The use of economic indicators in the evaluation of training projects for informal workers in Kenya

Evaluation of training projects for informal workers in Kenya.

Maria V. Aviles-Blanco

Department of Financial Economics and Operations Management, University of Seville. Spain

Abstract (137 words)

The importance of the Informal Sector in launching the National Economy in Kenya has been a key issue in the Government Agenda. Supporting training projects for the Jua Kali is expected to foster competitiveness and effectiveness of the labor market as a first step for employment creation. Training activities focus in quality and technological improvements for product development and increasing the capacity of trainees to deal with institutions. In the evaluation of training projects success is measured using indicators on final production and investment lacking data on institutional capacity building. The purpose of this paper is evaluate a training program for Jua Kali using the indicators proposed by the donor, using data from Jua Kali Training Program in Thika funded by EU Micro-Enterprise Support Program Training for associates of the Thika Jua Kali Welfare Association in Kenya.

1. Introduction

The importance of the Informal Sector in launching the National Economy in Kenya is one of the major issues in the Government Agenda. Human Development and Institutional Capacity Building are the key issues to promote the Informal Sector. One of the different policies in order to achieve competitiveness and effectiveness in the Informal Sector is to support Training Projects for the Jua Kali, as a first step to gain employment creation and poverty alleviation. Training Projects have mainly two means: on one side, Training is held to increase quality and introduce proper technologies in the sector. On the other hand, a Training Project is a key to evaluate the capacity of the trainees to deal with institutions. In the evaluation of a Training Project by the donor, success is measured only regarding final production and investment. But changes in success indicators are being made continuously. Both the donor and the promoter of a project are making changes in order to establish indicators that can evaluate properly the final effects. Indicators used by donors are sometimes impossible to provide or quantify. On the other hand, there is also the need to include socioeconomic indicators when evaluating the other objective of the project, institutional capacity building.

Kenya is mainly an agricultural country, although less than 20 percent of the land is arable. Agriculture provides two thirds of the country's exports. The main products to export are tea and coffee, but Kenya also exports sisal, pyrethrum, hides and skins and horticultural products. Kenya has no substantive minerals for exports and the industrial sector is still forming, so the performance of the economy depends on the agricultural sector. Kenya relies on agricultural exports for its GDP and foreign reserves, but the prices of products like tea or coffee are fixed in the world market. The fluctuation of these prices affects the whole national economy. This is one of several international factors that usually slow down economic development. Another international factor is the Kenyan dependency on imported energy. The higher price of oil absorbs most of the foreign reserves, as oil is paid in dollars or any other strong foreign currency.

Kenya's industry is still at a very early stage of development. It includes processing industries such as milk production, food, tea and coffee. Other industries have grown connected to the State's policy of import substitution that support the production of goods that would be imported otherwise and the consumption of goods locally produced. During the 70s and 80s this policy led to a great loss due to a higher foreign exchange costs. Manufacturing in 1983 employed only 2 percent of the labor force and cannot be expected to provide employment for the almost nine million people looking for jobs in the year 2000.

Another characteristic of the Kenyan economy is the debt problem. Most of the earnings from agricultural exports and tourism are spent to pay the services of the debt, instead of being reinvested in developing programs.

In Kenya, institutional support to the Informal Sector was expressed for the first time in the Sessional Paper No.1 of 1986. Certainly, the Government has also acted against the sector, through the demolition of working premises and residential places, and through pressing informal workers to shift towards the formal sector as a first policy for employment creation. The Informal Sector in Kenya is mainly important as a provider of employment and a source of income generation, especially for the poorest. The Kenyan Development Plan of 1989-1993 and the Sessional Paper No.2 for 1992, expressed the comparative advantages of the Informal Sector in the economy:

- It is cheaper to create a job in the informal sector, it takes approximately Kshs.32,000 to create a new job in the modern wage-earning sector, and it takes only about Kshs.20,000 to create a new job in the informal sector.
- It is a method of fighting against poverty as it promotes income distribution among the poor.
- Reduction of income disparities.
- Promote indigenization, as it creates jobs among locals.
- Equitable rural-urban balance, reducing migration from rural to urban areas.
- Quick adaptation to market changes, flexibility.
- Easy of entrance and exit.
- Dependence on local resources and recycled waste, cheap raw materials.
- Good opportunities to entrepreneurial and managerial talents to mature.
- Employment of technologies which are easy to adopt.
- Ability to operate under highly competitive market conditions.

Nevertheless, not all the above mentioned points are advantages to the Informal Sector. The fact that is easy to enter and exit from, means also that does not offer stability to make long-term investment. The reliance on recycle material may affect the quality of the products, and the dependence on local materials will slow down product diversification. For entrepreneurial and managerial talents to mature first they must be institutionally supported and developed within an adequate environment. The introduction of new technologies is a complicated issue. New technologies in such a basic way of production might provoke deep impacts that can destabilize it. Kenyan informal workers use basic tools in labor intensive ways of production. The introduction of new technology has to be done in a proper and sensitive way. Some organizations like Approtech are active in the research of proper technology for Jua Kali and its introduction in the sector.

It is not given the ability to work under competitive rules; in fact this is one of the biggest problems. The market for informal sector products is not a competitive but a stagnant one. In the Informal Sector we find collapsed markets with similar products. In the Welfare Jua Kali Association only few artisans have followed any kind of training. Most of them have inherited the business or are self-trained. 44 out of 201 members are tinsmiths, most of them make the same product to sell in the local market. There have been a number of papers written on Kenya's informal sector since 1972 when it first swam into public recognition with the publication of the ILO employment mission to Kenya in 1972 which it has a certain discernable impact on subsequent Kenyan development plans, 1974-78 and 1979-83.

One of the first ways of supporting the informal sector in Kenya was through the educational system. The progressive orientation of the schools towards self-employment started as soon as the ILO Report appeared in 1972. The National Committee on Educational Policies and Objectives was more than explicit when commenting on self-employment and the informal sector. Seeking to think through the argument that as 'most of income —earning opportunities will have to be based on self-employment, education and training should increasingly equip a large majority of Kenyans to be self-employed' (NCEOP, 1976, 38). The Reform, that basically introduced a more skill-based education system, emphasized scientific and practical knowledge, and focus directly into self-employment, was powerfully supported by the Presidential Working Party on Education and Manpower Training for the Next Decade and Beyond, which was set up in August 1985. In the Report that followed the Working Party, (Sessional Paper, 1988), it was approved that 'skills from school should be linked to larger technology and enterprise policies':

“However, the Working Party considers that in order to utilise these skills properly and enhance self-reliance, it is necessary for the country to develop indigenous technology and small scale industries, train people in entrepreneurship skills, to expand post-school training and support activities in the informal sector of the economy to promote self-employment.”

Though, the crucial process of political recognition of the Jua Kali, at the highest level, is dated November 1985, when the President visited one of the informal sector concentrations in Kamukunji, in Nairobi. During the visit he promised to provide sheds to shade the workers from the sun. The building of sheds for them would be the beginning of their fuller incorporation into the national economy:

“Once the sheds are completed, the mechanics would be properly organised so that their skills could be harnessed to the mainstream of the country's industrial development.” (Kenya Times, 20.11.85).

Knowing the facility of the informal sector to create employment, to transmit skills and to produce, the first impulse of the Government was to shift the comparative advantages of the informal sector to the formal one, so the National Economy could benefit. It took some time to the Government to realize that another important characteristic of the informal sector was its endogenous nature. The informal sector forces work within the informal system. Activities of the informal sector may influence the formal one, but never being interconnected. There are almost 40 years between the first identification of urban settlements as 'important centres of African trade' and the Sessional Paper no 1 of 1986 on Economic Management for Renewed Growth, which put the informal sector at the heart of a whole series of employment, technology and investment policies (EARC, 1955, 208, Republic of Kenya, 1986). The Sessional Paper no.1 of 1986, policies are defined to support the Informal Sector to develop. Policies aimed at job creation, increases in income and technology diversification within the Informal Sector. For the first time, it is not included a final consideration of how every change will influence the formal sector, and hence, the National Economy. It is assumed that supporting the Informal Sector is the only possible manner to help the Kenyan Economy to take off.

Over the time the Jua Kali sector was considered the motor of the Kenyan Economy, and the Sessional Paper no.2 of 1992 on 'Jua Kali development in Kenya' set out a policy framework which included:

-providing direct assistance for management and entrepreneurial training and skill upgrading to individual Jua Kali operators.
-promoting the transition of Jua Kali entrepreneurs into medium size enterprises.
-expanding access to credit for the Jua Kali sector.
-disseminating information on market and appropriate technologies.
-providing enabling environment through redressing laws and regulations.

Sessional Paper no.2 of 1996 on Industrial Transformation to the year 2020, which outlines strategies for transforming Kenya into a prosperous industrial nation, recognizes that Jua Kali is the key of employment. The sector provides attractively priced products and essential training ground for developing the entrepreneurial skills that are essential for Kenya Industrialization. In 1997, the Ministry of Research, Technical Training and Technology promoted a workshop for Stakeholder supporting the Jua Kali sector where the policies and strategies were reviewed. During the workshop the main areas of intervention for new policies were divided in:

policies enhancing a conducive enabling environment: the participants concluded that effective Jua Kali development, in its two versions, business creation and growth of existing enterprises, requires an integrated and holistic approach that comprises:

- The development of an appropriate environment and free market policies.
- Studies and strategies to match demand with local resource potentials for substantial, effective employment and business creation.
- Cost-effective institutions and processes including training and follow up services.
- Institutions that support the growth of existing businesses.
- Credit and financial facilities.
- National authorities to pursue and support policies and institutions for Jua Kali development.

-policies enhancing Jua Kali Access to finance: a basic change in strategy would be to devote resources to creating an incentive structure for financial institutions to make profitable loans to Jua Kali. Up to date, Government efforts were targeted at special programmes with financial institutions that had little impact. Some new suggestions were made:

- Commercial Banks should be allowed to charge a fee for business advisory services offered to Jua Kali.
- Financial incentives should be provided to lending institutions that give business advisory services to Jua Kali.
- A portion of the bank's contribution paid into the training levy fund should also be used for training Jua Kali.
- To facilitate access to Jua Kali to loans based on the record of the entrepreneur as a person, business perspectives and credit history. Establishment of a Credit Reference Bureau in the private sector would be extremely useful.
- Credit Guarantee Schemes have been used with some success to alleviate the collateral problem and increase the flow of credit to specific target groups, including the Jua Kali, but they cannot be seen as a generally viable solution for alleviating credit risks. Banks and Jua Kali Associations should be encouraged to initiate the creation of Saving and Credit Schemes linked to micro-finance credit guarantee schemes.
- Suppliers are the traditional source of working capital credit for Jua Kali. They provide inputs, raw materials and spare parts for sale to small enterprises on credit terms. Many of these suppliers are some of bank's major clients. An alternative should be for banks to extend additional liquidity to suppliers. Suppliers would on-lend to Jua Kali on credit terms.

Other possibility would be to provide some form of partial credit guarantee to those suppliers who extend credit to Jua Kali.

- The banks and financial institutions should take steps to reach more Jua Kali and to assure that viable businesses get due attention in the financing process, i.e. establishing as an ongoing management practice as a marketing strategy to secure future clients among growing Jua Kali, forward planning within the bank operation's business plan to develop a mixed portfolio of Jua Kali and larger enterprises loans.

-policies enhancing Business Potentialities: the strategies for Jua Kali development showed that the phenomenon of overcrowding and flooded markets limited the exploitation of business opportunities. In this regard Jua Kali need to develop a new strategy for development based on identified potentialities and market opportunities and assuming that:

- Traditional sectors may not be able to absorb the huge number of present and future employment.
- Sustainable, viable Jua Kali businesses should be established and not subsistence level businesses that result from overcrowding and market saturation.
- Jua Kali development should be linked to national economic development priorities, regional development and exploitation of untapped human and economic potentialities.

Finally, is also established that Jua Kali development policies should ensure that:

- Studies are undertaken at national, provincial and district levels to identify demand opportunities, gaps in the production system, and the availability and advantages of resources that could be used as bases for new industries.
- Approaches and strategies should be developed to encourage investment in the Jua Kali components of the horizontally integrated production system of the new industry.
- Promoting networking, inter-firm linkages and co­operation among Jua Kali.
- Priority is given to the establishment of the necessary incentives to encourage the flow of investments within the Jua Kali Sector.

But, although all those efforts, the majority of the Jua Kali don't believe in the support of the Government. Almost every interviewed pointed out the incapacity of progress with a corrupted Administration, and the lack of support from the Governmental Offices.

They believe that every effort of the government to assist the Informal Sector will be stop somewhere before arriving to the real beneficiaries. Also bureaucracy is a major constraint to progress, Jua Kali find themselves helpless with no institutional support.

Training Programs are implemented in order to diminish the lack of different managerial and technical skills in the sector, and to raise the capacity of artisans to develop or improve production. Good indicators of the Training needs in the sector are given by the main constraints within it.

1) Access to capital. Some financial services require, as a previous requisite to have access to a loan, the compulsory assistance of a training program. The finality of those Financial Training Programs is to train the future receivers of the loans, in financial and managerial skills. The Micro-credit Schemes are addressed mainly to artisans, small and medium entrepreneurs that may not have the proper preparation to make a profitable use of the loan.

But not every Financial Service offers the opportunity of a previous Training in the Micro-credit Scheme. It creates a circle where demanders of loans cannot have access to them because of their lack of business and financial skills, and at the same time, cannot have access to a proper Training Program that provide that specific knowledge.

2) Entrepreneurial skills. Jua Kali, mostly, are artisans who learnt the job from their parents or another family member, or even are self-trained. That is how they obtained the material skills. They are also self-trained regarding entrepreneurial skills, as they have developed their knowledge of marketing or client approach through experience. Usually, they don't use countable techniques, and neither do bookkeeping of their transactions. They trust their own instinct to carry on with their businesses, to quantify the profits or losses, to decide on a further investment and to price their products. No scientific method applies.

A positive lecture of the situation is that, the introduction of simple basic techniques will be enough to provoke effective changes and proper results.

3) Product Variety. Products manufactured by Jua Kali enterprises include such items as pots, frying pans, kettles, buckets, jikos or portable clay cooking stoves, oil lamps, windows frames, gate doors, gutters, chisels, knives, pincers, hoes and sickles, suitcases, furniture, rubber sandals, clothes, leather goods, baskets, mops, ornaments and carvings. It seems a great variety, but it must also be bore in mind that the Informal Sector employs 70% of the total Labor force in Kenya. It is easy to find several workers producing exactly the same product within the same Association.

A first consequence is Stagnation. Markets collapsed with similar goods; supply overwhelming demand. An artisan that goes to the market to sell his product, and finds it full of products similar to his, lacking other business skills will play with (at his eyes) the only variable remaining, the price.

Sellers enter in a dynamic where, in order to make the product more attractive for the client, reduce the price until the margin of profit is minimal. Sometimes, the final price doesn't even cover producing costs.

4) Technical needs, techniques from 20 to 30 years ago are still being used not having been improved over the years. According to the survey GEMINI (1993) conducted on Jua Kali, the issue of production techniques was not among 'Current Business Problems Facing Entrepreneurs' as Jua Kali did not find anything wrong with the technology of the sector.

Nowadays, technical training is one of the major issues in Training Projects, as it has been demonstrated the incapacity, in some sub-sectors, of the existing technology to increase production and product quality.

If technology is considered to consist of a, system of knowledge, skills, experience and organization required to produce, to utilize and to control goods and services, then technology is critical to development.

The Kenyan economy, particularly the informal sector, needs a technology which is capital saving rather than capital using; one which is labour using rather than labour saving. Labour is cheaper than capital. i.e. handmade products are much cheaper than those produced using machines. An appropriate technology for the Jua Kali sector requires a lower degree of skills to operate, control, repair and maintain.

Characteristics of technologies in the Jua Kali activities are flexibility and improvisation. Operators are resourceful because they have to manage to produce their products with tights limits of tools and materials. The products in the Jua Kali reflect an adaptation to local conditions and requirements, which represents a modification of product design to facilitate easy maintenance and repair and to fit the local factor endowment.

Technology in this sector is correlated with locally available resources, with consumer requirements, and with the specific task in every sub-sector. Technical Training Projects must be then focused considering spatial coordinates, consumption and job description.

5) Introduction of new raw materials. The Jua Kali artisans utilize a great deal of scrap material and leftovers. Sometimes, when the production is made on order, is also specified a different type of material to be used. When the material is not accessible, artisans buy lower quality material as they must produce somehow to meet their market shares. This causes the customer to complain of poor product quality, forcing the artisans to reduce prices, reducing profits margins.

Some raw material commonly used by Jua Kali manufacturers are: mild steel sheet, black mild steel bars, steel drums, rivets, aluminum sheets, welding rods, mild steel section, galvanized sheets, corrugated sheets, soldering rods, scrap leaf springs.

The inclusion of new material in the process will help the so 'need diversification'. It does not have to be a traumatic change in the product, just a small variation, i.e. the handle of a briefcase, from iron to wood. It might produce the proper impact in the market.

The research for new materials and its introduction in the cycle of production is a long process, involving both Product Development and Business Management. Trainees must learnt different skills in this respect, from researching new raw materials and the adaptability to their products, till the risky inversion of developing a new product.

6) Product Diversification. Artisans are, somehow, reluctant to changes. Jua Kali, generally, are not risk-taker entrepreneurs. Some of them are aware of the need of finding new products, introducing new ideas, and making things different from others. Actually, one of their fears is a spy than can copy their individual and unique ideas. But that point of view changes when it comes into practice. Advises are not welcomed if that means to loose time learning how to improve the product, and, anyway, clients like products the way they are now.

It is also a problem of lacking business skills; the product may have been developed, but the next step is the vision of expansion, business expansion, that might comes from a managerial angle.

7) Access to Information. The innovative capacity in this sector depends on having access to information, material and knowledge that is already in the public domain. The access to specific information about other markets and products can be considered 'restricted', as artisans sell their products mostly in their workshops, to usual clients and any information about outsiders is transmitted mouth to mouth, with the reliability that this method implies. But the greater problem about information networks is the one concerning Associations. They are supposed to represent associated artisans and be the voice of their complaints and requests. This does not always happen. The lack of communication among artisans pertaining to the same Association shows the inflexibility of information networks and the weakness of what should be the major strength of the sector, unity. The lack of functionality of the Association is in the majority of the cases a consequence of the unclear setting of objectives and activities.

Training Projects in this case, give the opportunity to Associations to play an important role, being the bridge between trainees and implementation figures. Being, as it should be: a representation of its associates and, therefore, making them aware of their responsibilities, duties and rights. That's why Capacity Building is among the objectives in Training initiatives.

The Thika Jua Kali Training Program collaboration started in August 1998. CISP officers produced a mission report from Thika indicating the potential actors that might be involved in a training project. After that, a profile of the project was send to the MESP office in order to communicate them the objectives, activities and expected results of it. The following step was to present the Final Project and its approval by MESP. Although the project was approved in September 1998, the training itself didn't start until the end of August 1999. The delay was due to institutional bureaucracy from the Ministry of Trade and Technology in Kenya.

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