From Agriculture to Agribusiness, the Prospects of Formalization

BY EMMANUEL YAHUMA

Many will agree that for any sector of an economy in any part of the world to grow, there has to be a considerably sufficient and fair level of regulation This ideally is meant for double-edged benefits to both the authorities and enterprises Typical informal businesses operate outside the bounds of the formal economy,and are characterized by: lacking official registration and compliance requirement specific to the value chain, market segment, production activity, products;no bookkeeping practices; no income tax payments, no ownership of bank accounts, and no formal employment relationships with their workers

Keen interest in the agriculture sector is informed by the fact that it remains the backbone of Kenya’s economy: contributing 22 4% of the GDP; accounting for approximately 40% and 70% of national employment in the urban and rural areas respectively It also contributes up to 60% of the total export earnings and 45% of government revenue, indirectly contributing to roughly 27% of GDP through linkages with manufacturing, distribution, and other service-related sectors, according to the 2022 KNBS Economic Survey

And yet, Kenya has a largely informal economy, which begs the question, “How much more can be achieved with formal business operations among agribusinesses in Kenya?”

The Kenya Climate Innovation Center (KCIC) support formalization for the agriculture sector through assisting clients acquire business names and register, trade licenses and permits, KEBS, GLOBAL G A P, HACCP, AFA, HCDA certifications & export licenses, product development support (with KIRDI, KALRO, Gearbox); trainings on food safety, payroll statutory obligations; support in product testing; support in acquiring property rights with KIPI (Patent/Trademark)

In addition, KCIC offers policy advocacy and intervention through engagement with responsible county and national authorities to enhance smoother business regulation

A 2022 case study by KCIC on the prospects of formalization, which set forth to prove the business case for formalization and showcase impacts of formalization in different contexts and whether it leads to an improved business environment with prospects of churning out decent and sustainable jobs, established that formalization is a pathway towards decent jobs

Six aspects of decent jobs defined within the ILO framework were comparatively assessed, with higher ratings among the formal business compared to informal businesses It is safe to admit however that these aspects are not well-embedded across the board

The study also found significant influence and correlation with the gender of the owner, location of the business, education level, age, business size, type of business and so on An interesting chicken-egg paradox is presented by Kenyan agribusinesses involvement in value addition and the stage of the business Worth notice is the revelation from the study that many agribusinesses actually appreciate formalization as important and are willing to partake of it, but are presented by barriers that make them opt for the opposite

The conceptual and operational definition of formalization is one of the main reasons for its misinterpretation and poor adoption, where it can be argued that aggregate (organization‐level) measurements of formalization are inappropriate and ought to be replaced with department‐specific or process‐specific measurements

Formalization therefore entails ensuring full compliance with regulations governing business operations as befits the specific value chain, or product/service, contrary to conventional perception of simply registering the business