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Transforming the informal economy: Social protection and inclusive growth

July 25th, 2022

This presentation explores the link between social security and inclusive growth in the context of Kenya’s informal sector.

The expansion of Kenya’s informal economy since the 1990s presents growing challenges for policy makers concerned to ensure that Kenya’s growth is both robust and inclusive.

Chronic underinvestment at the lower end of the economy has resulted in declining job opportunities, stagnant incomes and deteriorating financial health. This is compounded by increasing exposure to shocks including the rising cost of living and health shocks. The brunt has fallen particularly strongly on women who rely on informal jobs and are responsible for household wellbeing.

The presentation also explores the potential role of a robust and reliable national social security system in transforming the informal sector and stimulating inclusive growth. Universal social security frameworks (which include old age pensions or universal child benefits, for example) provide vehicles for large-scale, long-term macro-level investment into the lower end of the economy.

This level of investment can potentially catalyse a virtuous spiral, stimulating inclusive growth through increased consumption leading to increased revenue and growth for small businesses, which in turn provide employment and revenue for governments. The economic multipliers generated from well-designed national social security frameworks enable investments in social security to eventually be recouped through increased revenue generation and growth, as well as reversing the drain on the economy from declining wellbeing and human capital.

As an illustrative example, the presentation includes new data from a Computable General Equilibrium (CGE) modelling exercise conducted in partnership with Development Pathways to demonstrate the potential economic effects of a Universal Child Benefit for Kenya.

The presentation was made by Amrik Heyer on behalf of FSD Kenya, at a social protection learning event organized by the State Department for Social Protection, Senior Citizens Affairs and Special Programmes and the International Centre for Research on Women (ICRW).

Click here to see the full presentation (PDF).

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