The informal sector plays a critical role in the Kenyan job market. Out of all the industries, the informal sector employs 80 percent of Kenyans while it also contributes to over 35 percent o the Gross Domestic Product. Among the drivers of this sector include the domestic workers, hair salons, home businesses, street vendors, car mechanics, bakeries, artisans and livestock keepers.
The Kenya National Bureau of Statistics’s report showed that in 2016, the informal sector created over 713 thousand jobs out of the overall jobs whose number stood at 841 thousand. However, the problem is how to regulate the informal sector since most businesses are very small and do not have a permanent establishments.
How Can the Government Support the Informal Sector?
The government can promote the informal sector through several initiatives. Some of the initiatives by the government include the following.
1. Simplifying the Tax Procedures for the Informal Businesses
The government should improve the businesses environment for the informal to thrive. The government should not rush to formalize informal businesses, but instead, it should simplify its tax procedures. This move will see more establishments of jobs in the informal sector, thus solving the unemployment problem in Kenya. Most businesses would like to become formal, but due to stringent tax procedures, many choose to remain informal.
2. Easing Business Registration Process
Registering a business in Kenya is very difficult due to the many compliance bodies that one needs to clear with. For instance, to establish a business, you will need to get a clearance certificate from the Ministry of Health and also from the County Council. The process can be eased by integrating technology, creating a one-stop shop for online business registration, whereby a business can register online without having to visit the offices. Also, some of the requirements while opening a business should be abolished. For instance, most county councils do not give licenses where one has integrated two businesses into one. There are businesses which depend on one another where one cannot thrive without the other.
3. Promoting Savings in SACCOs
Savings And Credit Cooperatives (SACCO) are a better choice for most businesses in Kenya. Unlike banks that have high interest on loans, they have low-interest loans on deposits. Business in the informal sector needs to mobilize resources for business growth. Apart from mobilizing resources, the government needs to organize seminars and workshops to train Kenyans on investment. This will help many investors in the informal sector to transform their businesses into modern businesses.
4. Providing Capital for Business Startups
The government has established initiatives that will see a majority of youths get access to startup loans. Some of the efforts to provide startup capital include Uwezo Fund. The loans range from Ksh 50,000 to 500,000. It also provides mentorship programs to entrepreneurs to ensure they invest the money wisely.
Challenges Facing the Informal Sector
The informal sector is facing many problems, especially due to the nature of the jobs within. This makes it difficult for the government to regulate the industry, which makes easy for unscrupulous business people to exploit traders. Among the challenges include:
- Harassment by the county council and police officers. Street vendors are the most affected by harassment from the county council since most of them do not have licenses. Also, the recent move to expel hawkers from Nairobi City Center is a big blow to the informal sector that heavily relies on pedestrians on the streets.
- Limited market access. The informal sector lacks large markets to sell their products. Most of them earn peanuts since most people prefer to buy products from established businesses.
Poor infrastructure. Many hawkers and jua kali artisans work under harsh environment. Due to the lack of proper shops to operate in, many work in sheds and those who cannot afford have to work under the hot sun the whole day.
Inadequate capital. Lack of capital for business startups is a significant blow to many youths with entrepreneurship skills. Kenyan youths are hardworking and innovative and are willing to invest in small businesses if provided with capital.
The government must address the needs of the informal sector since it is the backbone of the country. More funds should be channeled to improving the industry and creating an enabling environment. By investing in the informal sector, the government will be addressing the unemployment problem that is facing a significant number of Kenyan youths.
Vincent is a Kenyan writer with an interest in finance, business, technology and health niche. He holds a Bachelors degree in Applied Statistics with computing from the University of Eldoret.