Friday, 23 February 2018

Why is Kenya at a Crossroads with its Informal Sector

The informal sector acts as an important shock pillar for Kenya’s economy gripped by a fairly lengthy period of sluggish jobs and income growth.

It employs a significant amount of the people who are supporting the majority of the households in the country their purchasing activities of the various household consumables and capital goods significantly contribute to the Value-Added Tax.

The sector contributes in excess of 35 percent to the Gross Domestic Product and employs close to 80 percent of the workforce.

It includes home businesses, domestic workers, street vendors, small-scale artisans, car repairs, bakeries, and livestock traders and the sector makes a huge contribution to the economy.

According to the Kenya National Bureau of Statistics for 2015, the economy generated a total of 841.6 thousand jobs of which 128.0 thousand jobs were in the modern sector while 713.6 thousand were in the informal sector, during the period under review.

The main challenge is how they contribute to taxation and are policymakers noting the sector's contribution?

This year, February, the Nairobi Regional Security Committee chaired by Nairobi Regional Co-ordinator Kang'ethe Thuku resolved to remove all motorcycle riders and street vendors (hawkers) to 'restore order'.

In its place, they said to curb muggings and robbery and other crimes within the Central Business District, they came up with an initiative dubbed 'Mulika Uhalifu' through code 22068 where city dwellers would send security alerts of crime incidents to the police.

This is not the first time Nairobi County wants to get rid of the hawkers who have been termed a menace.

Last year, Nairobi’s Commercial Court ordered hawkers operating from the city centre to designated places within the city stating that they cause immense suffering to other street users.

Chief magistrate Peter Muholi dismissed cases filed through the street vendor’s lawyers to bar the county officers from interfering, harassing, intimidating, unlawfully arresting or confiscating the hawkers’ goods or items while at their designated areas at plot zero.

On July 13, 2016, Nairobi County formed a sub-committee tasked with returning order and sanity in the central business district. A crackdown on the informal sector.

Subsequently, 500 Inspectorate Officers and 100 were enrolled to its fire brigade team to meet the demand for city Askari’s to deal with the spiralling number of hawkers within the central business district.

The training commenced in December and was to run up to March this year before the officers are deployed in various parts of the city.

However, the program was halted in June after the former county government leadership blamed cartels for allegedly infiltrating the process.

Consequently, in 2015, a report tabled in the County Assembly by the Transport Committee showed that 33 out of the 40 functioning KSH 400 million Close Circuit Television Camera (CCTV) produced low-quality images and could not be relied on by security agencies.

Nairobi county has 43 markets run on rental, tenant purchase, site and service scheme and open-air terms such as Wakulima market, Gikomba, Muthurwa, Kangemi and Kawangware.

In contrast to the developments aimed at curbing the soaring numbers of street vendors in the city, the UN-HABITAT Global Campaign on good urban governance is the 'Inclusive City'.

The campaign advances the position that an inclusive approach must be used for balancing, reconciling and trading off competing interests and priorities. In most cities, the interests of micro and small enterprises such as street and informal traders are competing with those of medium and large-scale enterprises, with the former being disadvantaged.

“Urbanization provides the potential for new forms of social inclusion, including greater equality, access to services and new opportunities, and engagement and mobilization that reflects the diversity of cities, countries and the globe,” according to the Issue paper on inclusiveness.

The Bellagio International Declaration of Street Vendors of November 1995 urged governments to develop national policies for hawkers and vendors by making them a part of the broader structural policies aimed at improving their standards of living by giving them legal status, issuing licenses and providing appropriate hawking zones in urban areas. The declaration further called on governments to integrate vendors into urban development plans.

Dr. Chris Kirubi says, “While the obvious contributors to the fastest growth of Kenya’s GDP would be attributed to macroeconomic factors like political stability, exponential growth of the technological landscape, a robust and growing economic environment among others, it is important to note that the growth of the small medium and micro enterprise (SME) sector has contributed to an almost exponential growth of our GDP.”

“Consequently, out of these sentiments comes a stalemate, and the country continues to grapple with increasing poverty and staggering numbers of unemployment. There are, however, several ways through which we can bridge this gap and create working synergies between, government, corporations and MSMEs. The most important tool to equip these businesses and government with is Knowledge” says Phyllis Wakiaga, Chief Executive of Kenya Association of Manufacturers.

“More than that, we must create an enabling environment for these businesses. If we look at the recently unveiled Kenya Industrial Transformation Programme by the Ministry of Industrialization and Enterprise Development, special attention is given to the role of MSMEs in catapulting our country to reach its industrialization goals. One of the ways we can do this is by using a sector-specific approach to elucidate the full potential of these businesses and then leveraging our networks, as private sector and government to open up their access to various markets,” she adds.

“To what extent does Ease of Doing Business research reflect improvements in the business environment for informal businesses? Parameters such as the increased ease with regards to tax compliance and business registration inform Ease of Doing Business performance, yet these are parameters with which informal businesses largely do not intersect,” Anzetse Were, a development economist reflects on.

Terence Jackson, Professor of Cross-cultural Management, Middlesex University says, “Today the informal economy appears to be as important as ever to Africa and its future development. But governments, and international organisations like the World Bank and ILO, do not like the informal economy. As a result, the international policy has veered from supportive to antagonistic.”

The Kenyan National Bureau of Statistics (KNBS) the Micro, Small and Medium Enterprises (MSMEs) 2016 survey noted that while majority fall within the informal economy based on their size, location, ownership, status of formality and economic activity, together, as major job providers, they produce a significant share of total value added, and provide a large segment of the poor and middle-income populations with affordable goods and services.

“The value of the MSME’s output is estimated at KSh 3,371.7 billion against a national output of KSh 9,971.4 representing a contribution of 33.8 per cent in 2015. In terms of gross value added, the MSME are estimated to have contributed KSh 1,780.0 billion compared to KSh 5,668.2 billion for the whole economy,” according to the survey findings.

While the participants in the informal sector are characterised by: absence of official protection and recognition; non-coverage by minimum wage legislation and social security system; predominance of own-account and self-employment work; absence of trade union organization; low income and wages not transferred through the banking system; little job security and no fringe benefits from institutional sources.

The Federation of Kenya Employers (FKE)further blames the growth of the informal jobs citing poor planning policies and rigid legal framework that does not help them to transition into established formal businesses.

For Kenya to enjoy maximum benefit from the informal sector, there is need to better understand their characteristics and tame these for the benefit of the country.

Activities that are undertaken in the informal sector are usually characterised by unregulated and competitive markets; small-scale operation with individual or family ownership; ease of entry; reliance on locally available resources; family ownership of enterprises; labour intensive and adapted technology and absence or limitation of access to institutional credit or other supports and protections.

It might be prudent for the Nairobi County to lead the rest of the counties in adopting the proposal of the ‘Charter for a Street-Trading Friendly African City -Steps that African Mayors can take to embrace inclusive and sustainable street trading management.

Proposed by the Save the Hawkers Campaign, Johannesburg’ in recognising, supporting and developing informal trading.

The Charter Proposed by the Save the Hawkers Campaign, Johannesburg, proposes a set of principles, processes and institutions to guide city leaders towards practical steps they can take to better manage street trading in African cities.

Among the proposals include: Turning the approach around- from wishful thinking to taking stock of the African reality, a condition for efficient management and Recognising and resource an independent Informal Traders Forum – empowering traders to make independent strategic inputs into policies and implementation.

There should be increased platforms that can impart relevant skills like SME expo, training, networking opportunities, government tender process, open days, exchange programs among others. If we collectively strengthen the SME sector, our nation’s foundation will be growing a little more secure.

“We need to start thinking of inclusive strategies in order to step out of the endless loop-hole in which we find ourselves. Our diversity in business will, in the end, be our saving grace,” says Wakiaga.

Thursday, 22 February 2018

Kenya Successfully Raises KSh 200Bn Eurobond in London

The Kenyan Government has raised KSh 200Bn in a dollar denominated Eurobond sale on Wednesday which will be applied towards the govt's development initiatives and liability management

The maturity of the two Eurobond issues are 10-year and 30-years with an initial pricing guidance is 7.625 per cent  and 8.625 per cent, respectively.

Henry Rotich, the National Treasury Cabinet Secretary said “The fact that we got $14 Billion in investor appetite reflected the continued support the country has. We now have a dollar yield stretching out to 30 years.”

“Funds from the issue will be applied towards the Government's development initiatives and liability management. We will continue to invest in the infrastructure and capacity to roll out and implement these programmes,” Said Rotich through his Twitter feed.

The new bond will be listed on the London Stock Exchange.

“The coupon on the existing 10-year is at 6.875% and as such, the initial pricing on the 10-year has factored a risk premium that has been triggered by recent debt level concerns that led to Moody’s downgrade,” noted Genghis Capital Analysts.

On Tuesday, the International Monetary Fund said it had suspended Kenya’s access to a Ksh1.5 billion standby facility last June.

In March 2016, IMF approved the two-year standby loan facilities for Kenya: SDR 709.259 million  24-month Stand-By Arrangement (SBA) and a SDR 354.629 million 24-month Standby Credit Facility (SCF)  for a combined SDR 1.06 billion.

However, Kenya had indicated that it will continue to treat both arrangements as precautionary, and do not intend to draw on the new SBA and SCF arrangements unless exogenous shocks lead to an actual balance of payments need.

IMF in November assessed Kenya’s compliance with commitments made under the precautionary financing facility.

One of the conditions for the government from the IMF was to narrow its budget deficit to below 6.5 percent of GDP in the current fiscal year and to 5.0 percent in 2017/2018 fiscal year.

However, on Wednesday it clarified that “The second and third reviews of the program, due respectively in June and December 2017, could not be completed on schedule as an agreement could not be reached on stronger fiscal policies, and discussions were postponed due to the prolonged election period. Kenya continues to have access to resources since June subject to policy understandings to complete the outstanding reviews.”

Anzetse Were, a Development Economist confirmed the same noting “Discussions postponed due to elections not because of Kenya's fiscal behaviour. Targets weren't hit and fiscal reform didn't occur so the issues are still relevant. Let's see what will come out of the discussions. This seems more about fiscal reform than the facility itself.”

Ms. Stephanie Kimani, CBA Group Research Economist, notes that “ Meanwhile, the IMF’s two-year standby precautionary facility is set to expire in March 2018. Given the expected IMF review before expiry, it could perhaps be worth noting that maintaining the facility could be key to anchoring positive investor sentiments as it signals a level of preparedness in the event of adverse economic shocks.”

Faith Atiti, Senior Research Economist,  observes that over the last five years, public debt has risen by 153.7% to KES 4.60 Trillion and could increase further driven by the perennially high fiscal deficit.

As a result ratings agency Moody’s downgraded Kenya’s issuer rating to B2 from B1 but
maintained a stable outlook.

Moody’s projects Kenya’s debt/GDP ratio at 61.0% this fiscal year as rising spending needs, reduced revenue collection and rising debt service obligations exacerbate the fiscal gap.

“The downgrade could undermine government’s ability to raise funds in the external debt market as the sovereign’s risk premium increases,” Atiti had noted.

However, President Uhuru Kenyatta has affirmed that his “Administration shall ensure the prudent, transparent and efficient utilization and management of these funds for the development and implementation of initiatives that will enhance the social and economic welfare of all Kenyans.”

Kenya Needs a Youth Agenda to Overcome Unemployment

The youth in Kenya are defined as those between the ages of 18 to 35 years.  

“Kenya is a very youthful country. The median age is estimated at 19 years, and about 80 percent of Kenya’s population is below 35 years,” according to the 2016 Kenya Youth Survey Report by the Aga Khan University survey that sought to understand the values, attitudes, concerns and aspirations of this critical segment of the population.  

August 2017, the Business Daily wrote that Kenya’s ratio of youth (aged 15-24) to the population stands at 20.3 per cent, above the world’s average of 15.8 per cent and 19.2 per cent for Africa. The millennials add up to 10.1 million out of Kenya’s population of 49.7 million, data from US-based Population Reference Bureau (PRB) shows.  

The greatest challenge that faces the country is how to overcome unemployment and lack of meaningful economic engagement of our youth. 

Unemployment among Kenyan youth is now estimated to stand at 17.3 per cent compared to six per cent for both Uganda and Tanzania by a 2016 World Bank report.

This is because Kenya’s ability to create new jobs has not been in tandem with the rising population and inadequate employment opportunities within the formal sector. 

The Kenya National Bureau of Statistics, in 2016, the economy generated 832.9 thousand new jobs of which 85.6 thousand were in the modern sector while 747.3 thousand jobs were in the informal sector.

Sadly, Kenya’s unemployment rate is projected to trend around 24.00 percent in 2020, according to Trading Economics global macro models.

The Kenya Youth Manifesto - Agenda ni Vijana Sasa 2017 estimates that increasing numbers of nearly 800,000 youth graduating from universities and colleges and entering the job market every year is an economy that is creating very few jobs, yet it is said to be growing.

Read: Youth employment is more of a mirage 

If Kenya can creatively and boldly harness its youth then, it will have substantially addressed the question of its economic under development as the youth constitute the most energetic, active and optimistic segment who can easily be moulded to embrace the dynamics of a new economic outlook, dispensation for the region.

Raphael Obonyo, the external adviser to the United Nations Habitat’s Youth Advisory Board says, “Youth are feeling the burden of unemployment. We must act! Youth in Africa today are better educated, but this has not lifted their prospects of finding jobs.”

He, however, states that “Unemployment rates calls for our youths to think big in terms of being entrepreneurial for survival.”

“Job creation needs to be about creating meaningful work. Not glorified forms of begging! Giving more education to Youth will not help them get employed. This is a myth. Give education relevant for the labour market.”

Thus, Kenya must rapidly, urgently dedicate all its resources towards creating a cadre of its young men and women in their thousands and even millions who have been trained in urban trades and professions. 

These will include being masons, mechanics, electricians, plumbers, carpenters, mobile phone and other electronic technicians, painters, and other trades that service the rapidly urbanizing Kenya, East Africa and the rest of Africa.

President Uhuru Kenyatta learning how to thread, stitch and tailor from 27-year-old Lilian Omae at the NYS Garment Factory

The government has pegged its five year’s agenda to ‘The Big Four’ plan of “Creating jobs, transforming lives.”

According to the 2018/19 Budget Policy Statement from the National Treasury, “The Government will focus on improving and expanding the industry-led Technical and Vocational Education and Training (TVET) Colleges and Universities in order to equip the youth with relevant skills required to drive the industrialization agenda.”

This will involve the construction of more technical and vocational colleges in all the 290 Constituencies and equip them with appropriate training equipment. 

The government also aims at developing more skilled and competitive workers through the planned “paid for” internship program that will lead to the absorption of more than 100,000 young Kenyans into the job market every year.

“In order to implement the prioritized programmes, the Sector has been allocated Ksh 428.277 billion, Ksh 446.326 billion and Ksh 459.384 billion for the financial years 2018/2019, 2019/2020 and 2020/2021 respectively,” reads part of the Budget Policy Statement.

To be in line with the National Government’s agenda, it is prudent for each of the 47 counties to dedicate a substantial proportion of its Constituency Development Funds (CDF) to modernize and equip one Diploma Technical College for the training of the various trades and professions.

This will result in churning out trained tradesmen and tradeswomen and middle cadre college professionals to service the diverse needs of the Kenyan economy in the various skills that are now experiencing shortages of technicians and professionals.

However, It would be a disservice to the youth for them to leave secondary school and have illusions that they are employable anywhere or capable of self-employment.  

In this era of free primary and secondary school education it is incumbent upon every parent whose child leaves secondary school at form four or any other school level to be taken to a local  polytechnic or any other technical college to be trained in an occupational skill for only then will they have been prepared to be a functional citizen of this country who can be employed or become self employed as he or she uses that trained occupational skill to service, participate in the economic activities of the country.

Further, policymakers and elected leaders must stop paying lip-service to the challenges of youth unemployment and put in place measurable blueprints that can empower the youth by imparting occupational skills to them that will enable them to be employable or be self-employed.