Fixing informal business in Kenya: the problem

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Opinions. We all have them. In some quarters, they backup the opinion that Kenya will not really develop until we have a generational change in leadership. This is not just about elected officials. There is also the decision-makers in both public and private offices. Am I buying it? I won’t say, I think my parents read these. We also don’t need a spat between the generations. But you have to admit that the Kenya we have today is a result of their collective actions. You’re liable if you were born before 1980 (haha).

One outcome that should really irk you is the lack of consideration for bottom-up solutions. Forget cities being built from the ground up or counties with no sports teams, of note, building stadia (save estate fields instead). This disdain for something so rational is most reflected by our politicians.

If your solution doesn’t involve multimillion shilling tender, heavy press or even sitting allowances, you’ll be giving pearls to pigs. Just a few weeks ago, a guest writer touched on a smallholder farmer problem. Nobody wants to ask the farmers about their own problems and suggested solutions. For instance, look at the maize situation and the curriculum issue. All top-down impositions.

In business, we are enduring a recent feigned interest in SMEs. SME is a sexy term, and anyway the public officials mean mid-sized companies at best. These are businesses with between 50 to 100 employees. Really, hype of any kind should be on the micro and small enterprises, which can be borderline informal. The informal business in Kenya too. These categories add up to 95% of all businesses in Kenya. But maybe it’s too much to ask. At one point, in 2018, Kenya was a net importer from Uganda. Congrats.

Informal business in Kenya

The experience of informal business in Kenya is far removed from that romantic narrative. You know, how graduates in Kenya who can’t find jobs are told to use their betting money to cook chapos, pull themselves by the bootstraps and all will be well. I’m not knocking on tenacity, but c’mon. Maybe if importing chapo-making machines to Kenya didn’t mean their prices practically doubled. Those bad boys complete multiple chapos in seconds. Oh, the possibilities.

Despite their numbers, the contribution of informal businesses is low. This is because productivity is low. That’s not good. PesaCheck, here, compiled an analysis using reliable statistics. And confirmed that the contribution to Kenya’s GDP could well be only 35%. This is inspite of their share of job creation or employment.

You must have had the gut feeling that it was this low. You do occasionally buy their cheap wares, no? But they don’t have the scale to absorb the low profit margin that comes with cheap prices. Despite this business model of survival, Kenyans are still drawn to try their luck in informal business. Why?

It’s not because Kenyans are stupid. Even if voting patterns may force you into that conclusion (why do we have a Moi in the news guys?). Informal business in Kenya is manifestation of necessity entrepreneurship. This is that scenario of individuals starting a business as a last resort. This type of entrepreneurship already exerts a negative influence on potential and performance even before you start. It’s not a guess. An assortment of studies prove that the majority of informal business operators would jump at doing something else. No Kenyan wants to come bother you in your PSV selling things. The fact that it’s cheap to start only spotlights this path as a low hanging fruit.

Can it be fixed?

If you’ve ever experienced it or spoken to an operator, you would understand better just how constrained the field is. Most relevant, the opportunity for real growth is almost lacking. You can come from the bottom, anybody can, but minimum viability is a thing. These businesses are stuck at affording wares, maybe rent, for the next business cycle.

One of the reasons for this is how highly competitive the field is. Competition is supposed to make you better. In this case, it leads to that lose-lose scenario called cannibalization. Easy to start isn’t always good. The barrier of entry is low, you have competitors before you can finish the word. Problem. The pioneers or front-runners also do not upgrade to another level. At their best, they will rely on sheer sales rather than price as this is what should come with value addition.

And forget about access to finance. Yes, we recognize all that talk about how such businesses lack in proper record-keeping and just how risky they are  Microfinance is the absolute limit of institutional money assistance they can get. Microfinance is a failed concept. In Kenya this is being made worse, like predatory lending rates, by our weird consumer culture. Many lines have been written about how consumption is driving quick mobile loans. Why are we like this? I don’t get it. Before the Chinese made their own cars, they just rode bicycles. C’mon Kenya. C’mon Africa. Earn it.

A summation of problems facing informal business in Kenya. Proposed solutions to these are as clear, in my opinion. It’s just that whatever sort of implementation is weak. This is just like the water hyacinth problem. So, the Government has a long arm but can’t deal with some water plants? In 2019.

All of the solutions proposed are interesting. But what would be the consequence of attempting them in Kenya? We’ll go through them and see. Perhaps it will influence who you vote for in 2022. Kenyans have learnt and vote on issues now, no? And deal with it, I’m kenyan. Of course, I have to mention 2022 in 2019.

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

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