Early Insights about the Informal Economy in Kenya

Formal economies are struggling to create opportunities and alleviate challenges across Kenya. The largely invisible Informal Economy however sustains livelihoods and creates opportunities for up to 83% of Kenyans, and whilst women and young people in particular struggle to find employment in the formal economy, the average worker in the informal sector is a female micro-enterprise owner between the ages of 23 and 30.

In collaboration with TRANSFORM, local Kenyan research partners, and informal economy workers, we are discovering more about the informal economy in Kenya and will be making collective recommendations for its future - read more about the context of this research and our approach.

During phase 1, we conducted an extensive review of the wider landscape of the informal economy in Kenya. To do so, we have engaged over 40 experts and key stakeholders, hosted monthly ‘Partner & Learn’ events, and scanned more than 70 academic articles, white papers, and industry reports. We are building on what already exists in order to understand the present and explore the future. Here’s some of what we’ve learned together so far:

• Micro-Enterprises Dominate: Over 99% of firms in the informal economy are microenterprises, primarily engaged in wholesale and retail trade, with an average operational span of seven years.
• Livelihood-Sustaining Businesses: A significant portion of these microenterprises (55% female-owned and 54% youth-owned) can be classified as "livelihood-sustaining businesses," where the owner and employees depend on it as their sole income source.
• Gender Disparities: Women, despite owning a substantial portion of micro-enterprises, face challenges such as limited initial capital, fewer working hours, and higher business failure rates compared to their male counterparts. Men tend to have higher incomes than women.
• Youth in the Informal Economy: A considerable proportion of micro-enterprises are youth-owned (44%), including those which offer part-time employment opportunities for students to support their families.
• Education and Skills: Youth, especially young men, are the most educated group of workers in the informal economy.
• Future Trends in the Informal Economy: Technology is emerging as a significant force in the informal economy, from job matching platforms to creative content creation online. While these technological advancements offer potential benefits, including fostering gender equality, they also bring challenges such as low pay and unfavourable working conditions.

Focussing our learning on key market segments and geographies

There is no standardised way to segment Kenya’s informal economy. The types of informal work Kenyans are engaged in are evolving rapidly, influenced by increasing connectivity and access to technology, shifting preferences and skills, and more. Categorisations from the past do not necessarily apply in today’s economy, or that of the future.

The 14.9 million Kenyans who drive the informal economy do so across a wide variety of market segments, including construction & manual labour, green & waste economy, jua kali and manufacturing, trading and retail, transport, and more. Whilst we would have loved to go deeper across these and many more market segments, together with our partners through the ‘Partner & Learn’ events, we decided to narrow down on three prioritised market segments:

• Food service providers: For example, operators of vibandas, mama mboga, kiosks selling prepared food or beverages.
• Agri-business: with a downstream focus in urban areas (i.e. excluding rural farming), but including post-harvest activities like aggregation, distribution, transport, and storage of agriculture products for urban markets.
• Creative and entertainment: For example, content creators, influencers, designers, artists, and musicians.

In such a diverse and expansive field, this prioritisation is important. This focus, on sectors that our partners collectively decided upon, has and will continue to enable deeper insights into segments that will be crucial for the informal economy now and in future, especially for women and young people. We are also focussing our efforts further still on urban and peri-urban areas.

So far, we have engaged with over 450 respondents in the Nairobi Metropolitan area, Mombasa County, and Kisumu County. Through a respondent-driven sampling methodology, our goal has been to learn with a diverse group of informal economy workers split evenly across the three market segments, including at least 50% women and 50% youth.

Early insights highlight nuances in income, education, challenges, and aspirations across genders, age groups, market segments, and counties. Here’s some of what we’ve learned together so far about our prioritised market segments in those areas:

• Income and tax levels: Average income levels vary widely across market segments and geographies. Food Service Providers overall face the greatest income challenges, whereas Creative and Entertainment respondents report paying more taxes.
• Creating job opportunities: Creative and Entertainment respondents report hiring more employees than other segments.
• Job satisfaction: Across the market segments, 79% of Creative and Entertainment respondents reported enjoying their work compared to 47% of Agri-Business and 31% of Food Service Provider respondents.
• Not all areas are equal: Nairobi exhibits higher income levels for both genders, whereas respondents in Mombasa face significant challenges with insufficient income to support dependents.

Imagining a radically better future, together

As we transition to the second phase of this project, our aim is to imagine a radically better future of work in Kenya and to make key actionable recommendations and ideas to take forward. Through our inclusive and locally rooted approach, we are inviting informal economy workers to lead our recommendations, and we’re using citizen science and storytelling methodologies to authentically surface and share their ideas and ambitions.

Together with our partners, we will be connecting these recommendations to wider ecosystem actors, to better understand the role each could play in contributing to a better future of work for the informal economy in Kenya.

We always welcome connecting with stakeholders in Kenya and beyond who have something to say about the future of work in the informal economy, so please get in touch with us if you’d like to contribute to our ongoing conversation: futureofwork@hellobrink.co

More on this:

• The future of work in the informal economy

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