Rise of unproductive informal sector bears false hope

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In one of my articles published about a month ago, I wondered aloud if we were missing the emergent opportunities while we grumbled about the role of government in facilitating entrepreneurship.

As global enterprises are expanding in the country, local entrepreneurs are expanding an unproductive informal economy.

My comments seem to have irked some people on social media. Although I never respond to social media critics reacting to my work, I feel it is important to respond generally to a thread advanced by some unknown person going by a pseudonym Pilsner Baridi.

He argued that my “article blames citizens for poor government policy.”

He most likely did not understand my argument. First, I didn’t blame citizens. Government makes policy and regulates enterprise for fair trade practices and to protect consumers.

Citizens, on their part, take the risk to invest in viable enterprises that can contribute towards economic growth. Government is not entirely to blame for our failure to create sustainable enterprises.

In my view, continued informalisation of the economy is wasteful, retrogressive, does not create either mass employment or wealth and hinders poverty reduction through false assumptions that it is a critical cog to economic expansion.

We can stop this by creating scalable enterprises that can create both jobs and wealth. This means we must collaborate with government and academia to create sustainable enterprises.

The expansion of the informal economy is a reflection on how much we have failed in leadership and in planning. The failed leadership and planning starts from households to governments.

At the household level, families should plan on how many children they should bear. Indeed, evidence from the World Health Organization (WHO) suggests that family planning has a positive relationship with virtually all of the United Nation’s Millennium Development Goals and many of the Sustainable Development Goals (SDGs).

Some of these goals are not different from what forms the basis of our economic development blueprint – the Vision 2030.

The number of children a woman has impacts especially goal number three (Good Health and Well-being) and 4 (Quality Education) of the SDGs.

Thus WHO suggests that women who have more than four children are at increased risk of maternal mortality. Through reduction of the rates of unintended pregnancies, family planning also reduces the need for unsafe abortion.

This in turn helps reduce the health expenditure for governments and improve the quality of life for families. All these require leadership at every level.

Multinational firms that fill up our malls work to develop unique products that can be attractive to a wide range of consumers across the World. Informal enterprises dwell on copying what their neighbour has created.

Soon, everyone is selling the same thing. Eventually, they compete on pricing and ultimately there is no winner as they all collapse or waste most of their days idling.

Until very recently, the concept of selling vehicles was confined to Central Business District or Industrial Area until someone started car lots by the roadside.

Today there are more car lots than the buyers. Logic dictates that there could be other illicit activities supporting such enterprises.

It is common knowledge that some wealthy owners of kiosks around tourist joints and universities have other dealings that have a more devastating effect on families and the economy in general.

Even those that do not sell illicit products like roadside food kiosks without running water and toilets have caused more harm than good in spreading diseases like cholera.

Once again, this is due to failure in leadership and planning at all levels to provide hygienic spaces for food vendors to minimize risk of diseases.

The problem is getting bigger by the day as informalisation expands everywhere, even in places where there is no market for the products that the vendors are offering. A young lady is setting up a mitumba stall by the UN headquarters in Gigiri.

There are no customers in that location. Perhaps she has no clue that there are reasons why enterprises locate economic activities in some places unless such activity is fronting for other unseen products.

Lavington Estate, for example, used to be known as Lavington Green. It was everybody’s dream to live in this high-end estate that was named after colonist Ralph Payne, the first Baron Lavington.

It is no longer green. A nearby riparian land was grabbed. In my view, such land should have been repossessed along with the buildings to house incubators for Micro Small and Medium Enterprises development.

It is the absence of well-managed programs to uplift entrepreneurship. Lavington is greying with hopeless enterprises.

The trend is the same in Karen, Westlands, Riverside, Kileleshwa and Kilimani where a colony of traders have invaded.

Some greedy landlords encourage chaotic entrepreneurial practices by stacking containers from where traders will work. They build no toilets or offer running water, something the local government should ensure it is taken care of if they adhered to proper leadership with a sense of planning.

It is self-defeating to pursue a form of enterprise that gives no hope now and in the future. The question we must ask ourselves is how do we truly start enterprises that will lead to economic transformation of not just Kenya but the continent of Africa?

A World Bank study on digital economy posed a similar question and provided the answers that we must pay attention to.

The question. How should African countries get started on their path toward their digital transformation? They proposed that Africa prioritises three “Es” as a start:

First, enable entrepreneurship: let good ideas flourish no matter where they come from—so that African entrepreneurs build apps that enable Africa’s workers to build their skills as they work. Second, enhance the productivity of the informal sector: create a business environment that helps boost the productivity of informal businesses and workers—don’t just focus on trying to formalise them. Third, extend social protection coverage: improve revenue collection, rebalance government spending, and better coordinate development assistance.

Similarly, we must build incubators to help young entrepreneurs enhance their entrepreneurial capacity, enhance productivity of informal enterprises and of course social protection.

None of these can be done without proper leadership and planning.

The writer is a professor of entrepreneurship at University of Nairobi’s School of Business. @bantigito

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