Worldwide, more than 2 billion people aged 15 years and above work in the informal sector (ILO, 2018b). The objective of attaining the Sustainable Development Goals (SDGs) by year 2030 has already been laid out by the international community. There is also the objective of achieving the SDG number four through the Education Agenda 2030 by eradicating abject poverty (UNESCO, 2018). Besides the ongoing international dialogue on youth unemployment and skills training for globalization and for the technological shift needed to boost technical training to have highly skilled workforce (European Commission, 2017; 2015). Some substantial financial resources will be needed to attain the SDGs by the year 2030, even though big steps in policy have been achieved (UN SDSN 2019; Vorisek & Yu, 2020). Continuous skills training will be paramount in particular for those earning a living in the informal sector. Worldwide, Small Micro and Medium Enterprises (SMMEs) comprise 90 percent of all firms (OECD, 2017). The significance and contribution of the SMMEs cannot be underestimated in many economies (Resa et al, 2018). In Kenya, the SMME enterprises are the backbone of the economy, they comprise 98 per cent of all business enterprises (KNBS, 2016). Business development is considered in many countries a strategy to create employment and increase the level of income, this is particular in most developing countries. Hyder & Lussier (2016) underscore the fact that SMMEs form the main employer both in developed and developing economies. Many governments have attempted various efforts to help develop small enterprises, some of these efforts are: the provision of education programmes, low interest rates loans and business incubators (Pansiri & Yalala, 2017). In Kenya, a majority of SMEs are in the private sector, it is estimated that SMEs account for 75 percent of all employment in Kenya but contributes only 18 percent to the GDP (KIPRRA, 2023). The KNBS (2018) report established that 400,000 SMEs collapse within two years of their inception while the Economic survey of 2017 analysis showed that 46.3 percent of SMEs collapse within one year of their starting (KNBS, 2017). For Small, Micro and Medium Enterprises, their performance depends on suitable training of the owners on business management, financial management, incorporation of technology in business management and on how to access capital (Rankhumise & Letsoalo, 2019). Entrepreneurship is one of the main factors that contribute to the economic growth of a country through the creatin of jobs, innovation and productivity. In Kenya the concept "Jua Kali"[1] is synonymous with the informal sector, it refers to micro enterprises and other associated means of production at medium and small levels. The Organization for Economic Co-operation and Development (OECD)/International Labour Organisation [ILO] (2019) have defined the informal economy as “all the economic activities, excluding illegal activities, by workers and economic units that are in law or practice either not covered or insufficiently covered by formal arrangements” (p.155). The informal sector is a worldwide phenomenon prevalent in urban centres and is estimated to encompasses more than half of the global employment and more than 90 percent of Small and Medium Enterprises [SMEs] (Ohnsorge & Shu, 2022; United Nations Economic and Social Council, 2022).
1.1 The Jua Kali Sector in Kenya
There is a lot of interest in the study of the Jua Kali sector (sub sector of the informal sector) which in Kenya is synonymous with the informal sector. Artisans in the informal sector are known for their innovation, creativity, hard work and use of affordable locally available solutions, tools, and skills to produce diverse products for sale locally and abroad (Kibe, 2019). The Jua Kali artisans need an entrepreneurial attitude calculated and measured by risk cognition, opportunity recognition, networking, and start-up skills. Their entrepreneurial skills have to be noticed by their technology adaptation, human capital, and opportunity start-up. Entrepreneurial aspiration is a characteristic and a tactic which entail process and product invention, risk capital, high increase, and internationalisation (Atiese et al, 2018). Worldwide many young people from disadvantaged backgrounds terminate their formal education too early and end up missing the basic skills essential to thrive on the job (UNICEF, 2019). They take up low paying jobs or get stuck in the informal sector with no prospects of further training. Some of those who join the Jua Kali sector are trained on the job to acquire the skills necessary for their jobs. Others register in formal vocational institutions for training in skills particular to certain occupations of their interest. While a negligible group delay searching for employment or advancing in their education and training (World Bank, 2018). The Jua Kali Sector is a major factor in poverty reduction, social development and the general economic growth. In Kenya the Jua Kali sector is considered for its creation of employment opportunities. However, many Jua Kali artisan businesses have stagnated both in turnover and employment (Momanyi et al, 2024, 2022). The Jua Kali sector is viewed by Kenya and its development partners as an alternative to the formal sector in creating more job opportunities. The formal sector does not create job opportunities to march the number of job seekers. Amidst this ambitious plan to better the performance of the Jua Kali sector and make it more viable avenue for more job creation, there is need for further interrogation on sustainability of Jua Kali artisan businesses. Many reports indicate that the Jua Kali sector is expanding and creating more jobs in comparison with the formal sector. Although these reports by the Kenyan government and its development partners make positive comments about the Jua Kali sector, these reports don’t show many jobs are being sustained in the Jua Kali sector. More needs to be done by analysing how long the jobs being created in the informal sector last. On the other hand, there should be measures to create decent lasting jobs, the Jua Kali sector can be a better option if the businesses started in the Jua Kali sector are sustainable. The social sustainability of small businesses is intertwined with customer satisfaction, financial performance and employee satisfaction. The performance of Jua Kali artisan businesses will benefit if the artisans practise social sustainability in running their businesses on a broader perspective. The Jua Kali artisan businesses possess a certain and specific typical characteristic in capabilities different from those of big corporations. This means that it is very challenging for the Jua Kali artisans to apply the same principles of business management the same way the large corporations do. There must be an element of adaptation of the same principles to reflect the reality of the Jua Kali artisans, these demands more training on a lifelong learning platform. From a general perspective, small businesses that adapt to sustainability development in business management benefit a lot (Masocha, 2018; Sy, 2016). To measure the performance and therefore the sustainability of various businesses, the same criteria cannot be used. For the performance and sustainability of small businesses like the Jua Kali artisan businesses, a different criterion should be applied to gauge their sustainability. It will be better to establish how long the Jua Kali artisan businesses remain in operation from their inception. Entrepreneurship is risky if all business management skills are not put into effect in running a business especially for small businesses like the Jua Kali artisan businesses. While there are small businesses across industries that perform well and make profits, research has shown that 33 percent of small businesses collapse within 10 years of their inception (Small Business Administration [SBA] (2018).
1.2 The Significance of the Jua Kali Sector in Kenya
The importance of the informal sector and in general SMEs to the economies of countries across the world is well documented in many studies (Magd & El Gharib, 2021). The SMEs provide several products and services to their customers and clients, thus contributing to a high quality of life (Gajanayake, 2010). In Kenya the Jua Kali sector comprises all those economic activities whose production is generally destined for the market with the aim of making a profit, but they are not officially recognised as producers of goods and services as distinct from the owner use production of the owner-operators’ household (United Nations [UN], 2022). The word Jua Kali in a literal sense in the Kenyan purpose means working under the "hot sun" in Swahili. It is commonly used in reference to the informal sector traders and micro-entrepreneurs who own enterprises of all sorts; small shops and workshops on the roadsides and in open market spaces. The Jua Kali sector in a nutshell is a collection of traders and artisans in possession of a wide array of skills, among them are; metal work, carpentry, plumbing, fabrication, tailoring, shoe repair, automobile repair, and many other skills. Most school dropouts join this sector because of the easy of entry to gain skills by apprenticeship and the various affordable goods and services which are produced targeting the local market (Kidenda, 2017). This sector creates employment opportunities and contributes 50% to Kenya’s GDP, it is home to 95% of all business enterprises in Kenya (KNBS, 2021; KNBS, 2016). Estimates indicate that 83% of employment opportunities are created in the Jua Kali sector which accounts for 14.9 million people out of the total working force (Mercy Corps, 2019).
Subsistence informality is prevalent in low-income countries and is associated with low-skilled technology and remuneration of workers below subsistence levels (Docquier et al, 2017). The Jua Kali sector is majorly characterised by low productivity unlike the formal sector. The workers in the informal sector have low skills and earn lower wages, they lack access to finance and the safety of social networks accessible to formal sector workers (Ohnsorge & Shu, 2022). Informality relates to low productivity and poor remuneration of workers because of their low skills (Loayza, 2018). It is often the cause of growth challenges in Emerging Market and Developing Economies (EMDEs). This is because of relying on labour intensive activities that employ unskilled workers who are poorly remunerated and don’t have fiscal resources (Chen, 2023; Ohnsorge & Shu, 2022).
1.3 Reasons Why Businesses Fail
Most SMMEs in Kenya remain highly informal, out of the estimated 7.4 million SMMES, only 20 percent are registered while the rest operate informally (United Nations, 2022). Informality is accompanied with a lot of challenges, it is the cause of under development, lower per capita income, and greater poverty. One of the reasons why there is a high rate of poverty among working people is that there is a lot of informality. Working poverty and informality combined puts workers across Africa in a very precarious situation (ILO, 2023; Common Market for Eastern and Southern Africa [COMESA], 2022). Artisans and workers in the informal sector are often less skilled and are paid lower compared to their formal sector counterparts (Loayza, 2018; World Bank, 2019). According to Kenya Association of Manufacturers, there are 7.41 million SMMEs most of them in the informal sector, only 1.56 million are registered and 8.85 million operate informally KAM, 2022). It is estimated that in Kenya more than 75 percent of SMEs startups collapse within three years after their inception. One of the reasons given for this high failure rate is lack of innovation using modern technologies in marketing their businesses (Kithae et al, 2015). The MSME survey report of 2016 estimated that five years ending in 2016, 2.2 million SMEs closed operations, this estimate is equivalent to 440,000 SMMEs closing operations on a yearly basis.
1.3.1 Managerial Competencies
Managerial competencies of both employees and business managers have an impact on the accomplishment of businesses (Shehnaz, et al, 2018). Business owners should possess management skills, they are required to master sales, marketing and financial management (Burritt, et al, 2019). Some of the managerial competencies that a business manager must have include communication skills and delegation (Steyn, 2014). The Jua Kali artisan business owners may not know how to compile financial statements for their businesses. Globalization has determined the ability to compile financial records as a key managerial competence a business owner must have for his business to survive. Bushe (2019) underscores managerial competences of the business owner as a key factor for the success of any business. In South Africa, it is estimated that 70–80 percent of Small Micro and Medium Enterprises collapse within three years after their inception (Fatoki, 2014). Evaluation of small businesses’ performance is more complex than that of large firms’ performance. Small businesses’ accomplishment can be established by assessing their employment, profitability and turnover changes (Chimucheka, et al, 2018). One of the main reasons for the high failure rate of SMMEs is inadequate managerial competencies on the part of the business owners (Herrington, Kew & Kew, 2014). The main criterion for measuring a business is by its financial and non-financial measures (Veliu & Manxhari, 2017), however there are many other factors that can be used to measure a business’s performance. For Jua Kali artisans’ business longevity in operation is an indicator of sound business management. Business managers should have competency on sourcing extra credit for their businesses. They also need to establish a relationship with lending institutions. According to Berrge and Udell (1998), financial institutions have four lending models: financial statement, asset-based, relationship and credit scoring lending. All these models of lending demand good book keeping of financial and asset records besides good communication skills.
1.3.2 Access to Finance
In Kenya, Ethiopia, Nigeria and South Africa, there is poor financial capacity by micro financial institutions to meet the financial needs of Micro enterprises. Although access to finance across these four countries vary, data on access shows that on average it is only 21 percent of the SMMEs that are satisfied with the ease with which they access finance. From the same data, 79 per cent of the SMMs are not satisfied as it is not easy to access finance from micro finance institutions (Worku, et al, 2019). Small businesses have limited access to financial resources from banks and micro lending institutions. In Kenya, many small businesses enterprises prefer to take loans from micro lending financial institutions than banks. However, there are stringent demands put by lending institutions that the small businesses have to fulfil before getting loans. Banks and micro financial institutions require collateral and a clean record of past loan repayments. The interest rates on loans are relatively high and the repayment conditions very stringent (Siwale & Ritchie, 2012). A study by Etiase et al, (2018) on the development of entrepreneurship in Africa using data from 35 countries. The study proved that most entrepreneurs in the informal sector have inadequate access to credit information and are unable to get credit from financial establishments. The World Bank Report of 2017 states that micro-entrepreneurs do not regard credit from government sources or financial institutions because they are unable to afford the appropriate accessory to get loans. Business skills: technical, interpersonal, and conceptual skills are paramount and relevant to the informal sector. Some of the reasons given why many SMEs collapse are: lack of access to finance, innovation and use of technology in business management (KNBS, 2016). Accessing finance is crucial for any business, it is a contributor to the overall growth of SMEs, both at the inception of a business and later stages of growth of the business (Onyiego, et al, 2017). Finance enables a business to grow, it enables the expansion of production capacity, marketing of goods and services and sustenance of the cash flow (Mutie et al, 2019). The SMEs managers need skills to write good business plans to be able to convince financial institutions on the viability of their businesses.
1.3.3 Marketing Strategies
It is necessary for SME business managers to understand the necessity to establish strategic plans that will help in understanding the market, culture and their competitors. A marketing strategy in the contemporary view is understood as a plan of activities which encompass pricing, production, promotion, services, distribution of goods and ideas that are geared to the contentment of possible customers and clients (Dzisi & Ofosu, 2014). A marketing strategy is vital in enforcing a firm’s market share and reducing the influence of its competitors (Kenu, 2019). According to Momanyi et al, (2024), 95.2 percent of artisans in the Eastlands of Nairobi depend on displaying their finished products at their workshops and 62 percent rely on referrals as the main way of marketing them to their potential customers. A study by Sapuro (2016) on the relationship between a marketing strategy and the performance of SMEs found out that there is a correlation between marketing strategy and the performance of SMEs.