Barriers to Entry: Entrepreneurship Among the Youth in Dandora, Kenya Alan Sears
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Barriers to Entry: Entrepreneurship Among the Youth in Dandora, Kenya Alan Sears Student Research Papers #2012-6 THE PROGRAM ON LAW & HUMAN DEVELOPMENT Notre Dame Law School’s Program on Law and Human Development provided guidance and support for this report. The author remains solely responsible for the substantive content. Permission is granted to make digital or hard copies of part or all of this work for personal or classroom use, provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and a full citation on the first page. The proper form for citing Research Papers in this series is: Author, Title (Notre Dame Program on Law and Human Development Student Research Papers #, Year). ISSN (online): 2165-1477 © Alan Sears Notre Dame Law School Notre Dame, Indiana 46556 USA Barriers to Entry: Entrepreneurship Among the Youth in Dandora, Kenya Alan Sears* University of Notre Dame Law School Program on Law and Human Development * This report was made possible through support form the University of Notre Dame Law School’s Program on Law and Human Development. The author is grateful to the Holy Cross Parish of Dandora for hosting him, to the Dandora Law and Human Development Project (Kerubo Okioga, Dorin Wagithi, Gerald Otieno, Andrew Myendo, and Christine Achieng) for their invaluable assistance and support, and to Professors Christine Cervenak and Paolo Carozza for their encouragement and advice. The author would also like to thank his friends and family for their love and support. The content of this report is the sole responsibility of the author and does not necessarily reflect the opinions of the Program on Law and Human Development nor the Ford Family. 1 Table of Contents Executive Summary ...............................................................................................................................1 I. Background...........................................................................................................................................3 II. The Process ...................................................................................................................................... 10 A. Registration ................................................................................................................................................ 13 B. Informal Businesses ................................................................................................................................. 18 III. Education and Other Forms of Aid ......................................................................................... 19 A. Government ................................................................................................................................................ 20 B. Private Organizations and Nonprofits............................................................................................... 24 IV. Access to Capital and Other Challenges ................................................................................ 31 A. Availability of Credit ................................................................................................................................ 31 1. Government .............................................................................................................................................................. 33 2. Innovation and Change ........................................................................................................................................ 33 3. Private Organizations and Nonprofits ........................................................................................................... 35 B. External Factors ........................................................................................................................................ 41 V. Conclusion and Recommendations .......................................................................................... 46 2 Executive Summary Kenya is a developing country with much potential. Boasting an extremely high literacy rate compared to neighbors and a hard-working population hungry for improvement, youth seem to have fertile ground upon which to start a business. However, even with varied forms of aid, many barriers exist and stand in the way of the realization of business ideas; this is especially so among the youth. Like elsewhere around the globe, youth in Kenya are disproportionately affected in a weak job market and have extremely high unemployment rates, leading some youth to make a living through criminal or other such alternative means. Certain areas, such as Dandora, face additional challenges. Dandora is the home of an enormous open dumpsite that is the cause of many health problems in the surrounding communities. Like other low-income housing estates, Dandora is often neglected in the provision of basic services by the government. The Government of Kenya has attempted in a number of ways to improve the standard of living of its residents and to provide jobs and opportunities for youth. It has instituted programs aimed at providing free basic education as well as programs that target training youth in entrepreneurship or a certain trade. It also has a program that is designed to make capital available to enterprising youth interested in starting a business. Widespread government corruption cripples the aid that the government offers, however. Non-governmental organizations (NGOs) and Community Based Organizations are able to pick up the slack in many ways such as providing access to education and capital. Lacking resources to advertise their services, many youth are left unaware of the variety of aid that exists within their community. If a program were created to educate the public on these services as well as 1 how to best take advantage of them, aid organizations could be much more effective and reach more youth. The greatest challenge for a young entrepreneur in Dandora is gaining access to capital. Utilizing innovative credit instruments, NGOs and microfinance organizations offer capital to entrepreneurs who would not normally have access to traditional banking services. Despite this, there are still gaps that need to be filled. Many loans are contingent upon the recipient being a member of a group, thus leaving out individual young entrepreneurs who have not worked in the market long enough to save money on their own. While access to capital may pose the biggest hurdle, many other obstacles exist. The process to register and start a business is overly complex and often requires the aid of an attorney. For an individual from Dandora, it is not only difficult and time-consuming: it can be very expensive as well. The system is open to corruption, with officials often encouraging bribes to expedite the process. Automating the procedure would make it virtually immune to corruption, reduce the cost of registration, and decrease the total time it takes to register a business. Many Kenyans do not utilize the court system because of the expense and time involved, instead using informal methods to solve disputes; this in large part due to the extremely large backlog of cases. The new judiciary has been aggressively addressing these issues among others, yet problems persist. An integrated system of alternative dispute resolution (ADR) and the passing and enactment of pending legislation to create a small claims court would go a long way towards allowing entrepreneurs better access to formal dispute resolution mechanisms. Furthermore, environmental and living conditions pose additional barriers to young entrepreneurs. Events like water shortages and electricity outages only complicate a system that is inherently troublesome to navigate. Problematic social conditions compound this situation 2 with tribal tensions and the threat of theft and other crime, increasing the difficulty of efficiently creating, maintaining, and operating a profitable business. Despite all this, youth in Dandora have most of the tools available to succeed in entrepreneurship, even though they may not be aware of the many of the opportunities surrounding them. Many youth are able to overcome these obstacles, but more could be done on a macro and micro scale in order to pave the way for new business ideas to enter the market. I. Background Home to over 41.6 million people, 87% of Kenyans are literate.1 Despite high literacy rates, development—in a number of areas—is not as advanced as one might imagine. Kenya is ranked 195th in the world in GDP per capita at an estimated $1,800 per year,2 and a projected 50% of the population lives below the poverty line.3 Due in part to the internal strife resulting from the post-election violence beginning in late 2007 in addition to the burgeoning global recession, GDP growth dropped from 4 7% to 1.5% in 2008, later returning to seemingly steady levels around 5%. However, this falls 1 Kenya Country Profile: Human Development Indicators, U.N. DEV. PROGRAMME [UNDP], http://hdrstats.undp.org/en/countries/profiles/KEN.html (last visited Oct. 17, 2012). 2 The World Factbook: Kenya, CIA, https://www.cia.gov/library/publications/the-world- factbook/geos/ke.html (last visited Oct. 17, 2012). 3 Id. 4 Kenya, AFRICAN ECONOMIC OUTLOOK, http://www.africaneconomicoutlook.org/en/countries/east-africa/kenya/ (last visited Oct. 17, 2012). 3 well short of the goals set by President Kibaki in 2008 for the “economic pillar” of Vision 2030, which aimed to realize a growth rate of 10%