Don’t Blame the Informal Economy for Being Informal, Blame the Government

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I have read the article by Riaga Odipo and my fingers are itchy. My fingers are itchy not just because the author suggested some controversial solutions, but also because of the subsequent comments emanating from the article in support of ‘killing the informal economy’. In the article, the author argues that eventually, the mama mboga must go. On a Facebook post in which I was tagged, one comment by Fox Omondi reads:

“Mama Mboga, just like jua kali artisans, roadside mechanics, casual labourers in construction industry, touts and drivers in matatu industry and any other informal operators is a manifestation of an informal economy. Trying to reform a specific industry from the terminal end without addressing the entire supply chain is an exercise in futility and in fact can result in devastating consequences in such sectors…”

This is the problem with the elite. As I penned in my last article advocating that Mama Mboga to be left alone, we are addressing a symptom, not the problem, by focusing on outlawing mama mboga, jua kali artisans … the entire informal economy.

First, some statistics. The informal sector (also called informal economy, grey economy, or shadow economy) contributes 41% to the GDPs of developing countries. The informal economy contributes 25% to the economy of Greece, 40% to the economy of Mozambique, and nearly 8% to US economy – bigger than the GDP of Turkey or Australia. In terms of employment, the informal sector employs 30-48% in Italy, 11-32% in Spain, 12-22% in Germany, 3-12% in France and 3-40% in United States according to ILO statistics.

As you can see, the informal sector is important to any economy – not just developing countries like Kenya but also developed nations like United States. The developed countries have not eliminated the sector. In fact, they have enabled their growth through a number of interventions to keep the employing more and contributing more to the economy.

For countries like Kenya, the informal economy is mostly a creation of a government’s failure to address the fundamentals. Mama mboga is where she is because she cannot afford the stall rates in any of the designated markets. She can’t afford the rates because her income is very little (read poor). She is poor because the economy is not supporting her much to go by providing her the right environment to make money.

The matatu industry is as informal and chaotic as it is because the government failed to provide working public transport system. I actually penned an article on the blog suggesting what needs to be done to curb traffic. By extension, that same plan will formalise the transport sector too.

Recommendations have been made to make things better for the informal sector. That the informal sector contributes to most employment is something that needs to be commended, not fought. We just need ways to make such industries thrive. Since Mama Mboga operates within the agriculture sector, let’s focus on it and leave out the larger informal economy.

Riaga makes some interesting proposition that agriculture employs 75% of Kenyans. This Wikipedia fact is not a fact. According to the Kenya National Bureau of Statistics, agriculture, forestry and fishing constituted only 15.3% of wage employment by sector in 2013. In fact, the largest employer is the education sector with 17.7% of wage employment by sector.

To put this into perspective, the agriculture sector employs about 10% in Israel, a country with a total labour force of 2.7 million with Kenya having a total labour force of 2.3 million. In United States, the agriculture, forestry, fishing and hunting industry accounts for 1.5% of employment and contributes 1% of its GDP. Granted, these are of the figures from the formal economy.

Technically, therefore, Kenya is doing better than USA in terms of agricultural output vis-a-vis the level of employment in the sector – employs 15% with an output of 25% to GDP yet USA’s agriculture sector employs 1.5% and contributes only 1% to the sector.

Even if the sector employed 75%, I am not sure why Riaga Odipo would recommends that we cut employment 10%. I can’t seem to see the logic. Where do we take the remaining 65% that we finally chuck off from employment? What I think we should recommend is that we improve the productivity of the sector from the current 25.8% (the exact figure from KNBS 2013 statistical abstract). It has been the highest contributor to our GDP for years.

The fact that the agriculture sector is largely inefficient is not because of mama mboga. It is because of the producers. The sector’s inefficiency is not just because of the size of land, it is largely because of the archaic farming methods. How can we address these inefficiencies? Through the adoption of technology and modern farming methods.

I watched some documentary on Citizen TV Kenya’s Smart Farmer Programme last Wednesday where a farmer adopted vertical sack farming method on his small piece of land. The farmer adopted the vertical farming method and got produce that was equivalent to someone using one acre piece of land on the horizontal farming method.

I also read an article about a certain farmer who is doing poultry using chicken cages. I have always wondered where agriculture experts recommend a space of one square feet per chicken yet the space upwards is too much to keep hundreds more. When I watched this particular chicken cage method for egg production, I was elated. This farmer keeps 8,600 chicken in a very small space, giving him an average of 3,500 eggs daily.

It might interest you to know that some farmers with vast lands have abandoned farming for real estates or other profitable ventures. Why? Because the sector is not well supported by the government and out trade policies with the rest of the world allow produce from subsidised farmers in the development countries to be imported. The local farmers cannot compete with farmers from countries where everything is done to reduce the cost of their production. The sugar industry is dying. Farmers are uprooting coffee. Official government assistance is key.

Bottomline? Land size is not the problem – as such. We can do more with our current land system if we can adopt the right technology and tweak a few things here and there. Limiting land ownership to 100 acres, as Riaga Odipo suggests will actually keep some families out of their own lands. Such land sizes are not easy to come by.

Attempts to define minimum and maximum land sizes need to be done through a thorough research process. All stakeholders, and especially community land owners must be approached and their views and experiences sought before such decisions are carried out.

The government must step in to improve the output of the agriculture sector. If things are done well, mama mboga may just upgrade and own her store, leaving the road-side business and therefore formalising her business without having to be coerced through a piece of paper.

What is your opinion on the topic?
Fredrick Ombako
Fredrick Ombako is a research consultant at ResearchPro Solutions and Director at Bukas Accountancy & Consulting Limited. He consults mostly for NGOs and county governments by conducting research studies, Monitoring & Evaluation, and Project Management. You may reach him on 0721977108
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Article Categories:
BUSINESS · KENYA · OPINION

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