Drivers of informal sector growth, contributions to overall economic growth, and the challenges facing informal sector business.

The informal sector is a crucial component of Kenya's economy, with over 80% of the country's workforce engaged in informal economic activities. This article will focus on the drivers of informal sector growth, the contribution of the informal sector to overall economic growth, and the challenges facing informal sector businesses in accessing finance and formal markets.

?Drivers of Informal Sector Growth in Kenya

The informal sector in Kenya has grown rapidly over the past decade, driven by several factors. One of the primary drivers of informal sector growth is the lack of formal employment opportunities. According to a report by the World Bank, Kenya's formal sector is relatively small, with only about 17% of the country's labor force employed in formal jobs. This has forced many Kenyans to seek employment in the informal sector, where they can start their businesses and earn a living.

Another driver of informal sector growth is the low level of education among many Kenyans. According to the United Nations Development Program (UNDP), only 21% of Kenyans have completed secondary education. This limits their ability to compete for formal employment opportunities, forcing them to turn to the informal sector.

Additionally, poverty is another critical driver of informal sector growth in Kenya. According to the World Bank, over 36% of Kenyans live below the poverty line, which means they lack the resources necessary to start a formal business. The informal sector provides an avenue for these individuals to start small businesses and earn a living.

?Contribution of the Informal Sector to Economic Growth in Kenya

?The informal sector is a significant contributor to Kenya's economy. According to a report by the Kenya National Bureau of Statistics (KNBS), the informal sector contributed approximately 34% of Kenya's GDP in 2019 and 32.6% in 2022. This indicates that the informal sector plays a critical role in supporting economic growth and development in the country.

The informal sector also provides a significant source of employment in Kenya. According to the same KNBS report, the sector employed over 15.26 million people in 2022, which is more than four times the number of people employed in the formal sector. This demonstrates the importance of the informal sector in providing employment opportunities and reducing poverty in the country.

Challenges Facing Informal Sector Businesses in Kenya

Despite the significant contributions of the informal sector to Kenya's economy, it faces several challenges. Access to finance is one of the primary challenges facing informal sector businesses. According to a report by the UNDP, only about 30% of Kenyans have access to formal financial services. This makes it difficult for informal sector businesses to access credit and other financial services necessary to grow and expand their businesses.

Informal sector businesses also face challenges in accessing formal markets. Many informal sector businesses operate outside of formal markets and lack the necessary skills and resources to compete with larger, more established firms. According to a report by the International Finance Corporation (IFC), informal sector businesses in Kenya face several challenges, including a lack of information, limited access to technology, and inadequate infrastructure.

In conclusion, the informal sector is a crucial component of Kenya's economy, providing employment opportunities and contributing significantly to the country's GDP. However, informal sector businesses face several challenges, including limited access to finance and formal markets. Addressing these challenges will require a multi-faceted approach that involves the government, financial institutions, and the private sector. By providing support and creating an enabling environment for informal sector businesses to thrive, Kenya can harness the potential of the informal sector to drive economic growth and development.