Housing Poverty in Kenya

The challenge of offering affordable housing has for long been an uphill task for many developing countries. As at 2016, Kenya had 22,000 mortgages in the country of 45 million people. A report by investment and real estate firm Cytonn further notes that the low uptake in mortgages can be attributed to the high mortgage interest rates offered by financial institutions, which puts the dream of owning a home out of the grasp of many citizens. According to the World Bank, Kenya has a housing deficit of over two million units which increases annually by 200,000 units. Alongside this is the fact that nearly 61 percent of urban households live in slums.

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With one the pillars in the President’s Big Four Agenda focusing on the issue of affordable housing, efforts that look into how low-income earners can own decent housing have come to the forefront of government policy. Considering that about 90% of Kenyans are employed in the informal economy, it is timely that these strategies are being geared towards this segment of the population. In this sense, providing decent housing will be a step in the direction towards curtailing the growth of informal housing settlements, while at the same time reducing social inequalities.

One way of reaping the benefits of inclusive growth is by Incooperating this aspect to the Big Four industrialization pillar. In a quest to develop our manufacturing industries, it is crucial to integrate the building of housing for low-income earners around the different Special Economic Zones (SEZs) into the infrastructure plans of such projects. In this way, workers in these SEZs will be provided with an opportunity to own homes which they can pay for as they work. Further, integrating micro and small enterprises (MSEs) into the supply value chains will provide a means through which they can strategically bolster their incomes in a way that enables them to afford the houses. Linking infrastructure to industrialisation in this way will provide a means through which the affordable housing agenda can be met.

Another way of accelerating home ownership, particularly amongst low-income earners would be by channelling such efforts through cooperatives and more so, Savings and Credit Cooperative Organizations (Saccos). Seeing as these are bodies through which most informal sector participants operate, it would be a positive move for government to get them on board this strategy by incentivising them in a way that would enable these to offer housing loans at cheaper rates. This would strengthen the sources of affordable credit to low income groups. This is an avenue if pursued, would widen the reach of this program to those that desperately need this intervention.

Given the difficulty in accessing affordable housing in the country, the deliberate move by government to make this pipe dream a reality is one that will have a positive impact and contribute to the country’s economy by not only having multiplier effect on job creation in the construction sector, but also developing an ecosystem of services that will provide employment for those that serve the residents of these housing communities.


Informal Economy Analyst


Value Chain Development in the Informal Sector

A value chain is defined as the full range of activities that are required to bring a product or service from conception, through the intermediary phases of production and eventual delivery to final consumers. Value chains can be local, national or global, linking rural producers with traders and consumers worldwide. Their role in determining the quality and cost of a product and service cannot be overlooked for it is through them that effective competitiveness can be achieved.

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It is hence important to understand the role value chains play in the route to market trajectory of any service or product. Thus, a value chain analysis at both firm and sector level is key to developing strategies aimed at improving the competitiveness of a product or service. At the firm level, this sort of analysis would be important for formal businesses to understand how much informality is in their value chain, as this will help them pin point areas through which they can fine tune the process in a bid to achieve quality standards in a cost-effective manner. At a sectoral level, it would provide information as to where informality sits in each sector and thus give a better understanding of which sectors have the densest or least levels of informality in their value chains, with the view to increasing their overall efficiency and competitiveness.

Considering that sustained poverty coupled with subpar economic growth has continued to inhibit the growth in the demand of locally manufactured goods, relatively cheaper internationally manufactured goods continue to gain the local market share. In this sense, locally manufactured goods are limited in their competitiveness. For example, value addition strategies that target micro and small businesses would greatly improve the quality of locally produced goods. In its strategy on decent work in the informal economy, the International Labor Organization (ILO) proposes that one way of improving the sustainability of informal enterprises may be to link them in cooperatives where jointly owned input supply, credit and marketing services can be organised without compromising the autonomy of individual entrepreneur.

In markets that are dominated by very powerful players, small producers tend to be highly disadvantaged by being arm twisted into accepting lower income for their produce. A good example is in the agricultural sector where small-scale farmers have little control of market dynamics, hence cannot reap the full financial benefits due to issues such as the lack of proper storage facilities, market information and access to inputs. This leads to post-harvest wastage and losses brought about by hurriedly selling their produce at lower prices than if they had stored it for sale when demand is higher. It is with such issues in mind that the ILO stresses the importance of the improvement of value chain competitiveness, as it is seen as a powerful approach for generating growth and reducing poverty in developing countries, where roughly 75 percent of the population live in rural areas.

In a quest to integrate micro and small-scale enterprises into formal value chains, understanding their level of involvement in these is key to formulating policies and implementing strategies that contribute to the overall efficiency and competitiveness of locally manufactured products. This sort of analysis will benefit all the players along the value chain.


Informal Economy Analyst

The link between counterfeiting and the Informal Economy

Trade in counterfeit products is a thriving business in areas with large informal economies for consumers are presented with products at substantially lower price points than the original products. The issue of aspirational satisfaction is another major reason why a good number of clients in informal economies opt to purchase counterfeit and pirated products. Also, most of the customers of these products in informal economies are usually faced with substantial budgetary constraints. Interestingly, the hazards that are associated with such products rarely feature on the minds of these customers. While looking at the issue of counterfeiting and piracy, clients that purchase these products either do so knowing that the products are counterfeit or are oblivious to the fact that the products are fake.

(Source: https://www.rouse.com)

It is important to note that counterfeiting and piracy steals market share from legitimate businesses and undermine innovation, which usually negatively affects economic growth. Criminal networks and organised crime thrive via counterfeiting and piracy activities. It is not surprising that such groups target informal markets as a means to distribute their products, given that these offer them higher profit margins. Also, given the unregulated structure of such markets, they encounter a lower risk of detection. Another factor that makes these markets attractive is their large nature, which offers manufacturers of counterfeit products a huge market in which they can trade, given the intricate distribution networks that exist therein.

A report by the Organization for Economic Cooperation and Development (OECD) that delves into the economic impact of counterfeits and piracy raises some of the key concerns in terms of the effects that these products have and classifies these into different categories. I would like to concentrate on some of the socioeconomic effects, with a specific focus on criminal activities and employment.

In as far as criminal activities are concerned, the report makes the point that counterfeiting and piracy transfer economic rents to parties which are often engaged in a variety of illegal activities, including tax evasion and drug trafficking. It can be assumed that a portion of the rents is eventually used to sustain further criminal activity, in a corrupt and organised manner. While I tend to agree with this point of view, it is important to add that informal markets have for long been driven by a sense of micro entrepreneurship that has birthed innovative ideas and products due to the cut-throat environment under which they operate, with the view of trying to remain afloat. Seeing as most businesses in the sector operate in areas that are intricately intertwined with poverty, the quest to make a quick buck will push most of them to disregard intellectual property rights and opt to sell products that are in demand.

Counterfeiting and piracy affect employment by shifting jobs from rights holders to infringing parties, which is where a large part of the informal economy comes into play. The shift has implications for the welfare of employees as working conditions in the sectors where these activities occur are often far poorer than those prevailing in the recognised firms that usually offer their employees better terms of employment and adhere to health and safety standards. Although OECD raises a fair point in this sense, it is of vital to take into consideration the fact that unemployment is a scourge that is bedevilling developing nations. The shrinking availability of formal employment opportunities leaves even highly qualified graduates with little option but to venture into informal business that are a huge driver for pirated products due to their higher unit profitability.

While trying to unpack the issues that arise from counterfeiting and piracy, it is crucial to unpack these by looking at both sides of the equation. Understanding the drivers of counterfeiting from an informal sector perspective is key to finding viable solutions to this vice. For example, companies that manufacture cosmetic products can produce smaller package units that are targeted at informal markets. This would enable them to tap into the consumer demographic in such economies. This strategy has been successfully implemented by some multinational companies that manufacture household consumables. Seeing informal markets as part of the solution instead of the problem will immensely contribute to the strategy aimed at combating counterfeiting and piracy.


Informal Economy Analyst.

Gender Dynamics in Kenya

The Kenya National Bureau of Statistics in conjunction with Statistics Sweden launched a booklet called Women and Men in Kenya. The booklet represents indicators focusing on areas such as population, health, education, employment, domestic violence and Persons with Disabilities (PWDs). It notes that women provide 80 percent of Kenya’s farm labour and manage 40 percent of the country’s smallholder farms, yet they own only roughly 1 percent of agricultural land and receive just 10 percent of available credit.

(Source: https://www.leru.org)

Life expectancy in the country has gradually been rising for both sexes over the decades, with women tending to live longer than men. In 1969, the average figure stood at 51 years while the same was 47 years for men. Fast forward to 2014, that figure had increased to 62 years for women and 60 years for men. Further, the fertility rate between the years of 1989 and 2014 has seen a drop of almost 30 percent, with the highest fertility rate trends being recorded amongst married couples and those who have not attained any level of education.

In as far as health issues are concerned, non-communicable diseases, which are also reffered to as chronic diseases, are those conditions that are usually not passed on from one affected person to others. Some of the risk factors which are the main causes of these diseases include tobacco use, unhealthy diets, insufficient exercise and alcohol misuse. In Kenya, breast and cervical cancer are the leading cause of cancer deaths in women, and prostate cancer is the top cause of cancer deaths in men.

Overall, the enrolment in all levels of education is higher for men than for women. The report presents a regional analysis of the proportion of children not in primary and secondary school in the country. North Eastern region has the highest rates in this aspect, with an average of 60 percent of children in the region not attending school. Central region recorded the lowest rate with an average of 9 percent.

Disparity in employment between women and men still exists despite some improvement being seen in recent years. For example, in 2016 the formal sector employed 66 percent men or 1,685,000 people and 34 percent women which is 880,000 people. There seems to be a significant proportion of more men than women employed in majority of the sectors, such as the agricultural and the manufacturing sectors. It is only in the service activities that women generally represent a higher percentage of formal employment than men with a representation of 52 percent (66,000) as compared to 48 percent (61,000) of men in 2016. These statistics point to the fact that a majority of women are employed in the informal sector.

The report clearly points out that women aged 15 to 49 years tend to experience domestic abuse at least two thirds more times more than men. In as far as domestic violence is concerned, 57 percent of women who are or have been married experienced physical violence that was perpetrated by their current partner as opposed to 11 percent of men. Sexual violence for the same demographic stood at 56 percent for women, while the same figure was 37 percent for men. Also, men who experience this sort of violence are generally less likely to seek help.

Persons with disabilities (PWD) represent 3.5 percent of the total Kenyan population, with 51 percent of them being male while 49 percent are female. All in all, despite the steps that the government has taken to narrow the gap in gender disparity, there is a lot more that can be done to support gender equity and equality in the country.


Informal Economy Analyst

Integrating the Informal Sector into Government Policy

Given the most recent statistics on the Kenyan economy which indicate that the informal economy accounts for the lion’s share of job creation outside agriculture, it is important to gain a deeper understanding of the sector dynamics. As per the Economic Survey 2017 released by the Kenya National Bureau of Statistics, the economy created a total of 832.9 thousand new jobs. Of these, 85.6 thousand were in the formal sector while 747.3 thousand were in the informal sector. The share of new jobs created in the informal sector represents a 5.9 percent growth from 83 percent during the previous year, to 89.7 percent or 13.3 million people.

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The sector has sub sectors that fall into three main sub categories, namely agriculture, services and manufacturing. In line with the government’s big four agenda, it is imperative to align and in cooperate the informal economy into this strategy in a way that enables businesses in the sector to reap the benefits of the economic empowerment program. The step taken to merging the Youth, Women and Uwezo Funds into the Biashara Fund is a plausible move in that, if properly managed it will enhance the coordination of activities aimed at supporting micro and small enterprises.

In as far as the manufacturing agenda is concerned, the jua kali sector which employs wood and metal work artisans, should be at the forefront of target initiatives. Efforts to ensure that issues such as standardisation of their products and access to wider markets should be addressed. Also, improving their working spaces and conditions will go a long way in making sure that they can attract more clientele to their premises, as well as minimise work related hazards. Implementing skills upgrading programs are one way to deal with the low levels of productivity in this sector. Further, both county and national government need to work through the various micro and small enterprise associations to sub contract them for projects by prioritising them in tendering processes.

The agriculture sector is not only important for the provision inputs in the form of raw materials for various industries, but is also the cornerstone that would ensure that the goal of achieving food security is achieved. For any meaningful progress to be attained, interventions for this sector should be channelled through existing cooperatives and Saccos to target the provision of farm inputs such as seeds and fertilizers, extension and training services, marketing, including processing, consumer services such as local shops, credit and sharing of farm machinery.

The importance of working through these bodies is that since most of them comprise membership of small scale farmers, the government will reach this crucial segment of the Kenyan populace in a way that enables them to improve their livelihoods. These cooperatives are a vital go between in that they increase the negotiating power with market intermediaries, improve post-harvest services, provide marketing logistics and information, facilitate investment in shared structures such as processing plants, bulk purchase of farm inputs and most importantly, facilitate micro-credit schemes. They are also an important link in growing the demand and supply value chain.

The emerging commonality in the approach that should be taken in addressing the engagement of the informal sector by the different levels of government is that of working through their associations. For effective implementation of the various programs to occur, pre-qualification processes would have to be carried out. These bodies ought to be readied by being taken through capacity building initiatives in the areas of financial skills such as book keeping practices, technical skills upgrading as well as sales and marketing skills. By propping them up in this manner, they will not only be better placed to qualify for and absorb the funds that are channelled in their direction, but also exponentially develop the individual business entities of their members.


Informal Economy Analyst



The Politics of the Informal Economy

The informal economy has gradually been growing in size over the past few decades. The sector is a significant part of economies in developing nations, especially those in Latin America and Sub-Saharan Africa. In some parts of these regions, it accounts for up to 90% of the employment demographic and contributes up to 40% of GDP in others. While these statistics may look appealing at face value, a deeper understanding of the dynamics within the sector present a different picture.

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At face value, the statistics on employment can easily be misconstrued as a representation of positive social development. In reality, a majority of those that are engaged in informal businesses venture into it due to the lack of options to earn a living. A commonality in the regions where the sector is a prevalent feature of national socio-economic parameters, issues such as a shrinking availability of formal employment opportunities as well as the high levels of poverty and inequality are prevalent.

Some factors that keep those that are engaged in the sector trapped in informality include poor access to finance that would facilitate the scaling of their businesses, the application of low level skills without upgrading these over time which affects their productivity and the lack of properly structured business records. A big percentage of business owners in the sector remain caged in poverty cycles which inhibit their graduation into prosperity. In this ecosystem, the status quo upholds a scenario whereby cheap raw materials and human resource are available for established formal enterprise.

It is interesting to note that myths about the informal economy are based on issues such as governance and taxation. One such misconception is that informal businesses are plagued by a lack of regulation. Most informal businesses operate through institutions whose basis of operation revolves around interest groups around which they tend to organise. In a policy brief paper, the Netherlands Institute of International Relations clarifies this by pointing out that the informal economy can be understood as an alternative mode of economic governance outside the state. The term “hybrid governance” is used to provide a more accurate depiction of actual economic governance in the sector, whereby the state has no exclusive regulatory authority over economic activities and non-state institutional arrangements provide a form of economic order.

Also, the myth about taxation of informal enterprises is that they do not pay taxes. The institute further acknowledges that cases of informal taxation of small traders exist whereby they pay a ‘special fee’ in return for a lower tax or protection from harassment by state agents such as customs officials or police officers. In Kenya, this scenario presents itself in cases where small traders pay cess fees to county governments under which they operate.

All in all, the informal sector is one that is seldom understood and often misrepresented. This can be attributed to its neglect by the governments under which it operates, mainly due to the fact that a majority of those that are engaged in the sector mostly consist of the financially disempowered members of the society. It is imperative that the interventions aimed at supporting this crucial sector of the economy are streamlined into public policy. Implementation of such strategy will provide a solid foundation upon which sustainable economic empowerment and financial inclusion can be achieved.


Informal Economy Analyst

Jobless Growth in Africa

Despite the fact that East Africa remains the fastest-growing sub-region in Africa with an estimated growth of 5.6 percent in 2017, up from 4.9 percent in 2016, it still grapples with low job growth rates. The African Economic Outlook 2018 by the African Development Bank Group (AFDB) further notes that it is imperative for sustained economic growth to create jobs which positively impact poverty reduction and lead to more inclusive growth.

(Source: https://www.afdb.org)

According to the report, the combination of high economic growth and low job creation has given rise to the claim that Africa is experiencing jobless growth. The findings of the document point to the fact that in the last decade, faster-growing countries in Africa actually generated fewer jobs than countries that grew more slowly. The slow job growth has mainly affected two demographic groups; women and youth aged between 15 to 24 years. Estimates of African population data indicate that it had 226 million youth in 2015, a figure projected to increase 42 percent, to 321 million by 2030. Its labour force is also projected to rise from 620 million in 2013 to nearly 2 billion in 2063.

In an effort to sustainably reduce poverty, economies must create more productive jobs, which are better remunerated and better-quality jobs. For this to happen, AFDB recommends that countries engage in structural transformation, which is a process whereby capital and labour is shifted away from low-productivity sectors toward higher-productivity sectors.

Structural transformation has encountered slow implementation due to a couple of reasons. First, the agricultural sector remains the dominant source of jobs in Africa, accounting for about 51 percent of employment in these countries, most of it in subsistence agriculture. The document highlights that almost 84 percent of Africa’s poverty is a result of employment in agriculture and services sectors. Second, the shift to manufacturing has been focused toward a comparatively small sector, which has the third-lowest relative productivity level after agriculture and services. Also, the labour resources that left agriculture have shifted toward wholesale and retail trade, much of which is characterized by low-productive informal activities.

As per findings of the report, the informal sector remains a key source of employment in most African countries, accounting for approximately 70 percent of jobs in Sub Saharan Africa and 62 percent in North Africa, with 93 percent of all job growth in Africa in the 1990s being accredited to the informal sector. The last factor that has slowed down the implementation of structural transformation is the fact that the public sector has generally been the main source of higher-paying formal sector jobs in many African countries. Fiscal constraints and demographic change have combined to limit the future scope of the public sector as a driver of formal sector employment growth.

One key policy recommendation that was proposed on the way forward as a priority for African governments is to encourage and embrace a shift toward labour-absorbing growth paths. In this sense, they should put in place programs and policies aimed at modernizing the agricultural sector, which employs most of the population and is typically the main step toward industrialization. A second priority is to invest in human capital, particularly in the entrepreneurial skills of youth, in an effort to facilitate the transition to higher-productivity modern sectors.

In as far as reversing the fortunes of the manufacturing sector, it is proposed that emphasis should be placed on light manufacturing, which is typically considered key to job creation in Africa. Doing so requires developing export capacity, given the continents small domestic markets. The interrelated nature of agriculture and manufacturing is crucial to achieving job creation as both are labour intensive. In the highly heterogeneous service sector, the way forward is to develop modern services while improving the productivity of informal activities.

Seeing as informality is a key component of African labour markets in that it accounts for an estimated 50–80 percent of GDP, 60–80 percent of employment, and up to 90 percent of new jobs on a continent where more than 60 percent of the population performs low-paid informal jobs, policy makers should avoid burying their heads in the sand and recognize the diversity and importance of the sector as a profitable activity that may contribute to economic development and growth.


Informal Economy Analyst.