Discussion Paper No. 225 of 2019 on Technology Acquisition and Innovations in Kenya's Informal Sector

Abstract

Despite Kenya’s high innovation ranking, there are low levels of innovations in her informal sector. The informal sector plays a key role in Kenya’s economy, while technology and innovations both have the potential to spur economic growth and development. The existing policies do not clearly highlight nongovernmental innovation and technology sources and the different types of innovations present in the country. This study examines the innovation types, factors affecting innovation and technology sources in Kenya’s informal sector. A dataset having 17,895 Kenyan informal firms was used. Cross tabulations and probit were utilized to analyze the data. The study shows that micro, small and medium enterprises (MSMEs) were the main sources of technology machines and equipment. Other sources include: non-MSMEs, importation, inheritance, manufacturing themselves and through business transactions. It was established that product, process and marketing innovations exist in the informal sector of Kenya. Sector, ownership structure, education level, gender of owner(s), firm age and presence of technological advice were found to be factors that significantly influence an informal firm’s propensity to engage in product, process or marketing innovation. From the study, implications of findings may lead to a more detailed Kenyan innovation database and increased use of technology and innovations in Kenya’s informal sector.