Review of World Bank” The long shadow of informality” Implication to Kenya’s SME policy environment

The world Bank recently published a report on informal economy {https://www.worldbank.org/en/research/publication/informal-economy }

The report contextualizes informal sector; offering definition, topography of the sector among other parameters with the goal of providing relevant policy interventions to facilitate inclusion to formal economy and improve quality of contribution to socio economic development.

The article briefly takes a look at the lessons that Kenya can pick and apply to the country’s context in supporting SMEs

Informality generally hampers development and is associated with weak economic outcomes. Further informality has the following effect on government activities;

1.     Curtail government revenue,

2.     Constrain government ability to provide services

3.     Conduct countercyclical policies

4.     Service debt

5.     Implement crisis response measures such as COVID 19

From a Kenyan perspective the report brings to the fore the question of the effectiveness of Kenya’s COVID 19 stimulus program as well as the post COVID 19 economic recovery strategy focusing on SMEs; 79 percent being informal.

The report contends that ‘’Conventional measures eg wage subsidies and tax relief hardly reach informal firms and workers’’

The report recommends the following

1.     Emergency measures through income support to informal workers as well as credit to informal firms

2.     Use of social protection and assistance program to include support to families operating in the informal sector through food aid and cash transfer among others

3.     Utilize flexible program and technologies to reach informal sector. Cash transfers and other interventions can utilize various existing registries and platforms that have wider coverage than banks and tax registries

Based on the study; Government of Kenya can consider the following SME interventions

1.     Map out existing SME registries and platforms that have wider coverage than banks and tax registries. Based on our studies such a platform can be in the form of chama groups/ Associations that are mostly registered with other bodies such as churches, NGOs, Government agencies and Banks among others

2.     Have the platforms clean their chama/SACCO membership as well as SME membership within the Chama groups ensuring contacts are updated

3.     Use these platforms as a channel for COVID 19 interventions

Finally, cognizant that SMEs are at the cornerstone of AFCTFA there needs to be a coherent pragmatic and transitional support of SMES that recognizes their current informality with clear and practical strategies to support transition to formal in country economies adjusting ACFTA inclusion framework at each formalization milestone