Why is Kenya at a Crossroads with its Informal Sector

David Indeje is Khusoko’s Digital Editor, covering East African markets.
Treasury plans to increase the Credit Guarantee Scheme capital for Micro, Small and Medium Enterprises from KSh4 billion to KSh10 billion.

The informal sector acts as an important shock pillar for Kenya’s economy gripped by a fairly lengthy period of sluggish jobs and income growth.

It employs a significant amount of the people who are supporting the majority of the households in the country their purchasing activities of the various household consumables and capital goods significantly contribute to the Value-Added Tax.

The sector contributes in excess of 35 per cent to the Gross Domestic Product and employs close to 80 per cent of the workforce.

It includes home businesses, domestic workers, street vendors, small-scale artisans, car repairs, bakeries, and livestock traders and the sector makes a huge contribution to the economy.

According to the Kenya National Bureau of Statistics for 2015, the economy generated a total of 841.6 thousand jobs of which 128.0 thousand jobs were in the modern sector while 713.6 thousand were in the informal sector, during the period under review.

The main challenge is how they contribute to taxation and are policymakers noting the sector’s contribution?

2018 February, the Nairobi Regional Security Committee chaired by Nairobi Regional Co-ordinator Kang’ethe Thuku resolved to remove all motorcycle riders and street vendors (hawkers) to ‘restore order.

In its place, they said to curb muggings and robbery and other crimes within the Central Business District, they came up with an initiative dubbed ‘Mulika Uhalifu’ through code 22068 where city dwellers would send security alerts of crime incidents to the police.

This is not the first time Nairobi County wants to get rid of the hawkers who have been termed a menace.

Last year, Nairobi’s Commercial Court ordered hawkers operating from the city centre to designated places within the city stating that they cause immense suffering to other street users.

Chief magistrate Peter Muholi dismissed cases filed through the street vendor’s lawyers to bar the county officers from interfering, harassing, intimidating, unlawfully arresting or confiscating the hawkers’ goods or items while at their designated areas at plot zero.

On July 13, 2016, Nairobi County formed a sub-committee tasked with returning orders and sanity in the central business district. A crackdown on the informal sector.

Subsequently, 500 Inspectorate Officers and 100 were enrolled on its fire brigade team to meet the demand for city Askari’s to deal with the spiralling number of hawkers within the central business district.

The training commenced in December and was to run up to March this year before the officers are deployed in various parts of the city.

However, the program was halted in June after the former county government leadership blamed cartels for allegedly infiltrating the process.

Consequently, in 2015, a report tabled in the County Assembly by the Transport Committee showed that 33 out of the 40 functioning KSH 400 million Close Circuit Television Camera (CCTV) produced low-quality images and could not be relied on by security agencies.

Nairobi county has 43 markets run on rental, tenant purchase, site and service scheme and open-air terms such as Wakulima market, Gikomba, Muthurwa, Kangemi, and Kawangware.

In contrast to the developments aimed at curbing the soaring numbers of street vendors in the city, the UN-HABITAT Global Campaign on good urban governance is the ‘Inclusive City’.

The campaign advances the position that an inclusive approach must be used for balancing, reconciling and trading off competing interests and priorities. In most cities, the interests of micro and small enterprises such as street and informal traders are competing with those of medium and large-scale enterprises, with the former being disadvantaged.

“Urbanization provides the potential for new forms of social inclusion, including greater equality, access to services and new opportunities, and engagement and mobilization that reflects the diversity of cities, countries and the globe,” according to the Issue paper on inclusiveness.

The Bellagio International Declaration of Street Vendors of November 1995 urged governments to develop national policies for hawkers and vendors by making them a part of the broader structural policies aimed at improving their standards of living by giving them legal status, issuing licenses and providing appropriate hawking zones in urban areas. The declaration further called on governments to integrate vendors into urban development plans.

Dr. Chris Kirubi says, “While the obvious contributors to the fastest growth of Kenya’s GDP would be attributed to macroeconomic factors like political stability, the exponential growth of the technological landscape, a robust and growing economic environment among others, it is important to note that the growth of the small-medium and micro-enterprise (SME) sector has contributed to an almost exponential growth of our GDP.”

“Consequently, out of these sentiments comes a stalemate, and the country continues to grapple with increasing poverty and staggering numbers of unemployment. There are, however, several ways through which we can bridge this gap and create working synergies between, government, corporations and MSMEs. The most important tool to equip these businesses and government with is Knowledge” says Phyllis Wakiaga, Chief Executive of Kenya Association of Manufacturers.

“More than that, we must create an enabling environment for these businesses. If we look at the recently unveiled Kenya Industrial Transformation Programme by the Ministry of Industrialization and Enterprise Development, special attention is given to the role of MSMEs in catapulting our country to reach its industrialization goals. One of the ways we can do this is by using a sector-specific approach to elucidate the full potential of these businesses and then leveraging our networks, as private sector and government to open up their access to various markets,” she adds.

“To what extent does Ease of Doing Business research reflect improvements in the business environment for informal businesses? Parameters such as the increased ease with regards to tax compliance and business registration inform Ease of Doing Business performance, yet these are parameters with which informal businesses largely do not intersect,” Anzetse Were, a development economist reflects on.

Terence Jackson, Professor of Cross-cultural Management, Middlesex University says, “Today the informal economy appears to be as important as ever to Africa and its future development. But governments, and international organisations like the World Bank and ILO, do not like the informal economy. As a result, the international policy has veered from supportive to antagonistic.”

The Kenyan National Bureau of Statistics (KNBS) the Micro, Small and Medium Enterprises (MSMEs) 2016 survey noted that while majority fall within the informal economy based on their size, location, ownership, the status of formality and economic activity, together, as major job providers, they produce a significant share of total value-added, and provide a large segment of the poor and middle-income populations with affordable goods and services.

“The value of the MSME’s output is estimated at KSh 3,371.7 billion against a national output of KSh 9,971.4 representing a contribution of 33.8 per cent in 2015. In terms of gross value added, the MSME are estimated to have contributed KSh 1,780.0 billion compared to KSh 5,668.2 billion for the whole economy,” according to the survey findings.

While the participants in the informal sector are characterised by: absence of official protection and recognition; non-coverage by minimum wage legislation and social security system; predominance of own-account and self-employment work; absence of trade union organization; low income and wages not transferred through the banking system; little job security and no fringe benefits from institutional sources.

The Federation of Kenya Employers (FKE)further blames the growth of informal jobs citing poor planning policies and rigid legal framework that does not help them to transition into established formal businesses.

For Kenya to enjoy maximum benefit from the informal sector, there is a need to better understand their characteristics and tame these for the benefit of the country.

Activities that are undertaken in the informal sector are usually characterised by unregulated and competitive markets; small-scale operation with individual or family ownership; ease of entry; reliance on locally available resources; family ownership of enterprises; labour intensive and adapted technology and absence or limitation of access to institutional credit or other supports and protections.

It might be prudent for the Nairobi County to lead the rest of the counties in adopting the proposal of the ‘Charter for a Street-Trading Friendly African City -Steps that African Mayors can take to embrace inclusive and sustainable street trading management.

For the time being, my administration is working on means and ways that will ensure a progressive and humane relocation of hawkers to designated streets and lanes where they can freely do their businesses without obstructing other people as well as other business owners. pic.twitter.com/dYlIEyVWX3

— Mike Sonko (@MikeSonko) November 8, 2017

My office has a comprehensive plan to ensure hawkers’ interests are taken care of. As a long-term measure, my administration has identified Mwariro Market to be transformed into a hawkers’ market.

Plans are also underway to acquire KPCU building & transform it into a market. pic.twitter.com/BE8eKDxZpm

— Mike Sonko (@MikeSonko) November 8, 2017

Proposed by the Save the Hawkers Campaign, Johannesburg’ in recognising, supporting and developing informal trading.

The Charter Proposed by the Save the Hawkers Campaign, Johannesburg, proposes a set of principles, processes and institutions to guide city leaders towards practical steps they can take to better manage street trading in African cities.

Among the proposals include: Turning the approach around- from wishful thinking to taking stock of the African reality, a condition for efficient management and Recognising and resource an independent Informal Traders Forum – empowering traders to make independent strategic inputs into policies and implementation.

There should be increased platforms that can impart relevant skills like SME expo, training, networking opportunities, government tender process, open days, exchange programs among others. If we collectively strengthen the SME sector, our nation’s foundation will be growing a little more secure.

“We need to start thinking of inclusive strategies in order to step out of the endless loop-hole in which we find ourselves. Our diversity in business will, in the end, be our saving grace,” says Wakiaga.

David Indeje is Khusoko’s Digital Editor, covering East African markets.

In my role as Community Engagement Editor For Khusoko, I care about our audience. engaging them, getting news delivered to them across a variety of platforms, and expanding the diversity of voices on our website.

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