Last week, this column reported that just 16 per cent of the Kenyan workforce is formally employed and earns a salary. This translates to 2.47 million people out of a working population estimated at 15.1 million adults. It surprised many readers, and is an indictment on the structural failings of Kenya’s economy.
Informality is the dominant experience in the Kenyan economy, accounting for 84 per cent of all jobs in the market today. But, by nature, it escapes official scrutiny, is invisible in official statistics, and so ends up being misunderstood or neglected by policy makers.
The financial reality of the vast majority of Kenyans is obscure from the state, and Kenya’s “wananchi” end up being described with broad, homogenous strokes.
But one ambitious project by Financial Sector Deepening (FSD)-Kenya attempts to shed some nuance on the financial lives of Kenya’s poor, painstakingly tracking the spending habits of 300 Kenyan households over one year.
‘Shilingi kwa Shilingi: The Financial Lives of the Poor’ pieces together the story of how Kenya’s low income earners survive in a harsh economy that was not created with them in mind. As one popular saying goes, Kenya has wananchi (citizens) and wenye-nchi (owners).
The study found that for the majority of Kenyan households, incomes are patched together from multiple sources, to try and construct a bigger whole. Unlike formal wage earners who wait for a lump sum payment once a month in the form of a salary, the median household in the study had 10 separate income streams registered through the course of the year. By far, the most frequent of these incomes was “resources received”, which is upkeep and contributions from family and friends, for example cash received from relatives working in towns.
In fact – and surprisingly – agriculture is the most important income source for just 11 per cent of rural households, even though most rural families own land, described themselves as farmers, and would be considered so on paper. But the reality is that remittances from relatives and friends account for 36 per cent of income for these households.
It is said that land is the “biggest issue” in Kenya today, and agriculture is the backbone of the Kenyan economy, employing the bulk of the rural workforce. But agriculture brings in very little actual cash for most rural families today.
The value of the land is first, as a supplementary source of food. The study showed that incorporating the value of produce consumed from the family’s own shamba raised per capita consumption in rural households substantially, by about 28 per cent.
You could also argue that land has value as a store of wealth, an asset that could be leveraged when needed. Indeed, the study shows that property accounts for 65 per cent of the average household’s physical assets. The median household owns about Sh225,750 in physical assets, which dwarfs financial assets of just Sh8,700 at the median, the report shows.
But even that argument fails to hold water when you consider that nearly 80 per cent of the respondents who own their primary residence have no form of documentation proving their ownership, including even a letter from the area chief.
So one could argue the biggest value of land in the Kenyan context is actually in its symbolism and sentimentality. In fact, one could wager that there is really nothing like an agricultural economy in most of Kenya; what we have is people looking after the family inheritance and property, and ensuring that people have somewhere to be buried.
For urban households, the income sources are quite different – 41 per cent of income is from self-employment, for example hawking and petty trade, while 26 per cent from casual work. Remittances account for 5 per cent of income in urban areas.
Take one rural respondent, George, quoted in the study. While George considers himself a farmer, nearly half – and sometimes more – of his income came from casual work on construction sites and a side business working as a carpenter. The rest came from sales of a patchwork of agricultural produce: tea, milk, maize, vegetables and bananas.
Another respondent, Jennifer, had a different approach in trying to make ends meet – she shifted her livelihood strategies depending on what was working at the time.
Unlike George, who patched his income from various sources simultaneously and consistently, Jennifer successively picked up and abandoned various gigs – at first she was selling chapatis, then washed clothes, worked in the canteen of a local school, then as a barmaid. Eventually, she started up the chapati business again, but that was after a very brief foray into prostitution.
The two examples show that income in the typical Kenyan household fluctuates dramatically, ± 55 per cent from month to month, and consumption similarly fluctuates ± 43 per cent. In fact, most Kenyans survive so close to the margins that dictating that they should spend strictly within their earnings – what the middle class might call “living within your means” – is literally not possible.
What people do when needs arise is that they “look for money”. Any Kenyan intuitively understands what this phrase means, but it deserves unpacking here. “Looking for money” is stretching budget elasticity, either by soliciting contributions from family and friends (such as through harambees), seeking new income sources (for example, Jennifer’s weekend washing of clothes) or calling in favours.
Negotiating the availability of credit is one important mechanism for building elasticity in the budget, the study reports. The report interviewers noticed that respondents would go out of their way to keep the lines of some basic consumption credit open among small shops in the community.
For example, Valerie deliberately buys food daily, and from multiple shops and stalls around the community. She explained that this allows her to maintain relationships with all of those shopkeepers, so that she can access credit from multiple sources if the need arises.
Never buy in bulk
Each shopkeeper may only let her borrow goods worth around Sh200, but if she can get that from five places, she can cope with “even a pretty serious problem.” And she never buys in bulk, even when she has the money. She wants them to see her smiling face every single day. “When they see you every day,” she told us, “they believe you will repay.”
Still, despite tight budgets and high volatility, the typical poor household is actively saving. The typical study household mediates the equivalent of 128 per cent of its income through financial devices.
This figure – that exceeds 100 per cent – indicates that the typical household is constantly moving the same money into and out of financial devices, even short term ones, such as high frequency chamas (savings groups), saving in the house, or in their mobile money accounts. Some take goods on credit and pay after just a day. The day-to-day strategy is all about juggling obligations and keeping some open space to cater for needs that might arise.
But inevitably, sometimes the juggling falls short, and although theoretically a household may have significant savings tucked away somewhere, it is often illiquid and so one can’t access it when unexpected expenditure arises.
Households are often forced to forgo important expenditures on food, health, and education. But medical expenditures are the most debilitating of all. Thirty eight per cent of respondents went without a doctor or medicine when needed and 11 per cent of households experienced this across three or more interview intervals.
What is most surprising is that these needs are not only foregone for large sums of money. Many times, the financial barriers to accessing health care are very small, even relative to income – we are talking as little as Sh20, which someone just doesn’t have on that particular day.
The social network is an extremely important support system for many types of emergencies, particularly medical bills. What is intriguing is the psychology of these networks. It seems that people were more likely to contribute for a funeral than a medical bill – and there are social and cultural reasons at play here.
Take Isaac, whose wife fell ill and had trouble swallowing. After visiting the hospital she was told she had a tumour in her throat that would need to be removed, which would cost Sh23,000. He sold his mobile phone for Sh6,000, but ultimately they could not raise the whole amount fast enough and his wife died. Immediately, Isaac was flooded with contributions in cash and in kind worth more than Sh33,000.
This was not a unique case – funeral harambees raised money in a matter of days, for patients that may have been ailing for months. Perhaps people are not sure that their contributions for a patient in hospital would matter. Would Isaac’s wife die anyway? As grim as this sounds, a funeral represents a form of certainty that a medical appeal doesn’t.
And funerals have a cultural and social significance that is really inescapable. What’s also intriguing is the role of the mobile phone, as Isaac’s story illustrates. In the Kenyan context, the mobile phone’s importance is in mediating mobile money, through MPesa and the like. But that’s not the whole story.
Along with small livestock like chicken and goats, mobile phones are an asset that can quickly be converted to cash, to cope with small (especially health) emergencies.
Ninety six per cent of households in the study owned a mobile phone, it was the most common domestic asset, even more than blankets/ bedding (owned by 94 per cent of households) and furniture (89 per cent)! The average value of a mobile phone in the study was Sh1,500, and it was the third most-pawned asset, after chicken and goats.
—Christine Mungai is a writer, journalist and executive editor of Africa data visualiser and explainer site Africapedia.com