The True Picture of Kenyan Economy and Why you Should be Worried

  • on Thu, 16th November 2017 3:31 PM
Lucy Gichuhi with Uhunye
Reading Time: 13 minutes

Among the items we imported from the United States, besides iPhones, Ford Vehicles and beauty standards is the socioeconomic classification based on one’s income.

The middle-class aspiration is one such import and tends to be viewed as an inherent part of the American dream symbolized by a decent job, small family, strong values, Honda CRV (maybe) and respect.

Thousands of miles away from the US, the structure of the Kenyan society has little resemblance to anything like the American middle class- despite our frequent use of the word to connote certain habits and lifestyles. Keep in mind that the Kenyan economy currently has the highest number of informal jobs in Africa at about 77.9%, well ahead of Rwanda 73.4%, and neighboring Uganda at 59.2%, from a new report by the United Nations’ Economic Commission for Africa.

In many ways the Kenyan society is a blue-collar working-class economy, contrary to common assertion that ours is a white-collar working-class economy or middle-class economy.

Many Kenyans rides on menial jobs, drawing low wages. The blue sector employs 80 % of the working women.  

Every year close to 900, 000 young Kenyans join the workforce where they must contend for a few formal sector jobs. For a majority they’ll have to square it out in the largely unregulated informal sector where 75-80% of the jobs are created annually; a prospect that few ever seem prepared for.

Working-class society isn’t limited to the informal sector, there’s a significant segment of what constitutes the formal sector working class population. Recent surveys have put the number of formal sector workers who earn above Sh 100, 000 at a paltry 2.89%. Most Kenyans mostly toil at physically exerting jobs, which require little to no foundational cognitive skills besides numeracy. But what really constitutes the working class?

In social literature, working class is considered the social-economic group just below the middle class. They are salaried workers (both white and blue collar) who produce economic value for their employers or the owners of factors of production such as land, capital and innovation. This class is characterized by low income and little to no social safety nets making their professional lives and economic fortune to be a precarious dance with fate. It often takes a single major setback such as a job loss, debilitating disease, or loss of fortune to send them into poverty and dependency.

Crude Reality

What stands out the first time I meet Andrew is that he speaks with the tired, slang-ish accented Swahili, that’s typical of a Kenyan from the slums. At 32 he looks younger than his age, but sickly for his physique. He works at a grains facility in the Industrial Area, the region in the south east of Nairobi consisting of sprawling manufacturing, industrial plants as well as an estimated 200 large storage facilities.

 Andrew, a father of two, has worked for the grain company owned by an Asian family for about 6 months now. His day starts at 6 a.m. by which time he should have arrived at the company’s gates. Major, a supervisor appointed to screen all employees pats them up and down before allowing Andrew and his colleagues into the premises. On one end of the premise three trucks with 30-foot containers are packed ready to be offloaded, after a 16-hour transit from the port of Mombasa.

Andrew and his 15 co-workers will work till 9pm before closing for the day. Once he arrives at his work station, he changes from his decent clothing, a khaki trouser, and white checked shirt, and puts on older, tattered clothes which act as his work attire and safety gear. He has no mouth cover, gloves, or goggles. If he falls sick from the dust in the stuffy silo, he’ll have to drop off from work and the owners will simply pick up the next person who needs a job – and they are many idling outside the gate.

Today, Mike, Andrew’s middle-aged co-worker couldn’t make it because he has to attend a funeral upcountry. So, he simply notified Major that he’ll send another friend to replace him, as a temp worker for the day.

Mike, Andrew, and his replacement are the common figures in all the major towns and rural centres from Kisumu to Garrissa, from Kitale to Kwale. They operate with a high degree vulnerability, poor working conditions, informality, unpredictability, and significant health risks as they eke out a living.

This kind of unstructured economical living traps them into poverty and perpetuates a cycle of despondency and despair. Social mobility is unheard of and for many they’ll move from one job to another. within the same scale until they fall out altogether due to disease or old age.

They make up a huge percentage of the 11.8 million Kenyans in the informal sector and the 2.4 million employed in the formal sector.

Retailers, boda boda operators, hawkers, subsistence farmers, porters, and other service providers make up the largest segment of the blue-collar workers.

In recent years the Matatu industry, IT, small scale manufacturing and a major part of the entertainment sector have joined the expanding working-class population.

The Working-Class Structure.

When I met Andrew at Church Army school, he’d shown up as a guardian for 5 years old Naima, his employer’s daughter. Given the lack of enforcement of labor regulations, the employer designates roles, salaries and duties based on his own needs and preferences and sending Andrew to represent him at his kid’s school is well within his consideration. Two years ago, Andrew used to work as a farmhand in Taveta before moving further south to Mombasa where he worked as a cleaner in a hotel. His story, just like that of many unskilled or semi-skilled labourers, is one of doing whatever job comes your way.

According to a UN report, retail and wholesale trade alongside hotels and restaurants make up the largest chunk of the working-class employment at 6.7 million, followed by manufacturing-where Andrew currently works-at 2.3 million workers. Social and personal services employ approximately 1.1 million people. A further 990, 000 works in the transport industry with the bulk of them being in the Matatu sector.

Majority of those SMEs/side hustles totaling about 50% will close within the first year. Another 400, 000 will not live to celebrate their second birthdays due to losses, fewer clients, or rising operating costs. In the absence of a social safety net the working-class population in its category will probably sink into poverty and despondency if they don’t find something new to do, fast.

Andrew and most of his friends will work at one firm for an average of 3 months to 2 years before either getting downsized, resigning or simply quitting. As of 2016 this massive working-class army was employed in the 7.4 million micro, small and medium-sized enterprises (MSMEs) spread out across the country.

The recent major investment in infrastructure by the government (was supposed to have) delivered considerable private sector growth. *Unfortunately, most of the growth is still in the low wage personalized service sectors such as salons, pubs, and taxi business.

To illustrate the challenge with this low-end, multi- sectoral growth, according to the KNBS 2016 MSME Survey, a little over 20 per cent of the 7.4 million MSMEs i.e. 1.56 million were licensed with the other 5.8 million operating as unlicensed firms. Although these unlicensed firms employ more than 8.5 million Kenyans, they only delivered about 10% of the 1.6 trillion GDP or 173 billion. This figure is however disputable since it’s harder to properly quantify the full value of the unlicensed SMEs in the economy.

Right outside Andrew’s employer’s premise is a matronly lady in her mid-fifties with a Kiondo sack that’s laden with githeri (a boiled mixture of maize and beans) that she’s planning to sell to Andrew and his co-workers over the lunch break. According to KNBS she would pass as an unlicensed business owner alongside the lady across the road whose selling fruits from the top of a wheelbarrow.  However, even if their contribution to the economy is minuscule you can’t fault these unlicensed business owners, given that majority of them (67%) use most of their incomes on family needs as opposed to growing the business.

The Working-Class Motivations

Surveys show that Andrew and most of his fellow workers in this economy are unskilled or semi-skilled with little formal education. In fact, close to 500,000 have no formal education at all. Roughly 24% of those who’d venture into SMEs said they did so because they had no alternative income while 23.5% ventured into their hustle with the hope of shoring up their incomes.

What most Kenyans would call side-hustle is mostly their main hustle. With an average salary of about 10-15k a month, most employed Kenyans would qualify as working poor-those whose salaries can’t cover their basic needs. This segment is often the most stressed out lot, who are forced to find extra hustle or take multiple jobs to gain the extra necessary incomes.

The biggest culprit in this theatre of salaried survival is the non-performing economy, which has been characterized by jobless growth and stagnating incomes. It’s easy to quote great figures of how the economy is growing by 5-7%, but Kenyans know deep down in their bones how they are struggling. It’s these low-wage economic struggles of the working class that pushes working class Kenyans into the informality, vulnerability, and the resultant risks of failure by trying their hands in running SMEs.

Majority of those SMEs/side hustles totaling about 50% will close within the first year. Another 400, 000 will not live to celebrate their second birthdays due to losses, fewer clients, or rising operating costs. In the absence of a social safety net the working-class population in its category will probably sink into poverty and despondency if they don’t find something new to do, fast.

The terms and nature of the digital credit lending have been termed predatory, and sometimes controversial with a few of them carrying huge interest rates and tough conditions for default. M-shwari, the most successful of these lending schemes, is a partnership between Commercial Bank of Africa and the largest mobile network carrier Safaricom. To illustrate the dicey nature of digital credit, close to 500,000 Kenyans are listed with the credit reference bureau majority of whom defaulted on as little as $1 (Ksh100).

Another major factor in this non-performing economy besides poorly paying jobs is the copycat culture in the Kenyan business environment. We tend to opt for replicative businesses as opposed to trudging new grounds. This peculiar habit makes it easy to ignore large swaths of potentially profitable industries, while we focus on a few sections of the economy.

If, my neighbor, or someone I know is succeeding in it, then I too should try my hand in it. It is a very Kenyan mentality. This can be clearly seen in the MPESA outlets, Matatu industry and motorbike sectors. There are on average 4 other grain facilities within the same stretch outside Andrew’s employer’s firm, not to mention the number of fast food sellers along the same road. The problem with replicative enterprises is that it’s easy to create an overcapacity, increases unnecessary competition and soon profits dip and kills the industry.

The easier alternative out of this quagmire would be investing in research and innovation. However, a recent KNBS survey shows that Kenyans firms invest only 0.04% of their revenues into innovation. According to David Ndii, a foremost economic thinker, the formal corporate sector of the economy creates less than 50,000 jobs every year, while the country needs more than 750-900k jobs to absorb all the newly created labor. This dynamic leaves majority of the working class unemployed or in the unstructured informal segment.

Who Employs the Working Class?

As we sat with Andrew at Church Army school during the parent’s meeting, on the Eastland bound Jogoo Road, a few miles up the road at Industrial Area, his employer shuffled through a sheaf of papers as he counted the number of bales delivered while signing out others to be transported upcountry as far as Kisumu and Kapenguria. Andrew’s employer is what is loosely defined as the middle class. The middle class in many ways is an American concept that constitutes part of the American dream as conceptualized by Massachusetts born Scholars Ralph Waldo Emerson and Horatio Alger.

The EA’s report, “The Middle Class in Formal Sector in Kenya,” estimates the Kenyan middle class at 4% or between 100k and 272k of the Kenyan population. The definition of what constitutes middle class has always been a point of contention with the World Bank estimating it at persons who spend between 1000 – 10,000 shillings a day while the African Development Bank (AfDB) places the middle class spending at between $10 and $50 (Sh1,031 and Sh5,158) per person/day. At 4% (those earning between 60k and 300k) the Kenyan middle class is too small that it might as well be accounted as negligible. Meanwhile, 92% of Kenyans are firmly low-income consisting of the working class, the working poor, and the poor who constitute 43% of the total and earn less than 10,000 a month.

In many ways Andrew and his army have little room for upward mobility unless the state invests in massive public sector spending in sectors such as water, electricity, education, security, and health care which have a direct impact on their lives.

In the early 1990s, as Cold War came to an end, and Bretton Woods institutions came up with their Structural Adjustment Programs (SAPs), a terrible and ill-timed prescription, especially for Kenya which coincided with clamor to end the one-party rule of KANU. Out of fear of losing power, powerful figures in the government hatched one of the biggest corruption scandal in modern history of Kenya: Goldenberg to which the country lost billions. The cumulative effect of all these was stagnation of the economy.

This caused hyperinflation and in a span of weeks, the Kenyan currency started exchanging at an impossible rate, disrupting the balance of payment and spiked the inequality that haunts the country to date.

Kibakinomics is often misconstrued to have expanded the economy and raised the number of middle class families. However, Kibakinomics was largely a recovery phase not a growth phase, and even so, it sputtered after the 2007 skirmishes and largely stalled by 2009and started declining. Andrew’s employer and his fellow ‘middle class-ers’, therefore, constitutes a tiny minority in the larger Kenyan socio- economic jungle.

The Working-Class Education.

While the Kenyan economy remains largely a working-class economy, it is not constituted in a way that it caters to the needs and demands of this crowd. The World Bank’s March 2016 Kenya Economic Update report illustrates this disjointed mess. For example, while the 2003 Kibaki administration’s Free Primary Education (FPE) impressively raised the enrollment, there was no commensurate growth in the economy to absorb this growing labor supply. Currently, the Kenyan population remains one of the most educated (though less skilled) in the region, with at least 50% of the working age population, i.e. 15-64 years having completed secondary education, a figure that rises to 65% among the 15-35 age group.

Going by the Commission on higher Education (CUE) study, post-secondary enrollment remains a mirage for many working-class populations given their relatively low incomes. In total there are about 320 programs in institutions of higher learning with a total of about 3408 courses. Humanities and Arts programs take 478 of those, Life & Physical sciences 365, Business related 365. The smallest programs are Architecture 0.8%, law 0.4% and manufacturing 0.3%. In total there only about 500, 000 graduates in Kenya or about 2% of the entire population, a figure that rises significantly when you add those with college diplomas.

The Working-Class Water and Sanitation

The narrative isn’t any much different when it comes to access to water and sanitation. Currently only 30% of Kenyans have access to improved sanitation with about 13% or 6 million Kenyans having no access to sanitation at all. They defecate in the open. This number constitutes about 80% of the total population in counties like Turkana. In Nairobi the roughly 1 million people who traverse the CBD have to make do with less than 20 public toilets of which the infamous River Road has only one. This on average is estimated to cost the economy about $330 million in lost productivity and treating ailments contracted from relying on overcrowded sanitation.

17 million Kenyans or about 36% lack access to safe water with Kenyans spending about $20 billion shillings treating water and sanitation related diseases. While a few NGOs and enterprising firms have stepped in to try and mitigate the situation, provision of social services remains largely the prerogative of the state. First, social services tend to be expensive and needs intensive capital, and lots of subsidies such that when they are provided by private sector they tend to be expensive and largely out of reach of the poor who need it the most.

The Working-Class Health

In a few yearsAndrew and his fellow working-class population stand to be the biggest losers if the current privatization of Kenyan healthcare continues apace. On average only 20% or less of Kenyans have access to any form of the medical insurance, a majority of whom are under the government provided NHIF. In a country where about 1 million sinks into poverty every year due to medical-related expenses, the working class and working poor tend to bear the biggest brunt of this anomaly.

Already this year 156 of 263 days have been lost to the nurse’s strike coming on the heels of the doctor’s strike that paralyzed the healthcare industry.

The nurses and doctors want better healthcare; an issue that the current government has sought to politicize rather than solve. The silver lining to this sad tale is that over 800 hospitals, have since accepted NHIF members to access both inpatient and outpatient healthcare there. A fair share of the middle-tier private hospitals are also getting snapped up by the foreign investors keen to cash in on the sickly and poor Kenyans.

There’s little doubt that the working-class population forms a considerable chunk of the 75% of Kenyans who pay for health care out of the pocket-a risky and sustainable means of accessing healthcare services.

The Working-Class Credit

With temporary jobs, no permanent address and little to no collateral, most of those in the working-class population have no access to credit facilities. Their top lenders tend to be fellow friends and family, followed by digital credit firms. Currently Kenya has about 20 digital credit firms/products which offer credit from as little as $2 (Ksh.200) to as high as $30,000 (Ksh.3M). The digital credit works in a variety of ways in a network involving banks, mobile network carriers and even SACCOS.

The terms and nature of the digital credit lending have been termed predatory, and sometimes controversial with a few of them carrying huge interest rates and tough conditions for default. M-shwari, the most successful of these lending schemes, is a partnership between Commercial Bank of Africa and the largest mobile network carrier Safaricom. To illustrate the dicey nature of digital credit, close to 500,000 Kenyans are listed with the credit reference bureau majority of whom defaulted on as little as $1 (Ksh100).

The Working-Class Networks

When Mike travelled upcountry for the funeral, among the hordes of mourners he met was a spry young female friend, Monica. Mike first met Monica while working as a supervisor, at a construction site in Upper Hill—the rows of skyscrapers set atop the steep climb from CBD on your way to the southwest of Nairobi. Monica, doesn’t live in any of the major cities, she works on temporary gigs all over the country at construction sites when called upon. Every time a building is about to go up, he construction firm usually calls upon their legion of trusted supervisors to hire temporary workers for the construction phase.

Monica knows many of those supervisors and occasionally gives them a call just in case they are on a new hiring spree. Through this model Monica has worked in nearly all the major cities including Mombasa, Nairobi, Kisumu, Eldoret and just about any major city in the country. Once a project reaches completion, she packs her bags and heads back upcountry laden with wads of notes she saved from the project by co-renting shacks with fellow temp female workers in the low cost informal settlements.

This army of workers exists and survives through tightly knit relations in which information about an opportunity is passed from one person to another often by word of mouth. You’ll encounter them in the morning as they walk along the major roads towards the central business districts of Mombasa, Nairobi, Kisumu, Eldoret, Kitale Busia and so on. In the end everyone is keenly aware as to just how much his or her fate, and by extension his fortune is tied up in maintaining cordial relations with the rest of his circle of friends. In a country where as much as 90% of jobs (especially the temp ones) aren’t advertised on any platforms, networking, word of mouth and referrals are the order of the day.

The Invisible Working-Class

In many ways Monica, Andrew, Mike and his replacement constitute the silent majority, a large network of hand-to-mouthers who run this nation, with no social safety net, minimal education, but armed with lots of willpower; yet, largely ignored by the bureaucrats seated 20 stories up in air conditioned government offices in the city’s skyscrapers, as Andrew and his coworkers walk home from yet another day in their daily struggle.

They perform the janitorial roles, work as office messengers, drivers, guards, street cleaners, groceries sellers at estate entrances, work as electricians and plumbers; yet there’s little the economy has to offer them besides their daily wage.

In many ways Andrew and his army have little room for upward mobility unless the state invests in massive public sector spending in sectors such as water, electricity, education, security, and health care which have a direct impact on their lives.

Currently there exists a wide disconnect between state priorities and the fate of a significant section of the population.

Government bureaucrats, parastatal heads, and the political class seem blissfully unaware of the structure and dynamics of the economy that they are (supposed to be) running.

The essence of this disconnect is best captured by the sentiments of industrialization Cabinet Secretary Adan Mohammed who quipped that the average Kenyan has 3 to 4 businesses which he runs concurrently. The industrial scale corruption, vendor driven mega-projects and nepotism have largely rendered both the national and county government ineffective in developing social services and the necessary social safety net needed to reward the working class (who make up the largest) segment of the working Kenyan population.

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