What ails Kenya’s urbanisation?

Urbanization in Africa has surpassed the rest of the world in the last two decades as population increase has led to increased rural-urban migration. And even though it is having a positive impact on the continent, it has not brought about inclusive growth. Most African cities are comprised of a large number of people living in slums, rising poverty, and inequality.

Nairobi is such an example. Despite holding a population of over 4 million and accounting for over 30% of Kenya’s urban residents as of 2019, the capital city of Kenya continues to be absorbed by informal settlements and slums. This has resulted in several people being forced into poor living conditions, rising inequality, and poor infrastructure. In fact, according to the Kenya National Bureau of Statistics (KNBS), 36% of Kenyans living in Nairobi stay in slums and overcrowded informal settlements.

A majority of these Kenyans made the move from the rural area in search of making their lives better by taking up the opportunities in the city. However, with a growing population, automation, and businesses being forced to shut down due to rising costs, opportunities are not readily available as they were a decade ago. Overall unemployment among the working group (those between 15 years and 64 years) in Nairobi was estimated at 40%. The youth were the most affected as they accounted for 48% of those without jobs. Nairobi holds a higher percentage of youth who have stayed the longest not in employment, education, and training (NEET) (46.5%) than the country’s average (43.8%).

Even those who are in employment, most have been forced to enter the informal sector as the formal sector has recorded limited job growth over the years. As of 2022, the number of people in the formal sector in Kenya stood at 3.1 million people while those in the informal sector stood at roughly 15.3 million. Nairobi city holds the highest number of people employed in Kenya with 1.81 million working whereby about 3.5 times of those in wage employment are in the informal sector. And this can be accredited to the ease of entry and exit into the sector coupled with the use of low levels of technology.

Also with minimal regulations, the informal sector has continued to be the solution for most Kenyans, especially the youth. With a majority of Nairobi residents having tertiary education, about 31%, self-employment in the informal sector has been the most available option to improve their living standards. However, even the journey to opening a business is riddled with several challenges such as the prolonged period in acquiring business permits and licenses, poor transport, rigid labor regulations, high operation costs, crime, and inefficiency in tax administration.

According to the World Bank, it takes an average of 23 days to register and start a business in Nairobi, with a cumbersome number of requirements necessary to be completed beforehand. It is why a majority of businesses in the capital city (68.4%) report business licensing and permits as an obstacle to business operations while 60.4% consider rigid labor laws as a challenge. Furthermore, a majority of businesses (74.7%) have also reported tax administration as an obstacle. Even though the government introduced I-Tax to make the filing of taxes easier, the move by the current government to try and introduce new taxes is expected to make entry and the running of businesses extremely difficult.

Access to electricity is crucial for many businesses to operate. However, this remains a challenge as it takes a prolonged period to be connected, the cost of electricity is high and increased power outages, are already causing several businesses to record losses or worse off, close down. Data from the World Bank states that on average it takes 87 days for businesses to obtain an electricity connection once an application for a connection has been made. For small businesses, it might take up to almost a year (325 days) while for large enterprises and medium enterprises, it takes 50 days and 32 days respectively.

As a result, most businesses have been forced to rely on generators or hold off until they are connected, meaning delayed plans. Even those who are connected have to spend much on electricity, with firms in Nairobi spending on average Sh12.7 million on electricity in a year. Large enterprises spend an average of Sh42 million while medium enterprises spend Sh4.1 million, small enterprises (Sh861,530), and micro enterprises spend Sh81,667 per year. The situation has only gotten worse as the cost of electricity has gone up in recent years.

Despite having to spend such high costs on electricity, firms in the capital city are still losing a huge chunk of their revenue as a result of power outages. According to the World Bank, a firm loses an average of Sh2.3 million per year due to power outages. In 2022 alone, Nairobi and many parts of Kenya were affected by more than two major outages countrywide, not including minor outages that usually occur.

Accessibility is another vital aspect in urban areas. It is important for people living in urban areas to be able to move from one place to another or to connect firms to markets with ease for inclusive growth to be attained. There has been much progress in infrastructure development in Nairobi, with the likes of the Thika Superhighway, the Nairobi Expressway, and the Outer-ring Road which have made movement much easier for some businesses.

However, there remains a high concentration of unpaved roads especially in informal settlements, whose roads are in poor condition. According to the Kenya Roads Board’s Road Inventory and Condition Survey 2019, of the total of Nairobi’s unpaved roads, only 0.8% is in good condition, 26.5% is in fair condition and 70.1% is in poor condition. Accessibility allows workers to be able to easily commute to their jobs however, in Nairobi, the case is different as most jobs are not accessible within one hour of public transport means such as buses or matatus or by walking. The main means of transport in the city is through public service vehicles (PSV) such as matatus and buses, as well as motorbikes and private cars.

In comparison to the rest of African countries, the average accessibility, the percentage of estimated employment opportunities accessible to an average person within an hour, in Nairobi is quite low. According to the World Bank, Nairobi stands at 28.5% as compared to Kampala which stands at 31.7%, and Dakar which is at 46.7%. traffic congestion which is a major issue in Nairobi has played a major role in the low average accessibility.

The development so far in terms of infrastructure has been through the assistance of the national government with the county government using much of its revenue on recurrent expenditure rather than development expenditure. This is even though the county collects the largest percentage of its own source revenue (OSR) of the total OSR of all 47 counties. The equitable share from the national government has increased from Sh9.51 billion in FY2013/14 to Sh19.42 billion in FY2020/21. Regardless of the increase, the county still faces delays in the disbursement of funds from the national government, accumulation of bills, mismanagement, and fiscal deficits, that make it unable to fully act on the growing challenges.

For all Kenyans to enjoy inclusive growth, there is a need for improvement, with tertiary education common among many Nairobi residents, the government needs to ensure tertiary institutions provide training and skills that are consistent with the current emerging technologies. This will lead to those in the informal sector being well equipped with the technical capability that can help them expand thus creating more opportunities. The government also needs to ensure that the regulations and tax administration in place favor businesses, this will boost the ease of doing business. Nairobi is also able to look at other means of taxation such as property taxation to increase its revenue which can be reinvested into infrastructure and the community.

The government has worked on reducing the time it takes to open businesses by integrating technology, there is a need for more investment to ensure the time reduces. Also, the high cost of electricity has been a major problem for the corporate sector for some years, with the government focussing on renewable energy, it should be an opportunity to integrate it to reduce the expense for a majority of businesses, especially those unable to take up their own sources of energy.

The time for change is now, if urbanization is going to be a solution for Nairobi residents, then there has to be good governance and the right policies in place to ensure that every area in the city is catered to. With the population expected to keep rising, if not prepared Nairobi will become a pool of the unemployed and the underemployed. It will not be able to keep up with the rest of Africa’s cities.