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.

(Image Credit: http://www.daaonline.org)

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


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

The Significance of Investing in the Young Population

The Kenya Economic Report 2015 whose theme is ‘Empowering Youth through Decent and Productive Employment’ released by the Kenya Institute for Public Policy Research and Analysis (KIPPRA) is timely as it provides an indepth look at youth empowerment with a major focus on employment. The youth account for about 6o% of the labour force in the country, which is estimated to be growing at a rate of 2.9% per annum. According to the report, Kenya’s median age is estimated at 19 years and the proportion of the population that is below 15 years is estimated at 43%. Further, 78% of the population is aged below 35 years.

(Source: http://www.theeastafrican.co.ke)

A big challenge facing most youth is the lack of decent and quality jobs; almost three out of every four youth are engaged in the informal economy, traditional agriculture and pastoralist activities. The share of employment in the informal sector in total employment, excluding traditional agriculture and pastoralist activities, increased from about 17.1% in 1983-1987 to 82.7% in 2013/14. This significant increase in the informalization of employment can be attributed to a shrink in formal employment opportunities over the years. As is the case in most parts of sub Saharan Africa, most entrepreneurs opt to venture into informal business as a last resort for it is often the only way they can earn a living.

With Kenya’s median population age being below 20 years of age, in order to arrest the rapidly growing rates of unemployment that have seen a spike in the growth of entrepreneurial informality, the report calls for the development and implementation of employment creation policies and strategies to that will engage this demographic group. Some of the suggestions include investment in productivity enhancement skills, and quality job creation in fast growing and labour-intensive sectors such as services, agriculture and industry, while promoting the manufacture of export goods for the regional and international markets.

Given that about 88 per cent of manufacturing sector employment is in the informal sector, potential interventions in the sector would be a good place to begin. As is the norm, jobs in the informal sector are characterized by low wages and a general lack of social security benefits. In this sense, the quality of jobs provided by the sector are of poor quality. Also, due to the reason that informality is driven by incentives to minimize tax and compliance costs as well as other external factors such as challenges to access of credit, the report suggests that in order to create quality jobs, policy making should mitigate some of the constraints limiting their transformation to formal enterprises.

It is interesting to note that the report also indicates that Kenyan micro, small and medium sized enterprises (MSMEs) in manufacturing represent over 60% of establishments and account for 29% of those employed in manufacturing. The breakdown of MSMEs involved in manufacturing according to the 2016 MSME Report by the Kenya National Bureau of Statistics (KNBS) is 95% as micro, 3.8% as small and 1.2% as medium sized enterprises. The sector was ranked as the highest contributor accounting for 24.3% of MSMEs gross value added. At publication of this report, this figure stood at 11.7% of gross value added. This represents a 12.6% increase over a two-year period. The significance of ingraining a value addition angle into the manufacturing processes of MSMEs cannot be overstated as it will ensure that manufacturers in this sector of the economy not only reap the benefits of fetching higher market prices for their products, but also enhance the growth of robust value chains that are essential to the successful implementation of national industrialization plans. As is the case with most informal enterprises, firms grapple with issues that include limited access to technology as well as limited research and development activity.

It is clear that tackling the challenges posed by informality is a key to providing a sustainable solution to youth unemployment in the country. Focusing on aspects that improve their productivity such as upskilling, increased access to technology as well as investing in research and development processes will enable those that are engaged in manufacturing to venture into value addition for their products. The trickle-down benefits of implementing policies that are centred around overcoming the aforementioned challenges will be an investment in this country’s future.


Informal Economy Analyst.


Facilitating Access to Credit for Small Business  

Last week, the World Bank released the Kenya Economic Update in which they look into ways in which credit to the private sector can be revived in a bid to accelerate growth in the economy. The Kenyan economy is projected to rebound and reach 5.8% of GDP in 2019. In order for this trajectory to be attained, one of the risks that have to be addressed is the need to jumpstart the recovery of credit growth to the private sector; particularly to Micro, Small and Medium sized Enterprises (MSMEs) and households. During the launch of the report, the Central Bank of Kenya Governor, Patrick Njoroge noted that the resilience of the Kenyan economy is largely attributed to its strong and vibrant private sector, whose backbone is MSMEs.

(Source: http://www.worldbank.org)

The document points out the fact that although the interest rate cap was meant to reduce the cost of credit, thereby making credit accessible to a wider range of borrowers, after a year of implementation the decline in credit growth to the private sector has continued with a couple of unintended negative consequences. One of these is that banks have shifted lending to corporate clients and government at the expense of small and medium sized enterprises and personal household loans. While the interest rate cap policy was an attempt to make credit less costly and therefore more accessible to borrowers, this policy objective has not been achieved. There has been a significant credit rationing to small and medium enterprises and for unsecured personal loans, while lending to the government and lower risk large corporates has increased.

It is interesting to note that the shift in the targeting of bank loan clients away from smaller and riskier borrowers is particularly impactful in Kenya, where riskier SME and micro borrowers make up roughly 80% of all borrowers. Smaller banks, who do not have a large corporate client base, are forced to maintain their portfolios in SME and consumer lending, but have stopped lending to new and unknown customers. The introduction of the rate cap has thus led to a situation whereby there has been a significant decrease in the disbursement of consumer and unsecured loans.

One of the recommendations that are presented in as far as dealing with the shrinking level of loan disbursement is that of recalibrating the current credit reporting system through which banks will be in a better position when it comes to making decisions on loans to risky borrowers, as opposed to the blanket one-size-fits-all approach that is currently being used. They will thus be able to offer financing that is priced per the risk of the borrower. To this end, in order to strengthen credit reporting in Kenya, the CBK is already working with commercial banks on increasing the quality of their consumer data and to include credit reporting data in lending decisions.

Another measure that can be taken to this effect is improving on the overall credit reference bureau data and products. Further, other lenders should be supported to also participate in the credit reporting system, such as SACCOs and microfinance institutions. The implementation of such reforms, coupled with a well-functioning credit bureau, will significantly improve pricing transparency among banks and broadly lower interest rates.

The document states that the goal of accommodating credit worthy borrowers with a higher risk profile, including personal unsecured loans and loans to SMEs calls for a more flexible pricing regime that allows banks to competitively determine loan prices. In order for this to be achieved there needs to be improvements in the institutional environment to prohibit predatory lending, through stronger consumer protections. For example, establishing a consumer protection bureau, could equip borrowers with greater bargaining power with banks and other lenders, promote more transparent pricing practices and increase financial literacy as well as allow for more effective dispute mechanisms.


Informal Economy Analyst.



The Kenyan Government’s Priorities for the Informal Sector

It is a welcome development to see that the prolonged electioneering period has come to an end, for it was characterised by the slow down and even stagnation of certain businesses that has had a negative effect to the economy. As the new administration comes into office, it is interesting to note that it has prioritised aspects of the informal sector in its agenda. These are articulated in their campaign manifesto, some of which were prioritised by the president during his inauguration speech.

(Source: https://i0.wp.com/www.dhahabu.co.ke)

In their manifesto, the current administration aimed to create and fully implement a robust Small and Medium sized Enterprises (SME) development and support programme which would formalise the large number of informal businesses and support their growth from micro to small to medium sized enterprises, and eventually into large firms. By doing so, they aim at catalysing the creation of at least one million jobs and consequently contributing to tax revenues.

The two main demographic groups that characterise the informal sector are women and youth. Between 2013 and 2016, 12,000 Micro, Small and Medium sized Enterprises (MSMEs) have received training in entrepreneurship and management. The manifesto states that a total of Ksh25bn has been transferred to MSMEs through Youth, Uwezo and Women enterprise funds providing support to close to 15 million people who have been enabled to set up businesses. The plan to establish the Biashara Bank by merging the Micro and Small Enterprises Authority, the Youth Enterprises Development Fund, the Women Enterprises Fund and the Uwezo Fund as a means to coordinating the delivery of affordable financing and support for business development is a move that will enhance the focus on the lack of capital as an impediment to the establishment, growth and development of informal businesses. Notably, through the Women Enterprise Fund, women have demonstrated that they are a highly bankable and reliable borrower with a repayment rate of 92%.

Further, providing low interests loans to youth owned enterprises to enable them to grow their businesses has seen an increase from Ksh4.9bn accessed by 407,793 young people in 2006, to Ksh11.8bn disbursed to 893,438 young people in 2013 under the Youth Enterprise Development Fund. As alluded to above, coordinated efforts towards targeting the relevant demographic groups will fine tune the government’s focus. This should include policies and systems that track the growth and performance of businesses that receive funding with a view of informing the direction to be taken during capacity building initiatives.

The manifesto points out the fact that about 80% of the Kenyan population relies on agriculture for employment and livelihood, and that the sector contributes approximately 27% to GDP, about 40% of government revenue and more than 60% of the total export revenue for the country. The plan to establish the Food Acquisition Programme (FAP) that is aimed at creating market demand and stabilising prices for products from small-scale farmers. Under this programme, the government will buy 50% of it’s food requirements from small holder farmers. The fact that Kenya is a major agricultural exporter and that only 16% of all exported agricultural output is processed, the move by the President to target the creation of 1,000 Small and Medium sized Enterprises in agro-processing is a welcome move.

Efforts to construct the Kenya Leather Park in Machakos for over 7,000 SMEs, the setting up of the Leather Cluster Common Manufacturing Facility in Kariokor as well as increasing the number of Export Processing Zones (EPZs) during their previous term is a step in the right direction. However, to ensure sustained growth of these industries will require that Kenya fine tunes its approach towards agriculture as a base requirement for the setting up of light manufacturing. Key to this is setting up collection points for hides at abattoirs, making beef farmers and pastoralists aware of the right cows to breed for higher quality hides, increasing the productivity per acre for agricultural produce as well as setting up sufficient storage facilities that minimise post-harvest wastage.


Informal Economy Analyst.



Comparative Analysis of Informal Economy in Nigeria and Kenya

The Informal Sector in Nigeria and its Impact on Development is a book by Stephanie Itimi which is based on research on the informal sector in Nigeria. It focuses on three key areas namely employment, gender equality and tax evasion. Employment is looked at from the angle of the effect that the informal sector has on job creation. Gender equality merges with employment and is looked into by examining the role that the latter plays in empowering women financially. The author also provides an analysis of the complex relationship between the informal sector and the principle of tax evasion. This article aims at providing a comparative analysis of the informal sector in Nigeria and Kenya, based on the findings of the book, as well as those from research conducted on the Kenyan informal sector.

(Source: https://images-eu.ssl-images-amazon.com)

In Nigeria, the informal sector accounts an estimate of 70% of the total industrial employment. The country has the largest informal sector on the continent, which is enhanced by its population size as well as high levels of poverty. The Federal Office of Statistics (FOS) states that the informal sector creates 25,000 to 35,000 jobs each year. However, although this is highlights the job creation role of the informal sector, the author argues that with a country of 153.9 million people, the impact of the informal sector on unemployment is quite insignificant.

The Kenya Economic Survey 2017 indicates that the total number of new jobs created in the economy was 832.9 thousand. Of these, 85.6 thousand were in the formal sector while 747.3 thousand were created in the informal sector. The share of new jobs created in the informal economy represents a 5.9% growth from 83% recorded the previous year to 89.7%, or 13.3 million people. Nigeria outweighs Kenya’s working population by 66.33 million, however the significant gap is not reflected in the differences in the number of people in the informal sector between Nigeria and Kenya. This is due to Kenya having 89.7% of its working population in the informal sector, while Nigeria has only 34.6% of its working population in the informal sector.

In her book, Stephanie points out that the percentage of women in the informal sector of any economy is high, especially in developing and transition economies by referencing an ILO report which found that 46% of the informal sector in urban Nigeria was dominated by women. She states that the informal sector is seen as a major source of employment for women due to its suitability to their needs. The Micro Small and Medium Sized Enterprises Report 2016, released by the Kenya national Bureau of Statistics (KNBS), indicates that 32.2% of licenced establishments were owned by women, while 60.7% of unlicenced establishments were also owned by women. According to Bitange Ndemo, an associate professor at the University of Nairobi, these statistics mirror a global trend whereby women are over represented in the informal economy; a factor that is largely driven by survival, rather than the exploitation of an entrepreneurial opportunity. In terms of financing informal business, he argues that the problem faced is more of the cost of finance rather than it’s access.

On tax evasion as regards informality in Nigeria, the author notes that research has shown that there is a positive correlation between a rise in taxation and a rise in tax evasion, concluding it as a motivational factor for people migrating from the formal to the informal sector. However, factors such as an increase in tax evasion punishments such as heavy fines and prison sentences reduced the likelihood of people participating in the informal sector. Informal Sector and Taxation in Kenya is a publication by the Institute of Economic Affairs (IEA) that stresses the significance role that the informal sector can play in the quest to expand the tax base, noting that the intention of bringing the informal sector into the tax net is to facilitate the transition of these businesses to the formal sector and reduce barriers for all businesses. The paper shows that by extending the tax net to the informal sector, for example in the year 2008, the Kenyan government could have increased the tax base by approximately 7.66 percentage points, translating to revenue worth Kshs.79.3 billion.

In conclusion, as is the case in as far as data on the informal sector is concerned, the author indicates that one of the biggest impediments encountered during her research is its limitation which involved the omission of data in some years and unavailability of up to date research. To this end, she proposes that primary research should be conducted in to have a more up to date and realistic perspective on the topic. The part the informal sector plays in enhancing gender equality is restricted on just income, as female participants are able to easily obtain employment in the informal sector and adapt their job rule to their social and culture gender obligations. Also, government agencies should move from harsh approaches such as destroying informal market areas and increasing tax evasion punishments to more liberal approaches that empowers the activities of the informal sector through the provision of a conducive environment and inclusive policies which enhances productivity within the sector and enables taxation.


Informal Economy Analyst

Economic Inclusion in Africa and Latin America

Global development is an aspect that is at the centre of programs that are aimed at improving the quality of life of people around the world. Africa and Latin America are home to most of the world’s developing and third world economies where poverty is rife. In this sense, they are constricted in their growth by socio-economic dynamics that revolve around health, education, income and occupation among other factors. A majority of the societies that comprise the populations of these nations earn a living through the informal economy.


Hernando de Soto is a Peruvian economist who has for a long time been a champion of the informal economy. He has authored books on how governments should best interact with this crucial sector of the economy with the aim of harnessing its power and formalising their operations, with special reference to Latin American economies. In a review of his book ‘The Other Path: The Invisible Revolution In The Third World’, published in the New York Times, de Soto argues that Latin Americans need to look as much at their own societies as to the outside world for the causes of their poverty and insists that they are caught up in policy regulations that deliberately inhibit innovation and initiative.

He proposes that the way out of the situation lies in the region’s informal sector. Backed by research that he conducted in urban areas of Peru, he concludes that despite decades of effort to stamp it out, the informal sector is the most dynamic part of the informal economy for it accounted for more than half of the country’s production. In other countries in the region such as Argentina, Mexico and Columbia, he said the figure is at least one third of production.

The situation in Africa is not far from that in Latin America in as far as the size and dynamics of the informal economy. Estimates from the International Labour Organization put the average size of this sector in Sub-Saharan Africa as a percentage of gross domestic product at 41%. In Kenya, this sector contributes 35% of GDP and accounts for 89.7% of employment outside agriculture. Over the past decade, there have been interventions by governments in the region to address issues that the sector is grappling with such as access to finance and upskilling.

The establishment of programs such as the Women Enterprise Fund and the Uwezo Fund in Kenya were set up to target women and youth, who form the bulk of informal business operators in the country. Such interventions need to be backed by policy amendments that facilitate the business environment in which the informal sector operates in a way that allows them to grow in the long term.

By releasing the creativity and energies of millions of would-be entrepreneurs, Mr. de Soto believes that national economies in Latin America can be strengthened and the region can enjoy a spurt of growth. The same can be said for Africa. Entrepreneurs, he concludes, would join the mainstream economy, thereby improving their material status and gaining new opportunities, were they not prevented from doing so by a legal system designed to thwart them.


Informal Economy Analyst