How the Pandemic is affecting the informal sector in Kenya

The economist and FES-Partner Jacob Omolo, is proposing policy options for Kenya’s informal sector under and after COVID-19.

Bild: von Brian Otieno, FES View of Nairobi’s largest informal settlement Kibera.

The Coronavirus Disease 2019 (COVID-19) reached Kenya on March 13th. Since then, the government has decreed a number of wide-ranging mitigation measures. These include the closure of all learning institutions, banning of public gatherings, encouraging workers to do remote work, emphasising physical distancing, imposing a nationwide night curfew, decreeing containment in Nairobi metropolitan area, and three coastal counties, restricting the number of passengers in public service vehicles to at most 60% of the vehicle capacity, banning of international passenger flights, imposing quarantines, and emphasising on cleanliness and hygiene. Whether these measures can contain the spread of the virus remains to be seen.

Workers in the informal sector are most affected by these measures. According to the Kenya National Bureau of Statistics the country has a large and burgeoning informal sector, which generated 83.6% of total employment in 2018 and 33.8% of GDP in 2015. COVID-19 presents both supply and demand shocks to the informal sector. The closure of borders particularly by Kenya’s trading partners in the East African Community, in-country travel restrictions have disrupted the informal sector supply chains by constraining production, marketing and distribution of goods and services. Loss of income through unemployment, fear of contagion, and heightened uncertainty have also made people spend less, thus lowering aggregate demand. Consequently, informal sector workers and operators have lost employment, income, and consumption. Employment and income losses are aggravated by the disruptions in supply chains and actions by some county governments to constrain informal businesses or close or relocate open air markets. Some domestic workers have been declared redundant as their services are no longer required by their employers, who are also confined to the house due to the pandemic while the services of others have been terminated as those workers are considered as potential risks for contagion.

The Kenya Government announced a number of fiscal, monetary and social insurance policies to moderate the social and economic impact of COVID-19. They include tax exemptions for low income earners and tax reductions for those with higher incomes, a reduction of VAT by two percent, increased funding for targeted cash transfers and measures to increase liquidity of commercial banks. The measures were largely aimed at cushioning workers and industry from the business slump arising from the COVID-19 pandemic.

The rescue packages introduced by the government, however, largely exclude the informal sector. Most informal sector workers and operators are neither netted in the formal tax brackets for which exemptions apply, nor are they earning above the tax threshold of KSh. 24,000 (US$ 226.3) per month to qualify for the tax relief. The 2% reduction in VAT may only be beneficial if suppliers of inputs and consumables pass over the benefit, which is not guaranteed. The informal sector-blind nature of the government rescue package confirms the long-standing contention that the sector is a policy orphan, often excluded in policy discourses. In the current scenario, the government mainly consulted formal sector workers, employers and industry leaders through their representative trade unions and industry associations before coming up with the rescue package. However, no attempt was made at engaging informal sector associations and trade unions organizing workers therein to identify informal sector responsive mitigation measures.

Exclusion of the informal sector in the COVID-19 rescue packages portends serious economic, social and security consequences. The sector constitutes the country’s labour sponge, employing large numbers of women, youth and vulnerable workers, and is the holding ground for majority of the unemployed young job seekers of whom about 800.000 enter the Kenyan job market every year. However, the jobs in the sector are precarious, with limited wage and employment security, limited access to health services and social protection including weak frameworks for occupational safety and health, which makes the workers to be highly exposed and vulnerable to income loss and layoffs arising from the COVID-19 shocks. Without targeted policy measures, the workers face a high risk of falling into poverty and might experience greater challenges in regaining their livelihoods post COVID-19.

Any informal sector rescue plan needs to include short, medium and long-term strategies. Keeping informal sector workers safe and healthy is the first priority, and cash transfers and food subsidies to cushion them against the crisis-induced income losses particularly in the event of a total lockdown are critical. Wage subsidies for operators to help them retain existing workers on employment during the period of the crisis, and temporary credit guarantees to address their liquidity needs are important. In the medium term, government and informal sector associations should design strategies to promote access to healthcare services through a medical insurance scheme while in the longer-term, response strategies should focus on deepening social protection coverage and promoting formalization of sector. Clearly, the aforementioned strategies ought to be part of the informal sector growth and development strategies even if COVID-19 health crisis did not occur. Protecting and comprehensively insuring informal workers is not only necessary and socially just during the COVID-19-Crisis, but also a good policy option for the long term, particularly in addressing the persistent inequalities in Kenya.

Jacob Omolo is Senior Lecturer at the Department of Applied Economics, Kenyatta University, Nairobi-Kenya.



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