Policymakers have long been divided about the place of the informal sector in the country’s economy.
There are those who point to the employment boon created by the numerous Jua Kali sheds, roadside eateries, kiosks and salons. However, detractors question the quality of services and products from this part of the economy.
Part of the reason for the rapid expansion of the informal sector has been the lack of formal jobs.
“With the shrinking of job creation in the formal sector, a majority of the youth who exit from learning institutions and individuals who leave formal employment easily join the informal sector,” the Economic Survey 2020 says.
This sector has expanded under President Uhuru Kenyatta. In former President Mwai Kibaki’s first term, between 2003 and 2008, for every 10 workers, seven eked out a living in the informal sector.
This increased to 82 per cent in President Kenyatta’s first term.
Critics of the expansion of the informal market decry the poor pay and harsh working conditions endured by workers; those hired to work as househelps, in farms, as hawkers or to look after livestock.
These employees do not enjoy benefits like medical insurance or pension, although there have been efforts to rope them into State schemes like the National Hospital Insurance Fund (NHIF).
Yet, it cannot be denied that the expansive informal sector has provided a crucial source of income for millions of families who would have otherwise struggled to put food on the table, pay rent or meet other bills.
But the opaque nature of the majority of these businesses means that the government struggles to collect taxes.
Consumer protections also suffer in the informal economy – it is easier to take a registered business to task over bad services or faulty products than a trader who operates outside the government’s radar.
But as regulations – especially tax policies – have tightened, formal businesses have either reverted to informal operations or shut down completely.
For example, the re-introduction of turnover tax aimed at bringing millions of small businesses into the tax bracket might scare off entrepreneurs who had registered with county governments but were not paying taxes to the national government.
The digital tax, which is aimed at online traders, is also cited as a potential hurdle against achieving compliance.
Prof XN Iraki, an economics lecturer at the University of Nairobi, says the informal sector should be celebrated as it reflects Kenya’s “hustler mentality”.
“The informal sector brought masks to the streets way before Rivatex. But they must maintain quality and scale up to get a bigger market,” he says, noting that concerns such as not meeting quality standards can be addressed with time.
“If this entrepreneurial spirit is harnessed, the economy can grow much faster. We can achieve Vision 2030 before 2030.”
But illustrating the growing impact of the informal sector, since the 2013-14 financial year, tax revenues as a percentage of gross domestic product have largely been on the decline.
The government has attributed this to the expansion of the share of agriculture, the country’s economic mainstay, which is largely informal.
In contrast, in the seven years to the end of Kibaki’s term, tax revenue largely kept up with economic growth, with the only noticeable dip being in the 2009-2010 financial year, when the economy was recovering from the effects of the global recession.
Uhuru’s government, however, created more formal jobs in his first term than Kibaki did.
In his seventh year as president, Kibaki’s government registered 1.95 million Kenyans in formal employment, with 7.9 million in the informal sector.
This was a slight increase from the 1.6 million Kenyans in wage employment in 2002 when the National Rainbow Coalition swept to victory.
When Jubilee took over the reins of power in 2013, approximately 2.28 million Kenyans were working in the formal sector. Seven years later, the number, according to official data, stands at nearly three million.
But these numbers pale compared to Kenyans who make a living from the Jua Kali sector.
Kenya National Federation of Jua Kali Associations CEO Richard Muteti says a strong foundation laid by the Kibaki government has helped the sector grow, with the current regime maintaining the momentum.
“The Narc government made the operating environment quite bearable ... Kibaki appreciated the Jua Kali industry and that was a turning point,” said Muteti.
He also claimed that figures by the Kenya National Bureau of Statistics (KNBS) are not representative of the full force of the country’s informal sector.
While KNBS estimated that 15 million people were employed in the informal sector in 2019, Muteti said the number could be in excess of 23 million.
“We have four major sub-sectors in the informal sector. We have the artisans, with up to 18 distinct sub-sectors. There are small traders such as hawkers, agro-based workers, and service providers such as shoe-shiners and salonists.
“Organising them into association models and clustering them together can help number them accurately. It can also help them enjoy economies of scale.”
He said the Micros and Small Enterprises Act, 2012 gave clear definitions that have supported the empowerment of small and medium enterprises.
“With the county system, local governments trying to collect revenue from the informal sector has led to the unearthing of some businesses that would never have been registered. Businesses such as hawkers or those people who sell farm produce by the roadside have always been hard to register and quantify,” said Muteti.
And the resilience and level of innovation in the sector cannot be overstated. Policies, Muteti said, are now catching up with an industry that has seen explosive growth.
“Kamukunji started with around 630 people. It is now spilling into Gikomba,” he said.
Muteti also predicted that Covid-19 would lead to greater growth in the industry, with people laid off from formal jobs using their skills to start small enterprises.