Earlier this month I was interviewed by The African Investor on Kenya’s Informal Economy.
The quest for people to engage in activities that generate money in an environment where formal employment is a limited option has caused many Kenyans to pursue options in the informal economy. In a country where the cost of living is constantly rising coupled with increasing poverty levels, most are forced to conduct small scale businesses that are often not well thought out, but provide the income that is necessary to sustain their families. One of the most common fields that people from low income households venture into is that of hawking.
Hawking in Nairobi has become a challenge to the Nairobi County in that not enough measures have been taken to ensure that those that are involved in the trade are provided with sufficient areas within which they can operate. It is this untamed approach that has led to an uncontrolled growth of this section of the informal economy. A huge setback that has arisen from this growth is that it poses a security risk to the city of Nairobi. There are a number of gangs that have been known to have networks within hawkers. They often use the hawking business as a front to conduct illegal activities such as drug peddling.
Another challenge that these informal traders present is that in that of contributing to the garbage accumulation within the city. Since most of them operate from temporary stations, they leave the residue from their activities such as the packaging of wares that they have sold lying on the streets.
I recently interviewed an informal trader who makes a living from selling bottled water and soft drinks in one of the parks in Nairobi. During the time I spent with him, I learned a lot on the mode of operation of businesses in this sector of the economy alongside the challenges that they face. On average, he makes Kshs 2,000 in profits from the business per day. He has to part with Kshs 500 on a daily basis to bribe officials from the county to enable him operate without disruption of his operations.
Those who do not bribe these officials often end up playing a cat and mouse game with these officials. He noted that for a person to comfortably operate the sort of business he does, it is a better option to pay the daily bribe as the fine one has to pay if arrested is Kshs 3000 which is accompanied with the confiscation of the vendor’s goods. This has fuelled this system of corruption as it is easier for the vendors to pay the bribe so as to comfortably make a living.
Sufficient measures have to be taken so as to come up with a sustainable approach to handling and accommodating this section of the informal economy. One such way would be the allocation of suitable areas within which they can conduct their businesses without harassment from the relevant authorities. This is a sector that if properly structured will be an additional avenue for revenue collection. It will also provide a sustainable source of income for those that come from low income households.
Informal Economy Analyst
Kenya will be holding its elections this year. As we approach the period, the political atmosphere in the country usually gets highly charged with the various candidates holding meetings and rallies. The business environment has often taken a beating during this period due to the uncertainty that looms. Despite this challenge, there are businesses in the informal sector that can take advantage of this scenario and use it to grow their operations.
Opportunities await those that are involved in the printing and catering businesses. During the campaign period, candidates like to be visible. Posters, flyers, pamphlets, t- shirts and caps are some of the items that they use to push their messages across to a wider audience. Those businesses that are involved in these ventures stand to make attractive profits given the political interest in the various levels of county representation. Also, there will be a number of rallies and meetings that will require the services of caterers who provide tents and chairs as well as food and beverages.
Candidates that are vying for various seats need to have a strategy that addresses the informal economy agenda as these constitute a majority of the voting population. Those that are engaged in the informal economy mainly run micro and small businesses that are considered as a means of trying to escape from the vicious cycle of poverty. It would be a positive move to have this as a strategy in their campaign manifestos for it would appeal to a broader range of the electorate.
The youth are a demographic group that are usually targeted by politicians to gain popularity and help in the running of campaigns. In some cases they are misused to cause chaos and even enlisted to join militia groups. Given the high levels of unemployment among this group, they should demand a better deal from political candidates by way of the latter providing viable solutions that will see them positively engaged in a manner that benefits them.
The down side to elections in the country is the disruption of businesses as we get closer to the election date for it is during this period that most business operations temporarily stall or even shut down. The charged political atmosphere usually comes with tribal connotations that see the displacement of people who are not indigenous to a particular region. The National Cohesion and Integration Commission should come down hard on aspirants that use this sort of political speak as a means of gaining popularity as it is a hindrance to the growth and sustenance of businesses.
The time is way overdue for the electorate to lean towards candidates that advocate for issue-based policies as this is the only way that will ensure the leadership that is voted in works to improve the social and economic environment in the country. Choosing tribal affiliations and outfits is an outdated principle that only serves to divide our nation further. As we vote in the next cycle of leadership, let us choose wisely.
Informal Economy Analyst
Informal businesses have often been perceived in a negative light. They are seen to be high risk ventures, a nuisance to formal enterprises and government as well as being of little assistance to the growth and development agenda of most nations. This is due to the fact that most of them have haphazard modes of operation and a majority are not registered and hence do not pay taxes. This sector has however registered rapid growth over recent years. In Kenya for example about 82% of those employed are engaged in informal businesses. The high levels of poverty has exacerbated this growth as a majority of people seek to make a living where jobs are hard to come by.
There are a wide range of issues that, if addressed, will see most of these businesses develop to a level where they will be even more positive contributors to the economy. A place to start would be offering financial literacy programs for those that operate these businesses. Due to the fact that a majority of them do not keep records of their day to day operations, it becomes difficult for financial institutions to offer any assistance because there is no clear basis from which performance can be tracked. The importance of basic skills like book keeping needs to be emphasized when developing capacity building programs for the sector.
Access to health facilities for informal workers is another area that can improved. In my experience while visiting various informal businesses around the country, most business operators have had to leave their work unattended as they try to seek medical attention whenever they fall sick. Most work under deplorable conditions without the required protective gear. The Kenyan government through the National Hospital Insurance Fund (NHIF) has launched a program that seeks to increase the number of informal workers who can access quality healthcare. The program aims to recruit 12 million Kenyans under a cover that sees them pay a monthly contribution of between Kshs 150 to Kshs 500 depending on their income status. This is a step in the right direction that needs to be replicated.
While interacting with businesses in the sector, a major hurdle that has consistently come up is the difficulty they face when trying to market their goods and services. Most do not have the skills required to widen their scope of customers. This is an area that should be considered by those developing capacity building programs for the sector. Another barrier has been the allocation of spaces they are given to operate their businesses. Most of these are in areas that potential customers cannot easily access and are often unattended to by those that collect revenue from them in terms of garbage collection. This considerably compromises the ability of the informal sector to attract clients and customers to their business.
Although information on those engaged in the informal economy is hard to come by, my experience indicates that the sector is ready for engagement; it is critical we tap into this goodwill. However, note that the Kenya National Bureau of Statistics (KNBS) released the Micro Small and Medium Enterprise survey in 2016. In as much as this is a move to be applauded, most of the players in the informal sector that I interviewed over the past few months feel that the report was inconclusive as it excluded a huge percentage of micro businesses. A proper census will need to be carried out to provide a clearer picture of where the sector stands. This will go a long way in better informing policy makers and those that would like to engage with the sector.
In conclusion, these interventions can be best leveraged through bodies such as the Micro and Small Enterprises Authority (MSEA), who have established a credible network around the country as well as various organizations and associations that work with the informal sector at the county level.
Informal Economy Analyst
One of the key areas of focus when setting up a business is knowing who your customers are. Targeting the right type of clientele is one of the pillars upon which the success of a business is based. With this in mind, it is important for a start-up business to know beforehand what their niche market is so as to channel its resources in the right manner. Aspects like getting the right location as well as having the right information on the profiles of customers within ones area of operation are key factors that dictate whether a business will succeed or fail. This is no different for informal businesses.
This aspect came out clearly during a recent visit to Nanyuki, a town in Laikipia County – Kenya, while interviewing different businesses in the informal sector. Victor Gaita, the chairman of the Nanyuki Municipality Jua Kali Association which has a membership of 150 businesses, pointed out some factors that determined the levels to which businesses within the association generated income. The first was that despite the fact that some of the craftsmen had the requisite skills to make high quality furniture like beds that would cost Kshs 35,000, they seldom did because these sold much slower than those that cost Kshs 4,000. The latter cost appealed to the low income clientele who frequent their premises.
Another factor that determined the level to which members generated income was their location. Those that operated from residential areas had higher returns than those that are located in the market places. This is due to two factors. The first is that those in the residential areas were not frequently visited by the county officials, which reduced the amount of bribes that they had to pay. This angle has a downside to it, in that due to the fact that the county officials do not frequent the residential areas, these businesses get away with not having to pay most taxes that are required of them, which gives them an unfair competitive advantage.
The other factor is that the cleanliness of the environment under which they operate determines the type of clientele that will visit their business premises. Those that are located in the market places often have to deal with the inefficient service provision by the county government when it comes to garbage collection. They are also congested in their working spaces, something that doesn’t encourage clients to visit their premises. Those in the residential areas operate in clean and spacious environments hence end up attracting higher end clients.
Phyllis Micheni is the chair of Jambo Kenya Women Group which is an association that is comprised of 15 members. Their core business is the manufacturing and selling of curios that include wood crafts, jewellery, hand woven carpets and African themed clothing. She noted that most of their clients were mainly tourists and locals that have a higher income dispensation due to the quality of their products and costs of production. Their prices were too high for the local clientele. Their main challenge was marketing their products and are thus looking into ways in which they can upscale their vending points in areas frequented by tourists.
Informal Economy Analyst
The introduction of devolution into the governance structure of Kenya has helped in the decentralisation of power from the national government to county governments. Counties are now responsible for the direction in which they choose to go for they can now legislate their own laws through their county assemblies. Counties have come together to form economic regional blocs whose main aim is to bolster trade within the member counties by pooling their resources. However, most of the regional blocs are still at the inception stage. Just as is the case with many new institutions, there are a few challenges that come up during their formation and growth.
As a means to collect revenue to keep the counties operational, they have had to pass legislation that enables them to collect revenue. This has made each county to come up with its own rates. Businesses that operate between two or more counties, such as those that are in agribusiness, find it very expensive when it comes to paying cess fees. Most of these businesses have to transport their goods to markets that are not in their counties of origin. They are thus required to pay multiple cess fees for those goods across different counties. This replicative system of taxation is expensive for business.
Tribalism has become pronounced in the devolved governments. People who are not from communities that are indigenous to certain counties are finding it difficult to operate even small businesses. This comes out strongly when informal businesses apply for loans at various county offices and get turned away on the basis of their tribal affiliation. Those that come from the region are favoured to the ‘outsiders’. This factor has become so deeply rooted that it is going deeper into clannism. This is whereby people from the same tribe choose to align with members of their clan (sub tribe).
Further, there is favouritism when it comes to the allocation of spaces within which they can work. The Eldoret Market Association is one such organisation whose members have had to struggle with the Uasin Gishu County Government. There have been instances where the county government has issued market spaces to people that are not traders who in turn sell the spaces to the genuine market operators. The County government also tried moving them to an area that is outside the central business district which they declined due to access to customers. Another scenario is the raising of market rates without consultation. The County government intended to raise the market rates to a level that most traders would not have been able to afford. This made the Market Association to sue the County government. The issue is still pending in court.
Some of these issues can be dealt with in a way that is beneficial to both the informal businesses and the respective county governments. One way is by harmonising the rates that are charged by the individual counties. The regional blocs should ensure this so that traders will be required to pay once for transportation of goods across the counties in the region. Also, county governments should consult the traders whenever they plan to allocate working stations. They should also introduce strong accountability structures that ensure fairness in the allocation of funds that are meant for traders. This will minimise instances where loans are disbursed on the basis of favouritism. Stronger efforts should be made to shun tribalism as this is a cancer that is negatively impacting the growth of business in the regions as it tends to drive away potential investment.
Informal Economy Analyst