Give shade to Jua Kali businesses

Apr 24, 2005 Management, Sunday Nation

Is our Jua Kali (informal) sector a good thing? Opinion differs. The government clearly takes some pride in telling us that most of the 500,000 jobs “created” every year are in the informal sector. Like it or not, Jua Kali is a fact of life in modern Kenya. It is everywhere: on the streets of Nairobi’s Central Business District (on Sundays only, according to a recent directive); in rural market centres; on roundabouts and road reserves; even in exclusive residential estates. There are an estimated 5.5 million informal sector jobs in the country, compared to just 1.7 million wage jobs in ‘modern’ establishments. Jua Kali matters. What should we make of it?

One school of thought has it that the informal sector is actually a brake on development. It is undeclared, unregulated and unprotected. It does not contribute to government revenues, and therefore places a greater burden on the formal sector than is necessary. Jua Kali enterprises are not regulated, and therefore mushroom everywhere. They do not have to conform to any standards, and therefore produce shoddy, unreliable goods. They are not protected by the legal and judicial system, and are therefore vulnerable to extortion and subject to daily uncertainty. Informal entrepreneurs do not hold property rights to their workshops, sheds and other assets, and therefore cannot raise money against them. In this view, the informal sector is nothing to be proud of; indeed it is evidence of our failure to develop. It keeps our people trapped in low productivity and low standards.

There is another perspective, however. Some economists believe that the sector is actually efficient and profit generating. It is customer-driven, and provides affordable goods and services to lower-end consumers who are otherwise locked out of consumption. Jua Kali businesses are flexible and adaptive where others are rigid and unresponsive. As the Kenyan government itself acknowledges, the sector provides employment on a scale that the formal public and private sectors simply cannot. Many Jua Kali businesspeople are informal by choice; they choose to operate outside the stifling regulations and crippling taxes imposed by many developing-country governments. This is confirmed by some international recent surveys, which found that only a small minority of informal workers were looking for employment in the formal sector, and that wages and incomes can actually be higher in the informal sector.

We cannot take meaningful steps in the development race without taking a stand in this matter. If this sector is so important in the economy, we must know what to do with it. Is it a brake on development, or the engine itself?

Let us first recognise the problems with Jua Kali. As things stand, informal organisations may be close to the customer, but they do not have access to modern technology and business processes, and are therefore a very unproductive and inefficient way of doing business. If most of the economy is organised in this way, then we are indeed stuck in a productivity trap. Informal businesses generally dodge taxes, and get an unfair edge over law-abiding organisations. As a result, those who do pay taxes pay more than they should need to – our VAT rate could be much lower, without decreasing government revenue, if the state captured more retail sales.

In addition, kiosks and hawkers proliferate everywhere in unsanitary conditions, and spread disease and create noise pollution. They cause traffic congestion and are known to harbour criminals. The social costs cannot be ignored.

Yet the informal sector is a natural and spontaneous expression of the human tendency to engage in entrepreneurship. Our markets may be noisy and disorganised, but they are also vibrant and full of life. They teem with zestful activity: buying, selling, counting, bargaining, and appraising. What is wrong with that? It is the stuff of life itself. There is a great energy in Kenyans to engage in enterprise; the challenge we face is in making the enterprise worthwhile to the individual and to society at large.

If government and its planners have any role in this country, it is to provide organisation, regulation and incentives. The initiatives that are needed are obvious, and have been promoted to great effect elsewhere. Business parks and organised markets with proper facilities and sanitation. Tax reform to allow small entrepreneurs to come into the embrace of the modern economy. Legal reform to allow them to place legal claim on their assets and make their capital come alive and be recognised by the financial system. Community-based micro-credit that allows lenders to bear risk in innovative ways. These ideas have been around for decades, but have yet to see meaningful fruition in Kenya.

Why? Because our mindset is all wrong. We are insufferable snobs in this country. We look down on poverty and informality with viciousness. We detest ragged people in dirty surroundings. We value stable jobs in genteel multinational firms where we can conduct ourselves with decorum and politeness. There is a fence in our minds, and we know on which side of it we need to be. Poverty is a disease to escape from and then to be viewed from afar. In most cases, it is our own origins that we are loathing.

This blinkered view prevents us from seeing the potential solutions. We all think ‘economic growth’ is the answer, that it will haul everyone out of poverty and make the informal sector an irrelevance that will then fade away of its own accord. But where is this growth going to come from, if not from the determined activity of the mass of the people? We demonstrate blind faith in polished western institutions and their annual handouts, but look away from our own sources of growth.

Civil society has been beating the small-enterprise drum for years; government has generally looked the other way. Worse, it seems to view street entrepreneurs as irritants to be denied licenses, or just clobbered. Is it not time for the private sector to step forward? The fact that our salvation may lie in channelling the untapped entrepreneurial energy hidden in our informal sector should be filed under ‘blindingly obvious’. But who is going to do something about it? Where else do the skills and management talents of this country reside, except in the private sector? Who other than managers and professionals can devise the structures and incentives needed to formalise the informal?

We remain unwilling because it’s “not our role”. Oh no? So whose role is it? We need an affluent and growing country around us in order to serve our shareholders. Where else does the now-ubiquitous corporate social responsibility need to be focused? Let us stop giving charity and start giving organisation and management. Let us stop waiting for the brainless meanderings of government and the futile rituals of development partners to lead us somewhere. Exactly how the private sector can contribute will be explored here in weeks to come. But let us accept that the time for uncertainty is past. As Bertrand Russell pointed out a long time ago: “The problem with the world is that the stupid are cocksure while the intelligent are full of doubt.”