Should Kenya leave informal businesses to die out?

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One technique of solving problems is not dealing with them at all. People in bad relationships use it but you feel it’s most popular among our political leaders. It’s called avoidance. When it comes to informal businesses, the hope is that the market will ultimately sort itself out.

This will save the Government time and money of dealing with the sector’s problems. Anyway, Governments are not good at solving issues at the micro level. What we have seen so far, for informal businesses, is County Governments slowly building markets over entire terms. Once they are open to public close to election dates, that’s the end of that. Nobody wants the thankless work of maintaining these market places nor stooping so low as to consult hawkers and traders about long-term solutions.

To be fair, the Kenyan National Government does make effort to only nudge informal businesses to become formalized. The presumptive tax was harsh. But efforts to reinvent microfinance, like Uwezo Fund, and the specialist body called MSEA can be welcomed.

By doing nothing about the issue of informal business in Kenya, market solutions are free to explore whatever opportunities available. These businesses and their cheap wares target underserved segments of the market. It’s surprising how many Kenyans belong here. And perhaps the reason we have not seen a franchise of dukas yet, for example, is because the technical and funding barriers have still not been overcome by clever Kenyans.

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Choosing to do nothing about informal businesses is hoping that it’s only a matter of time before opportunities in that sector are picked off one by one.

How realistic is this position? Informal businesses are, after all, a feature of economies suffering from severe market failures. Could it be better if the Government focused on addressing the underlying reasons for existence of such businesses? Reasons like quality of education and capacity of formal businesses. For example, there would be no malls on Thika road before The Thika road. Now, they want to ruin it with the half-baked BRT. Oh well, I digress.

But avoidance may never lead to such a fairytale conclusion. A problem is that informal business in Kenya is only getting more sophisticated, as with everything else. The traders are improving the products they can avail to the market. And I’m not only talking about how you can get legitimate luxury apparel brands if you have the time to look. You can but it’s desperate. As manufacturing gets cheaper in China and other places (are there other places?) and our market remains “free and open,” you’ll continue to be surprised by what is hawked.

Can a Kenyan business graduate and TVET technician afford to combine and make a peeler, for example? The Chinese will do it far cheaper and quicker. They make tractors in minutes and we have little protectionist measures against them. Tanzania and China get the idea. These Chinese villains (I’m kidding) don’t even allow Hollywood productions to overtake their local creatives. But your local channel lines up old Nigerian and Philippino productions. What’s wrong with us? Can I repeat that the Chinese rode bicycles before they could make their own cars?

The easy importation of their final products for individual or cartels of informal traders will only make it more difficult to do away with. How? The sector gets more attractive by its low barrier of entry and prospect of disruption becomes too socially costly to see through. Don’t believe me? Look at matatus. Okay, we want the means of public transport we see in the tv series but where will all those drivers and conductors go? Anyone who talks about retraining them after the fact is playing with you.

And as informal businesses consist of an increasing share of total businesses, in Kenya, it means taxation pressure will add up on the comparatively tiny formal segment. Sorry for the long sentence. This kind of taxation kills investing and spending prospects, which leaves all of us only poor enough to buy from informal businesses. Yes, it’s self-fulfilling. There has to be another way of dealing with the problem.

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Web Content and stuff. You can reach me you know: editor@herbusiness.co.ke, malitrobert@gmail.com