Kenya: Employers' organizations taking the lead on linking the informal sector to formal Kenyan enterprises

The informal sector accounts for nearly 18 per cent of Kenya's Gross Domestic Product and comprises 90 per cent of all businesses in the country. In 2001, the sector employed 4.1 million people and their numbers are increasing. While in the past small enterprises were seen as competitors with larger companies, the Government of Kenya and the Federation of Kenya Employers (FKE) now see linkages between the formal and the informal economy as an opportunity to create a win-win situation for both sectors.

Article | 02 August 2005

NAIROBI, Kenya - Jua Kali means fierce sun in Swahili. It's also the name given to the informal sector in Kenya, the thousands of small workshops where people bang out pots, pans, auto parts and handicrafts, literally under the hot sun, day in and day out.

It is not only hot work, it is harsh work, often done under conditions that are neither safe nor regulated. "There are many problems here like there is too little space and we are squeezed together. If you look at these buildings you would be afraid to stay and work inside...", says Jua Kali worker, Martin Aloo.

The FKE started getting involved in informal small-scale activities back in 1989. At that time, unemployment in the country was rising due to reductions in private sector formal employment. Formal employment fell from 42 per cent in 1985 to 19 per cent in 1998. It was against this background that the FKE revised its work with support from the ILO and it did so in line with the Kenyan Government policy framework for small and medium-sized enterprise development completed in early 2004.

The FKE has played an active role in the consultations leading to the new policy framework, which relates to the overall goal of developing a vibrant small and medium-sized enterprise sector capable of promoting the creation of durable, decent and productive employment opportunities, stimulating economic growth, reducing economic disparities and strengthening linkages between firms.

In the past, these small enterprises were seen as competitors with larger companies. But the FKE and the government now see them as an opportunity to enable micro enterprises in the informal sector to contribute towards industrialization and the creation of decent jobs and wealth.

Based on the need to increase its membership and maintain credible representation, the FKE launched its Small Enterprise Strategy to make the Jua Kali sector part of an integrated economy with a potential of building stronger inter-firm linkages among its membership and Jua Kali enterprises.

They selected a group of engineering students to nurture businesses in Jua Kali with ideas and know how. Business projects proposed by the students covered a wide range of activities, including timber sale, a design school, a bakery, cereals store, pharmacy, stationery, retail shop, laundry and transport services, poultry farming, soap and coffin making.

Their counselling not only improved product quality, it also gave the students practical work experience. "I'm motivated, I'm given the positive attitudes and the drive to start my own enterprise, create jobs for my fellow youth…", comments Felix Onyango Alala, a young engineering graduate.

To be retained as a programme component, students' project proposals should reflect moderate levels of investment, demonstrate forward and backward linkages between the formal and the informal sector, be innovative and have the potential to create reasonable levels of employment.

One major component of the programme is the promotion of inter-firm linkages and sub-contracting arrangements. To ensure that this concept is fully understood by all participants, workshops were organized. Links were also made to larger companies like General Motors (GM) who now use local companies in the informal sector to supply parts that used to be imported.

"Mechanical operations really were a typical case of Jua Kali, because they are mechanics by education and they use common and rudimentary tools to make things happen", says Charles Nyang'ute from the FKE.

The FKE also identified the need to establish Business Development Services to promote inter-firm linkages, give access to market information, promote occupational safety and health training and legal advise.

According to Mr. Nyang'ute, sub-contracting arrangements are still weak in Kenya due to various factors, including inadequate business finance, quality of production and service delivery, unfavourable business ethics and lack of awareness on the need for sub-contracting.

It is expected that other companies will follow the example of GM. "We document success cases where sub-contracting has been implemented to the benefit of the parties involved. There is a need for continuous awareness-rising among the micro, small, medium and large enterprises on subcontracting mechanisms. This can be done in the form of public seminars and organized study tours for selected enterprises to countries where subcontracting is deeply practiced", says Mr. Nyang'ute.

Till the end of 2005, the programme is expected to establish 10 subcontracting arrangements between Jua Kali businesses and formal Kenyan enterprises. By then, 40 products from the Jua Kali sector should have been improved allowing them to be commercialised for large-scale production. A minimum of 15 engineering graduates would have functioned as liaison between Jua Kali and the formal sector.

"We hope to extend this kind of programme to other African countries. It enables micro enterprises in the informal sector to contribute towards industrialization and to create decent jobs and wealth. These programmes improve production processes in small enterprises and add value to their products. They promote linkages between micro and large enterprises and open up new possibilities for small and informal businesses to improve and sell their products", summarizes Jean-François Retournard, director of the ILO's Bureau for Employers' Activities about the programme one year after it started.