Let’s nurture the informal sector for a thriving economy

Let’s nurture the informal sector for a thriving economy

BY Antony Mutunga

Job layoffs, business closures, and an unfavourable business environment have worsened an already bad unemployment crisis in Africa. Lacking opportunities in the formal sector and needing to survive as well as provide for their families, many have been left with no choice but to enter the informal sector whereby they earn a living through activities such as hawking, domestic working, and welding.

To many, the sector is actually the true economic reality of an economy. Often associated with low wages and where one enters out of economic necessity with no other means of livelihood, it is nevertheless the leading source of employment for most people in Africa. According to data from Kenya’s Economic Survey 2019, the informal sector created over 762,000 new jobs (83.6 percent) in 2018 while the formal sector only created about 78,500 new jobs.

In fact, this has been the trend, according to the Kenya National Bureau of Statistics (KNBS), from 2014 to 2018, the sector has created 3.7 million new opportunities. There has also been a surge in the number of people engaged in the sector, growing from 11.8 million to 14.9 million. The wholesale and retail trade put together with hotels and restaurants form the largest part of the informal sector with almost nine million people employed as of 2018. Following in second is manufacturing with about three million people while the community, social and personal services sub-sector employs almost 1.5 million people. There are also about 500,000 people employed in the transport and communications sector. 

The growth of the informal sector can be attributed to changing social or economic environments; for instance, the adoption of technology has helped the sector to stay accountable thus increasing their access to credit. Mobile technology is an example as a number of small businesses are increasingly making use of mobile money and other mobile applications to record transactions which in turn, they can use to acquire credit.

Lack of close government supervision has also helped the sector. With minimal to no taxation, those in the sector enjoy all the fruits of their labour. Additionally, due to the creativity in the sector which allows them to imitate and create new designs as fast as they come, their products and services are usually unique and fast-moving. This attracts customers from all over the world, who are willing to part with large figures to acquire the merchandise.    

However, despite the benefits the informal sector contributes to the Kenyan economy, it still lacks adequate support from the government to prosper. For instance, even though the sector is integrating technology, this only happening in urban areas while in the rural areas, the lack of network infrastructure has a majority missing out. Internet penetration is quite high in the country, standing at 89.8 percent according to the internet world stats; it is extremely low in rural and remote areas, which means people are unable to fully enjoy the advantages of mobile technology. 

International organizations such as the World Bank and the International Monetary Fund (IMF) are also sometimes antagonistic towards the sector. This is because most of these institutions link the sector to child labour and abuse. As most young people of low-income households enter the informal working sector at a young age to earn minimal wages, it creates the notion of child labour which the institutions are against. And because most governments rely on these institutions in terms of access to finance for their development goals, they end up distancing themselves from the sector to ensure they are not cut off. 

As well, corruption, in terms of harassment from government officials, has played a role in stagnating the growth of the sector. A majority of those in the sector have cited being harassed, sometimes a daily occurrence, by government authorities who are looking to be bribed. As a result, most small businesses end up making losses and are unable to expand. Additionally, the sector has a majority of those engaged in it being inadequately skilled and with no way of upgrading their skills. This results in most people having minimal chances to move up and better their lives. 

Governmental support is key if the sector is to grow and create new opportunities for the growing population. The government can help link the small businesses to the large organisations, where the latter acquire supplies locally instead of spending more by exporting products already available in the country. This would not only boost small businesses but also grow the economy. Also, the government can bring the sector in the fold by ensuring that those who look to enter the sector obtain training on requisite business and technical skills.  

The informal sector needs to be given room to establish itself, as it is the key to a thriving economy. It is important and it should be nurtured, as it may be the crucial factor to taking the Kenyan economy to the next level. By addressing the above and coming up with policies that better promote the sector, it will become an avenue of creating wealth and opportunities. (

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