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The informal economy is highly creative, but little data on it exists

The informal economy is highly creative, but little data on it exists

The informal economy is highly creative, but little data on it exists

In 1973, British economist E. F. Schumacher published a book titled Small Is Beautiful: A Study of Economics As If People Mattered, but over the years The informal economy is highly creative, but little data on it exists.

It was used to champion small, appropriate technologies that were believed to empower people more in developing countries. It was the opposite of the “bigger is better” mantra prevalent in developed countries at the time.

Smallness was associated with informality. The book inspired many organisations, including the International Labour Organisation (ILO), which, as a result of the renewed attention to the sector, began to agitate for recognition of what were largely micro-enterprises, popularly known as jua kali.

Although Kenya had set the pace for the introduction of small enterprises in the economy in Sessional Paper No. 10 of 1965 on African Socialism and its Application to Planning in Kenya, the paper was never explicit.

It only sought to indigenise the economy by encouraging foreign enterprises to equip Kenyan Africans with necessary skills through training and apprenticeship programmes, to enable them to operate private business.

Kenya’s Sessional Paper No. 10 of 1973, however, became the first policy document to expressly attempt to assist small enterprises to gain access to working sites, credit, managerial and technical services, skills upgrading and business training services.


The informal economy is highly creative, but little data on it exists

The informal economy is highly creative, but little data on it exists

Even with this assistance, the enterprises remained informal, as amplified by the government’s failure to track their performance. Statistics-wise, they remained below the radar.

Several other policy pronouncements followed, notably Sessional Paper No. 2 of 1982, which recommended that government deliberately expand its research system to cover all sectors of the economy, including the informal sector.

It also recommended acquisition and transfer of technology policy and capacity building for technological transformation, but none of these lofty promises were actualised.

The 1985 Sessional Paper No. 2 on Unemployment, Sessional Paper No. 1 of 1986 on Economic Management for Renewed Growth, together with the Sixth National Development Plan (1989-1993), tried to accelerate the growth of Micro and Small Enterprises (MSE) but still there was a disconnect between policy decisions and implementation.

Throughout this policy discourse, academia looked at informality as an emerging phenomenon and simply celebrated its expansion. It wasn’t until 1995 that the first baseline survey on MSEs was done.

It revealed that the sector contributed about 34 per cent of GDP. Despite this finding, however, attention in national statistics largely remained in the formal sector.


The informal economy is highly creative, but little data on it exists

The informal economy is highly creative, but little data on it exists

Other policy interventions include Sessional Paper No. 2 of 1992 on Small Enterprise and Jua Kali Development in Kenya which emphasised the creation of an enabling legal and regulatory environment to support the sector’s graduation into the formal sector.

The other is Sessional Paper No. 2 of 1996 on Industrial Transformation to the Year 2020, which proposed measures to remove bottlenecks that hindered the potential of MSEs in serving as a seed bed for industrialisation.

Then followed the Economic Recovery Strategy for Wealth and Employment Creation (2003-2007), and Sessional Paper No.2, 2005, on Development of Micro and Small Enterprises for Wealth and Employment Creation for Poverty Reduction, which sought to enhance the capacity of MSEs to generate wealth as well as durable and decent jobs. The SME Authority was created in 2013.

Anyone will agree that we have had enough policy pronouncements. However, sectors like manufacturing have remained static over the years.

It is said that what gets measured, gets done. That we don’t measure perhaps explains the paucity of meaningful knowledge about informality.

A poor understanding of informality is what causes African governments to rebase their economies from time to time.

SHINING ARMOUR-The informal economy is highly creative, but little data on it exists

The problems caused by lack of comprehensive data exceed the cost of formalising the informal in any country.

It’s possible the gap between the rich and the poor may be widening as demonstrated by the GINI ratio. The most unequal African countries are South Africa, Namibia, Botswana and Zambia. Ethiopia is the least unequal and Kenya lies in the middle.

Continued neglect of data in some sectors in Africa helps to validate Morten Jerven’s book titled Poor Numbers:How We Are Misled by African Development Statistics and What to Do About It.

Javen’s work, as a 2013 Foreign Affairs magazine Best Book of the Year review noted, shows that:

The numbers substantially misstate the actual state of affairs. As a result, scarce resources are misapplied. Development policy does not deliver the benefits expected and policymakers’ attempts to improve the lot of the citizenry are frustrated. Donors have no accurate sense of the impact of the aid they supply. Jerven’s findings from sub-Saharan Africa have far-reaching implications for aid and development policy.

Emerging research and the increasing adoption of Big Data may be our knight in shining armour. In the wake of these emerging new tools, informality may not be sexy anymore.

As we begin to deal with the UN’s Sustainable Development Goals (SDGs), Big Data, like Open Data, is an essential tool for empowering the poor and vulnerable.


Hundreds of billions of dollars are being spent by the private sector to collect new kinds of data and then turn the data into business value.

The new data, tools and analytical methodologies can, in many cases, be repurposed for development and humanitarian action.

Jerven noted that meaningful development will invariably demand “evidence-based policy.” We must therefore break from the past and leverage technology to bring informality into statistical brackets.

Map Kibra, an initiative to map all the assets in the shanty area, has shown that we can indeed collect data cheaply from areas where it could not be collected in the past.

We must also encourage the private sector, like banks and telecommunications companies, to provide some of their data philanthropically to enable us to develop evidence-based solutions.

For once, we will begin to understand poverty and deal with it effectively. But for that to happen, we must collaboratively work with the private sector, civil society and public sector to build more effective tools by balancing between privacy and essential development objectives.

PARTICIPATORY DEVELOPMENT-The informal economy is highly creative, but little data on it exists

In their book Poor Economics, Abhijit Banerjee and Esther Duflo argue that there is no one shoe that fits all. Broad generalisations and formulaic thinking about economic development are flawed.

Rather, they propose the need to “understand how the poor really think and make decisions on such matters as education, health care, savings, entrepreneurship, and a variety of other issues.”

Their findings show that if we encouraged participatory development, we could avoid issues like the universal traps of ignorance, ideology and apathy that often stifle policy implementation, as we have seen in a series of policy failures in Kenya.

Richard Attias once said, “Africa’s informal economy is one of the most innovative and inventive environments in the world. Yet it is an environment with little regulation in which workers are often exposed to hard conditions and live without a safety net.”

Let’s treat this jewel in a similar manner to the formal sector. It’s in our interest to build reliable data and use it for evidence-based policy making.

The writer, Prof Bitange Ndemo is an associate professor at the University of Nairobi’s School of Business. Twitter: @bantigito

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