What would an alternative to the Uwezo Fund be?
What you need to know:
- The primary problem is that the most open opportunities are highly competitive and exist primarily in the informal sector.
- Identification and nurture of mid-size firms is indispensable for employment creation in Kenya.
It is indisputable that many Kenyan citizens have insufficient economic opportunity.
This fact manifests itself in surveys that provide evidence of poverty and the prominent place that employment creation has in both the priorities of the incumbent administration and their political competitors.
To their credit, a cadre of politicians who rarely have their fingers on the pulse of important issues in economic and social policy agree that employment should be addressed.
At the same time, it is clear that employment expansion in the public sector is not a realistic alternative. Impliedly therefore, Kenya’s struggle with job employment can only be meaningfully resolved through the expansion of the private sector.
That brings this piece to the most recent job creation policy developed in the public sector. With the exception of the explicit influence of the legislators in the National Assembly, the Uwezo Fund duplicates the model of the Youth Enterprise Development Fund and the Women’s Enterprise Development Fund.
Any dispassionate observer would have enormous reservations regarding the design and formation of these funds, but that would be flogging a dead horse.
CHARACTER OF JOBS
It is useful to consider the difficult choices that may be made to ensure that there is meaningful job creation as an alternative merely throwing money at a problem despite good intentions. Two factors determine the employment picture in Kenya, and new policy approaches are required around these because the mere push of funds into the hands of youth and selected entrepreneurs will not work.
The first issue is that employment creation is not as much a problem as the character of jobs. Adopting a very general definition of employment, it is clear that opportunities for earning incomes in Kenya are not scarce. The primary problem is that the most open opportunities are highly competitive and exist primarily in the informal sector.
As a result, many working people in Kenya receive insufficient income from work. The trick therefore is to find work that will pay substantial incomes. The Uwezo Fund and all others merely add numbers to those competing in the informal sector, meaning that incomes are unlikely to rise there.
Secondly, Kenya has a dual strand of private enterprises. Leading employment creators in the private sector are larger and more capital intensive that the rest. The largest firms in Kenya tend to have large capital endowments, international connections and markets. The total employment that they provide is important but is low, relative to the total labor force in Kenya.
THE MISSING MIDDLE
At the other extreme are very small enterprises run by an individual or a duo whose labour productivity is low. Between these extremes is the missing middle. Identification and nurture of mid-size firms is indispensable for employment creation in Kenya.
They may be obscure, but a number of competently run firms that manufacture products or provide services can be identified. The dearth of these mid-sized firms is a sign of the quality of the policy and regulatory environment. What the picture shows is that the country is hostile to business expansion.
It is in the interest of policy makers to specifically identify the barriers that prevent these firms from achieving greater scale and expanding employment opportunities. Judged against pure economic result, the stunted but profitable mid-size firms would probably do much better with additional capital.
Private sector development in Kenya should be informed by the realization that building the missing middle is the priority. That will require a more complicated policy than establishing funds and letting MP’s sit in committees that oversee distribution. Good luck to the Uwezo Fund, but my firm bet is that it will almost certainly do little to improve the employment situation.
Kwame Owino is the Chief executive Officer of the Institute of Economic Affairs (IEA-Kenya), a public policy think tank based in Nairobi. Twitter: @IEAKwame
