A snapshot of the informal economy in Kenya

According to data from Kenya’s Economic Survey 2015, the informal sector employed 11.8 million people in 2014 against 2.4 million in the modern or formal sector. The informal sector which constituted 82.7 per cent of the total employment, created 693.4 thousand new jobs in 2014.

The informal sector has shown an upward growth in the last five years. The number of persons engaged in the informal sector grew by 6.2 per cent in 2014 compared to an increase of 5.9 per cent in 2013. More persons were engaged in rural areas accounting for 60.1 per cent of the total number of persons engaged. The number of persons engaged in urban areas increased by 18.9 per cent compared to a marginal decline registered in rural areas in 2014.

However, there still has not been a clear mode of operation associated with the informal sector in Kenya, a reason that often leaves them at loggerheads with established formal systems. A good example of this can be seen in instances where attaining proper documentation as pertains recognition of the activities they engage in by the formal economy, has made it difficult for their wholesome inclusion. A large number of these businesses grapple with issues of how to balance between paying for these licenses and retaining the money to plough back into their operations. This sector has activities which are associated with the formal sector as well as others which are considered purely as its own.

Some of the features that tend to differentiate the formal and informal sectors include;

Informal sector

  • Ease of entry
  • Reliance on indigenous resources
  • Small-scale of operation
  • Labour-intensive and adapted technology
  • Skills acquisition outside the formal school sector
  • Unregulated and competitive markets

Formal sector

  • Difficult entry
  • Frequent reliance on overseas resources
  • Corporate ownership of enterprises
  • Operation on large-scale
  • Capital intensive and mostly technology is imported
  • Skill acquired formally, mostly expatriate
  • Protected markets -through tariffs, quotas and trade licenses.

 

Contrary to the above categorization, the formal and the informal sectors relate and their activities interact. This has been accentuated by instances where workers from the formal sector move to the informal sector after acquiring skills and experience to start their own enterprises. The resultant hybrid sector thrives on innovation, a factor that has immensely contributed to the growth portrayed in the Economic Survey. The high number of unemployed graduates has also significantly impacted the growth of the informal economy as many are forced to find innovative ways to earn a living.

To maintain sustainable growth in this sector, there needs to be flexibility in the way government operates so as to accommodate and support a hugely untapped taxable avenue. Key issues that would have to be looked into revolve around the formalization and recognition of their business operations. That being said, given the proper support and plan, the informal sector in our economy will provide an avenue to the growth and development of indigenous industries.

litualex@gmail.com 

Informal Economy Analyst 

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