The Role of Informality in Urbanization and Industrialization

The Economic Report on Africa 2017 was released by The United Nations Economic Commission for Africa(UNECA). This year’s report looked into ways in which the continent can harness industrialization to better structure the fast pace at which urbanization is taking place. Given that Africa is the fastest urbanization region after Asia, the report puts emphasis on the fact that only under the right policy frameworks can this momentum be leveraged so as to accelerate industrialization.

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

Some of the proposed measures point to ways in which informal businesses can be made a part of this process. One such measure was to bank on the links between informal and formal sectors, for these are mutually beneficial and dependent. Those involved in industrial land use planning should consider the needs of informal enterprises, given their importance for job absorption and the challenges they often face in finding adequate premises for work.

One option is to try to meet industrial firms’ location-specific needs through Special Economic Zones (SEZs) and industrial zones. These will bring the most benefits if they are well connected to the urban economy, including the informal sector firms that can provide low cost inputs and use linkages as a path to growth and formalization. SEZs present opportunities for co-investment by formal firms and the public sector in infrastructure and technical and vocational education and training, which can broaden participation in economic growth and provide avenues for inclusion of critical workforce groups such as women and youth. These links to markets and skilled labour are critical.

The report further states that studies suggest that informal operators benefit from clustering through the various sectors in which they operate, and that they generally have a positive impact on their formal sector counterparts. It is with this in mind that agglomeration economies should be considered in the context of locational policies related to the informal sector and a path to formalization. Agglomeration economies can benefit the informal sector particularly through proximity to suppliers and purchasers.

Also, low-tech, labour-intensive infrastructure projects accessible to SMEs are a major opportunity for urban job creation. Lower-skilled labour-intensive technologies have high potential in some public investment sectors, including roads. A good example is that of Ethiopia whereby between 2005 and 2008 through a cobblestone roads and pavement programme, more than 90,000 jobs for young people were created. This led to the establishment of 2,000 small and medium enterprises. The project included backward linkages to domestic inputs—cobblestones—and labour-intensive skills in quarrying, chiselling, transporting and paving. The programme, implemented in 140 towns and villages, built around 350 km of road.

In terms of access to finance, Sudan has taken steps to improve this for industrial firms, including SMEs. Policy efforts in 2013 simplified the regulatory framework for financial access and new bank branches, and the central bank made preparations for mobile banking. These reforms targeted small enterprises, which make up 93 per cent of manufacturing firms, by requiring that commercial banks set aside 12 per cent of resources for microfinance. It is with this spirit that African countries must leverage the force of urbanization to drive and enable industrial development for a prosperous and equitable future.

litualex@gmail.com

Informal Economy Analyst

 

Lessons from informal business

Formal employment opportunities have been on a steady decline. Over the past two years, a number of institutions in Kenya have laid off staff as a cost cutting measure. This coupled with a constantly increasing level of unemployment, especially among the youth, has resulted in the mushrooming of small businesses that enable those that are caught up in such circumstances to make a living in the tough economic times. Most have opted to start-up small businesses which are predominantly informal in their mode of operation that enable them to provide for their families.

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(Source:http://www.the-star.co.ke/news/2016/11/10/msmes-need-facilitation-not-regulation_c1452719)

Despite the fact that a vast majority of informal businesses are perceived in a negative light due to reasons such as a good number of them not paying taxes, inadequate social security structures as well as poor internal financial infrastructures, there are lessons that one can learn from their operations.

Unity of purpose is one of the ways in which informal businesses have managed to grow and stay afloat. Given the scarcity of resources that they have to contend with, be it financial or technical, majority of them pool resources so as to achieve their goals. A good example can be found in instances where such businesses come together to form associations through which they tackle problems that they face. These range from interacting with government authorities and financial institutions to sharing skills and equipment. Interacting with government authorities and financial institutions in this manner puts them in a stronger bargaining position when it comes to negotiating for better terms of engagement.

Also, informal businesses are often pioneers when it comes to innovation. The growth in the rate of unemployment is one factor that has led to the growth of the informal sector. This, coupled with increasing poverty levels has pushed the informal economy to become the top employment segment in sub Saharan Africa. In Kenya, it accounts for 81% of the total employment demographic. In a bid to remain relevant and competitive, those that are engaged in informal businesses develop products and services that enable them to stay in business. Given that a majority of those engaged in informal businesses tend to be the youth, they contribute new and innovative ideas and technologies to industries that have for long remained traditionally rigid.

Another aspect that can be learnt from informal businesses is their resilience. This can be seen in their widespread presence. In Nairobi for example, if you need to have your car fixed quickly, there is always a garage around the corner. Supermarkets and grocery stores have been overtaken by the numerous “Mama Mboga” shops.  In the beauty and cosmetics industry, informal salons are currently available in every neighborhood. This factor has contributed to the exponential growth of this sector.

With all this said and done, the informal economy is still largely characterised by the presence of poor quality employment opportunities. Efforts should be made to support businesses in this sector of the economy as it will be a huge step in the right direction in easing the burden of poverty.

litualex@gmail.com

Informal Economy Analyst 

 

Working Poverty

During the past decade, there has been a rise in the number of people pursuing alternate means to employment as a means of raising their living standards. This can be largely be attributed to the high levels of unemployment as well as the rising number of people that are engaged in poor quality jobs. The informal sector creates poor quality jobs and is an avenue for a large percentage of the population to find an extra source of income.

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(Source:http://d34elvfuwuckt2.cloudfront.net/wp-content/uploads/sites/21/2015/08/Africa-Unemployment-South-Africa-apprenticeship-05102012-620×350.jpg)

In the light of this factor, the International Labour Organisation (ILO) has released the World Employment Social Outlook 2017 report. It focuses on trends in job quality, paying particular attention to working poverty and vulnerable employment. What come out clearly is the contrast in the growth of the regional economies over the past decade vis-à-vis the employment and poverty trends. The report states that Sub-Saharan Africa continues to report the highest rate of youth working poverty globally, at almost 70 per cent in 2016, while facing rapid growth in the number of youth in the labour force.

It further states that Sub-Saharan Africa’s unemployment rate is forecast to be 7.2 per cent in 2017, unchanged from 2016. While the unemployment rate remains stable, the number of unemployed is expected to increase from 28 million in 2016 to 29 million in 2017 due to the region’s strong labour force growth. Poor quality employment, rather than unemployment, remains the main labour market challenge in the region. With this in mind, the lack of productive opportunities for youth and adults alike meant that 247 million people were in vulnerable employment in 2016, equivalent to around 68 per cent of all those with jobs.

Statistics from the report show that an additional 12.6 million youth in the region will enter the labour force over the next four years. Due to growth in the working-age population, the number of people in vulnerable forms of employment is expected to increase by 14.6 million. Further, the outlook is particularly challenging for women, who are more likely to be in vulnerable employment, largely as contributing family workers. The share of female workers categorized as contributing family workers, at 30.6 per cent, is more than twice the rate for their male counterparts, at 14.0 per cent, with women additionally over-represented in informal non-agricultural employment.

The issue of vulnerable employment is linked to that of working poverty. The report adds that Sub-Saharan Africa continues to be characterized by elevated rates of working poverty, with 33.6 per cent of all employed people living in extreme poverty in 2016 – i.e. on less than US$1.90 per day – and an additional 30.1 per cent in moderate poverty – i.e. between US$1.90 and US$3.10 per day. This corresponds to over 230 million people in sub-Saharan Africa living in either extreme or moderate poverty.

These numbers are a strong indicator as to why the informal economy continues to consistently grow in the region. The downside to having a large informal economy is that those that are involved in the micro businesses cannot afford to access proper medical attention as well as other social welfare benefits. It would be prudent for policy and decision makers to look into and implement strategies that grow the capacity of informal businesses to enable them to become profitable entities. This will reduce the high levels of poverty by providing sustainable incomes to a vast majority of households.

litualex@gmail.com 

Informal Economy Analyst 

Elections 2017

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(Source: https://fb.onthe.io/0fgjhs40c2bj0eh1c.2e0c22f6.jpg )

 

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.

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(Source: http://gdb.voanews.com/EF458178-C136-4E97-90C0-AB2C939A189B_mw1024_s_n.jpg)

 

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.

litualex@gmail.com

Informal Economy Analyst 

Improvements to aim for in 2017

(Source: http://www.africa.com/wp-content/uploads/2016/05/Female-Vendor.jpg )

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.

litualex@gmail.com

Informal Economy Analyst 

Skill Aquisition among Youth in the Informal Economy

According to the World Bank, in terms of skills acquisition, apprenticeships have traditionally been the most important skills development system available to youth for the informal sector. However, we live in a dynamic society where business operations have to adapt to the constant changes in the environments in which they exist. In order to remain relevant and profitable, most informal business capitalise on this dynamic so as to stay afloat. This has led to an increased level of innovation on their part, giving rise to new technologies.

Informal businesses can raise their credibility when trying to access financial backing by coming together under the different platforms on which they operate to form groups which can amass their resources. This will put them on a stronger negotiation platform when it comes to engaging with facilities such as government procurement systems and larger institutions. Dr Jacob Omolo, a lecturer at Kenyatta University’s School of Economics reiterates that youth engagement interventions should increasingly target the enhancement and promotion of the youth entrepreneurial potential. This can be achieved within the framework of promoting linkages between youth enterprises with medium and large firms as well as government, mentoring programs, entrepreneurial exchange initiatives, and exhibitions to promote markets and market information.

The Kenya Economic Update 2016 estimates that between 2015 and 2025, the working age population will increase, on a net basis, by nearly nine million people. One third of them, three million people, will be made up of young people aged between 15 and 24 years. There clearly lies an opportunity in as far as reaping the benefits of this demographic group is concerned. More should be done on areas like exploiting their creativity, developing a savings culture as well as improving systems that increase the productivity of their businesses. There also needs to be a concerted effort towards coming up with credible support structures that are aimed at building up their start-up businesses.

Given the number of youth who are engaged in the informal economy the demographic dividends that can be reaped from this group are immense. Building the capacity of the businesses that they operate will go a long way in providing a credible platform from which they can attain financial freedom. Training on financial skills is a key factor in building up these businesses in a way that they will be well equipped to manage their growth. By developing a culture of documenting financial dealings, informal businesses will be better placed to access loans and grants from financial institutions.

The challenge still exists in terms of how to equip the youth with adequate skills for the labour market outside the realm of formal education. Compared with many other African countries, Kenya offers an unusually wide range of informal training options for the formal and informal sectors due to the presence of tertiary educational institutions like colleges and polytechnics. However, because of a lack of good evaluations and tracer studies, much uncertainty still exists about what works and what does not work in terms of creating sustainable employment among youth. Given the size and importance of the informal sector to the economy, more attention needs to be focused on the constraints to skills acquisition among the youth engaged in the informal sector.

litualex@gmail.com 

Informal Economy Analyst