Nairobi’s Informal Graduates – Business Beacons or Downward Developers?

Summary:

This article seeks to fill research voids on the study-to-work transition of educated Africans. Groups of Kenyan graduates seek careers in the informal economy over wage-employment. University acquired skills and social networks linkages give entrepreneurs access to informal opportunity. In Kamukunji clusters, it makes economic sense to optimize poor producers’ skills sets. In a close by Gikomba Market, value optimization and informal practice disadvantage lesser educated producers. Scratching the surface of a complex business environment reveals how skewered power relationships and manipulation of social identities are primary parts of how informal systems work.

In the permit game among formal-informal cartels, skills and network (i.e. education and political alliances) are aces. Without access to these advantages, you will struggle to make a decent living.

1.      Images of Africa’s youth

Africa has nearly 75% youths. 60% of Kenya’s youths are unemployed. Only 7.5% of graduates are unemployed (ILFS, 2008), yet official reports mark this growing class as deviant (SRPSGK, 2004). Figures often feed powerful images of societies threatened by bulges of destitute youths aged 15-30. Indeed a darker image than Europe’s lost youth generation today. In real life, however, beneath the figures lie the alternative income paths (Hart, 1973) in the Jua Kali (hot sun in Swahili) informal economy. This, Kenya’s true economy, accounts for 90% of job creation with 0.5 M jobs yearly (Gitonga, 2008). To lift the veil on Nairobi’s informal business environment, One may seek answers to these question:

• How do Kenyan graduates interact with local institutions governing informal business opportunity?
• Can formal/informal linkages in Nairobi’s jua kali dynamics change the future of ‘informal sector worker’?

 2.      How to make the concept of informality fit with jua kali economy?

Indeed, the concept of informality, or the black economy, came of age in the 1970s in Africa. An International Labour Organization report on employment in Kenya (ILO, 1972) gave the idea of a modern formal and traditional informal sector. Yet people straddle both fields (Roitmann, 1990) and firms cut costs via social allies involved in horizontal, fluid networks (Castells & Portes, 1989).

All over Africa, ethnic, religious or professional ‘identity networks’ (Meagher, 2010) are formalised so the dynamics of ‘twilight’ institutions (Lund, 2006) governing informal business environments can be observed. The idea is to look into youths’ associational behavior and – due to a local broker also informed on local politics – link this knowledge to insights on Nairobi’s business environment.

Seen as a conceptual formal/informal continuum, institutional analysis can connect outcomes for casual or self-employed producers in informal production clusters (Meagher, 2010). Since former formal employees (or graduates) enter informal business environments bringing skills, investment capital and connection to formal businessmen, informals may lose out. Do graduates change trends?

1. 3.      What is the Jua Kali business environment and what are graduates doing there?

Kenya’s informal economy is referred to as the “Jua Kali”. It is known to host the poor in society, and has mostly been judged as inefficient production systems and, but also as a solution to Kenya’s poverty (see King, 1996). Now, research sees jua kali as efficient production-chains (Daniels, 2010)[1] or focus on the self-contained organization from below in East Africa’s innovation hotspot[2].

In the few network analyses, educated youths got little mentioning as these graduates had not yet reached a critical mass (Kinyanjui, 2006). But they hold high levels of self-employment attitudes or run small businesses whilst employed (Maina, 2011). This is why evidence of their positions upon entry within informal business environments tells us of any impacts on poor producers’ conditions.

4.      Who are the graduates and why do they network?

Before looking at graduate business practices and how students move to working life, a peek at tertiary enrollment statistics in Nairobi shows (dropouts aside) that Kenyan youths mean business:

[According to official statistics, national enrolment in public and private universities more than doubled in 2000-2008, from 60.000 to 120.000 students (SA, 2006, 2009). Private universities rose from insignificant 2001 numbers to 2007 going to 20.000. Only 1/3 of qualified students enter public universities relegating 2/3 to private universities and middle level colleges (Maina, 2011).]

Higher educational structures include social networks such as student associations. A group climate enhances trust and a safe environment, which facilitates experimenting with identities, i.e. of self-employment (Maina, 2011). In transition from education to self-employment graduates enter associations as opportunity learning networks (Awortwe-Abban, 2009) so graduates know social clubs, e.g. Rotaract where youths get Rotary members as mentors, may give formal contracts too.

5.      Why is the jua kali business environment a differentiated economy?

For young entrepreneurs, networking matters – just like finance or management skills. In places like the Kamukunji division, networks of influence equal higher opportunity in the business environment: investment capital; contract enforcement; access to labour or markets. Clustered physically, business interdependency relationships tie formal actors, graduates and producers in a system. Work types change with seasons, so that uniform or shoes orders will fit schools’ contracts.

Albeit from afar, this quote sheds light on why you enter a business system though social networks:

“Even though we are speaking about Kamukunji jua kali, what you see is there is a chain of cartels, financially, economically, and also human labour is required. Not forgetting skills also, no matter how small.” (Local Informant)

The informant noted how graduates engaged in services, trade or manufacturing in various ways. In close connections between the lower informal stratum of self-employed producers and the higher stratum of retailers, businessmen and entrepreneurs going for growth, but for a few (Kinyanjui, 2005, 2006, 2008; McCormick, 1999) this system remained as elusive as the role of the graduate groups. Graduates’ connected to formal business interests show system variance in terms of income opportunity. Groups of players can be ranked in terms of education, function and network (capital).

6.      The Jua Kali hierarchy: employment according to skills, function and capital

Some general characteristics of involved actors allow us to place actors in a pyramid proposed by Chen (2006). I start from below in the pyramid with workers to self-employed producers onto employers, entrepreneurs and investors. Not to forget: in everyday life they act in identity networks.

In the lower stratum, self-employed operators had little formal education, but came into business by graduating from apprenticeships. Nowadays, secondary school leavers, often in vocational training display certificates and higher skills’ levels (Kinyanjui, 2006). They manufacture jua kali products.

Like upper stratum entrepreneurs, graduates link to investors and subcontract orders or employ apprentices/vocational workers. Education taught them bookkeeping and how to identify needs in terms of input and labour to produce orders. To enter, they register as jua kali business to cut costs. Note how graduates move in the upper stratum, and how network capital allow for permits or not.

Lower Stratum: Producers

Casually employed workers are former apprentices / vocational graduates with relatively high skills.

Employees are school dropouts or rural youths turning apprentice. Technocrats use their labour too.

Self-employed producers, as sub-contractors, hire apprentices or casual workers to produce goods.

Upper Stratum: Entrepreneurs

Self-employed are known as technocrats, Polytechnic or University graduates with diplomas or first degrees have high technical skills and get capital from a formal job (Kinyanjui, 2006) or networks.

Middleman/Brokers are as diverse a group as their educational levels. They can hold trade permits, and know markets and investors as gatekeepers, straddling formal/informal networks to gain profits.

Entrepreneurs are, just as above, mostly traders/retailers, but business graduates fit in here too. Like the technocrats they hold capital and access to a trade (unlike lower stratum) or a production permit.

Investors are businessmen with lots of capital, but little know-how. They contract consultants-cum-entrepreneurs and work with middlemen to push product via fixed payment or return on investment.

7.      Kamukunji Division and the role of graduate business

As ‘locality’, changes in clothing business environments are seen via an analytical sub-sector lens.

By means of an institutional network analysis, it is only possible to scratch the surface of what lies beneath the functions of the target group of Kenyan graduates. Their paths point in many directions and some straddle on borderlines of the formal-informal socio-economic spheres. A source revealed that silence is gold as to how they navigate the sub-sector systems, but as groups in relation to clothing, general points appear on how technocrats/entrepreneurs work to change informal systems.

In spots in the Kamukunji division and the Gikomba market (see map) specific actions were hard to confirm. Triangulating information helps discuss both informal worker relations and formal cartels. As key to know graduates’ role in a system, a cartel’s secret nature makes it hard to decipher. They refer to production and trade alliances inside the jua kali, to outside private firms and actors beyond.

To meet changing customer demands, not only capital, but also knowledge and technology have to flow from the retailers to the producers (Kinyanjui, 2005). For entrepreneurs, raw material and ‘license trade’ is not enough to satisfy the markets. As the new jua kali players, their business profiles or mentors may assist graduates to pinpoint weaknesses within current market dynamics.

1. 8.      Untangling formal/informal economic governance

To risk money, a high-leveled investor needs skilled people to ensure investments. Here the graduates’ network and skills pay off well. To acquire quality items at low cost, they identified that quality of small producers must go up. So they set up trainings, benefitting the lower stratum by raising human capital. Technocrats provide information while other graduates offer finance to poorer players in the production-chain. In a cluster environment, producers’ permits level the fields.

Due to technocrats’ undisputed power of in the Gikomba Market a mix of formally trained workers and informal producers constitutes a new informal economy since casual employees get pay by piece work. A vocational graduate holds no license to bargain with, others hold all levies. The traditional, informal employer/employee exploitation is replicated, only in this environment, incentives are fewer to help workers acquire business loans since affairs are now ‘strictly business’.

The informant connects technocrats with the industry as individual alliances with affluent corporate heads, and puts them into this setting: “jua kali sector is about the technocrats, (…) and the squaring of things where agreements have to be made between the government or the local authority”. This translates into the patronage system, where vested economic interests are secured by people straddling vertical political alliances. So-called cartels can circumvent the official system.

As interconnectors across the formal/informal continuum, Nairobi’s entrepreneurial graduates play a pivotal role. Graduates seem to join human chains of producers and traders down to the individual jua kali manufacturer. Actors link up to twilight institutions governing business, where political leverage is needed. Corporate heads are known for their connections to state establishments and voilà; patronage systems of political and formal business alliances governing the jua kali informals.

 9.      Research agendas: Individual life stories, political network analysis and sub-sector policies

This article presented no political analysis, but rather informal business environments. If observed from personal graduate perspectives, explanations would be better grounded or at least improve the contextually bound analysis to reveal strata actors inside the informal economy’s power dynamics.

A novel approach could be to include complex value chains and pyramid positions adding value in relation to graduates or other actors changing production, trade and services practices. It can reveal skills contribution or allow for better distinctions of production (e.g. local markets quality/quantity versus clusters) – or even include qualitative methods of success as suggested by Kinyanjui (2008).

In total, research may assist the National Informal Sector Coalition (Jua Kali Associations) and the government youth fund loans to mediate conditions or policy for casual and self-employed informals. Maybe next time around PM Uhuru Kenyatta’s secretary list will name a secretary of informal affairs or a ministry of youth.

Clearly, linkages from education to informal enterprise are much stronger than support to informals.

List of references:

Awortwe-Abban, J.R. (2009) Ghanaian Graduates in Enterprise. Maastricht: Shaker Publishing BV.

Gitonga, A. (2008) Factors Affecting Growth of Micro and Small Enterprises in Kenya. Nairobi: The Kenya Institute for Public Policy and Analysis.

King, Kenneth (1996) Jua Kali Kenya – Change & Development in an Informal Economy 1970-1995. London: James Currey.

Meagher, K. (2010) Identity Economics – Social Networks & The Informal Economy in Nigeria. Ibadan: HEBN Publishers Plc.

Articles and reports:

Castells, M. & Portes, A. (1989) “World Underneath: The Origins, Dynamics and Effects of the Informal Economy”. In Portes, A., Castells, M., Benton, L., (eds.), (1989): The Informal Economy: Studies in Advanced and Less Developed Countries. Baltimore: John Hopkins University Press.

Chen, Martha A. (2006) “Rethinking the Informal Economy: Linkages with the Formal Economy and the Formal Regulatory Environment”. DESA Working Paper No. 46, ST/ESA/2007/DWP/46, (July 2007).

Hart, Keith (1973)”Informal Income Opportunities and Urban Employment in Ghana”. In The Journal of Modern African Studies, 11, 1: 61-89. Cambridge: Cambridge University Press.

International Labor Organization (ILO), (1972)”Employment, incomes and equality a strategy for increasing productive employment in Kenya”. Geneva: International Labor Office.

Kinyanjui, Mary N. (2005) “Local Level Economic Initiatives in Nairobi: The case of

Micro and Small Scale Garment Manufacturers and Retailers.” In Africa Insight 35, 4:97-104.

Kinyanjui, Mary N. (2006) ”Knowledge, Technology and Growth: The Case Study of Kamukunji Jua Kali Enterprise Cluster in Kenya.” Washington: World Bank Institute.

Kinyanjui, Mary N. (2008) “Is Informal Enterprise a Path to Urban Socio-Economic Dynamism in Nairobi?” International Development Centre Working Paper Series Paper No. 4.

Lund, Christian (2006) “Twilight Institutions: Public Authority and Local Politics in Africa”. In Development and Change 37, 4:685–705.

Maina, Rosemary W. (2011) “Determinants of Entrepreneurial Intentions among Kenyan College Graduates.” In KCA Journal of Business Management 3, 2:1-18

McCormick, Dorothy (1999) “African Enterprise Clusters and Industrialization: Theory and Reality”. In World Development, 27, 9:1531-1551.

Roitman, Janet L. (1990)”The Politics of Informal Markets in Sub-Saharan Africa”. In The Journal of Modern African Studies, 28, 4:671-696.

Government of Kenya (GoK) references / statistical material – consulted at British Library, London, UK.

GoK (2004) Security, Risk and Private Sector Growth in Kenya – A Survey Report, (SRPSGK, 2004).

GoK (2008) Labour Force Analytical Report: Based on The Kenya Integrated Household Budget Survey 2005-2006. KNBS, (ILFS, 2008).