidero the Nairobi County Governor, they are expanding the existing markets, renovating others and constructing new ones to accommodate upcoming informal businesses. “Most people do not seem to appreciate the magnitude of the unique problems we face in this county. The numbers trooping to this city in search of opportunities are overwhelming to services that we can afford for them,” he said.

The county has 43 markets run on rental, tenant purchase, site and service scheme and open air terms such as Wakulima market, Gikomba, Muthurwa, Kangemi and Kawangware.

In contrast to the developments aimed at curbing the soaring numbers of street vendors in the city, the UN-HABITAT Global Campaign on good urban governance is the ‘Inclusive City’. The campaign advances the position that an inclusive approach must be used for balancing, reconciling and trading off competing interests and priorities. In most cities, the interests of micro and small enterprises such as street and informal traders are competing with those of medium and large-scale enterprises, with the former being disadvantaged.

“Urbanization provides the potential for new forms of social inclusion, including greater equality, access to services and new opportunities, and engagement and mobilization that reflects the diversity of cities, countries and the globe,” according to the Issue paper on inclusiveness.

The Bellagio International Declaration of Street Vendors of November 1995 urged governments to develop national policies for hawkers and vendors by making them a part of the broader structural policies aimed at improving their standards of living by giving them legal status, issuing licenses and providing appropriate hawking zones in urban areas. The declaration further called on governments to integrate vendors into urban development plans.

Dr. Chris Kirubi says, “While the obvious contributors to the fastest growth of Kenya’s GDP would be attributed to macro-economic factors like political stability, exponential growth of the technological landscape, a robust and growing economic environment among others, it is important to note that the growth of the small medium and micro enterprise (SME) sector has contributed to an almost exponential growth of our GDP.”

“Consequently, out of these sentiments comes a stalemate, and the country continues to grapple with increasing poverty and staggering numbers in unemployment. There are, however, several ways through which we can bridge this gap and create working synergies between, government, corporations and MSMEs. The most important tool to equip these businesses and government with is Knowledge,” says Phylis Wakiaga, Chief Executive of Kenya Association of Manufacturers.

“More than that, we must create an enabling environment for these businesses. If we look at the recently unveiled Kenya Industrial Transformation Programme by the Ministry of Industrialization and Enterprise Development, special attention is given to the role of MSMEs in catapulting our country to reach its industrialization goals. One of the ways we can do this is by using a sector-specific approach to elucidate the full-potential of these businesses and then leveraging our networks, as private sector and government to open-up their access to various markets,” she adds.

“To what extent does Ease of Doing Business research reflect improvements in the business environment for informal businesses? Parameters such as increased ease with regards to tax compliance and business registration inform Ease of Doing Business performance, yet these are parameters with which informal businesses largely do not intersect,” Anzetse Were, a development economist reflects on.

Terence Jackson, Professor of Cross-cultural Management, Middlesex University says, “Today the informal economy appears to be as important as ever to Africa and its future development. But governments, and international organisations like the World Bank and ILO, do not like the informal economy. As a result, international policy has veered from supportive to antagonistic.”

The Kenyan National Bureau of Statistics (KNBS) The Micro, Small and Medium Enterprises (MSMEs) 2016 survey noted that while majority fall within the informal economy based on their size, location, ownership, status of formality and economic activity, together, as major job providers, they produce a significant share of total value added, and provide a large segment of the poor and middle-income populations with affordable goods and services.

“The value of the MSME’s output is estimated at KSh 3,371.7 billion against a national output of KSh 9,971.4 representing a contribution of 33.8 per cent in 2015. In terms of gross value added, the MSME are estimated to have contributed KSh 1,780.0 billion compared to KSh 5,668.2 billion for the whole economy,” according to the survey findings.

While the participants in the informal sector are characterised by: absence of official protection and recognition; non-coverage by minimum wage legislation and social security system; predominance of own-account and self-employment work; absence of trade union organization; low income and wages not transferred through the banking system; little job security and no fringe benefits from institutional sources.

For Kenya to enjoy maximum benefit from the informal sector, there is need to better understand their characteristics and tame these for the benefit of the country. Activities that are undertaken in the informal sector are usually characterised by unregulated and competitive markets; small scale operation with individual or family ownership; ease of entry; reliance on locally available resources; family ownership of enterprises; labour intensive and adapted technology and absence or limited of access to institutional credit or other supports and protections.

It might be prudent for the Nairobi County to lead the rest of the counties in adopting proposal of the ‘Charter for a Street-Trading Friendly African City -Steps that African Mayors can take to embrace inclusive and sustainable street trading management.

Proposed by the Save the Hawkers Campaign, Johannesburg’ in recognising, supporting and developing informal trading.

The Charter Proposed by the Save the Hawkers Campaign, Johannesburg, proposes a set of principles, processes and institutions to guide city leaders towards practical steps they can take to better manage street trading in African cities.

Among the proposals include: Turning the approach around- from wishful thinking to taking stock of the African reality, a condition for efficient management and Recognising and resource an independent Informal Traders Forum – empowering traders to make independent strategic inputs into policies and implementation.

There should be increased platforms that can impart relevant skills like SME expo, training, networking opportunities, government tender process, open days, exchange programs among others. If we collectively strengthen the SME sector, our nation’s foundation will be growing a little more secure.

“We need to start thinking of inclusive strategies in order to step out of the endless loop-hole in which we find ourselves. Our diversity in business will, in the end, be our saving grace,” says Wakiaga.

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