Formalization of the Informal Sector in Kenya: a Critical Review of the Kenyan Law on Investments

Abstract

Micro and Small enterprises (MSEs) sector in Kenya is an old economic sector dating back to the pre- colonial era. Over the years the sector has rapidly grown to contribute a lot to the country's economic development through provision of employment to the ever increasing army of job seekers. The sector has however largely continued to operate informally. Little interest, to exploit the sector's potential, was shown by either colonial or independence governments until 1972, when ILO published a report on employment in Kenya. Sincethen, the government of Kenya has taken a bold step in formulation of various policy and strategy papers aimed at creating an enabling environment for the growth and development of the sector. None of these government papers has however advocated for the formalization of all the Micro and Small Enterprises (MSEs). The process of formalizing MSEs has therefore been left at the mercy of the existing investment laws which are irrelevant to the Micro and Small investors. Consequently, the sector has continued to experience a rapid increase of the informal MSEs, resulting in poor planning, poor allocation of resource and poor provision of essential services due to lack of accurate statistics. There is also no mechanism to guarantee protection of workers, consumers and the environment. Likewise the government is not able to efficiently tax all the MSEs because the majority is unknown to it and there is no possibility of catching the evaders. An economic sector which cannot contribute to the civilization of the country is not sound. It is parasitic to government resources and services. This paper traces the evolution of the MSE sector and its policy in Kenya generally but more particularly regarding Artisans and Crafts people. The paper then catalogues and critically reviews the investment laws in Kenya and makes recommendations towards creation of a conducive legal and institutional framework for the formalization ofthe informal MSEs. To this end the paper recommends for enactment ofMSEs Act to regulate all the MSEs' activities.