Determinants of investment demand in the informal sector: A case study of shoe making in Kibera, Nairobi

Abstract

The informal sector has an important role to play towards the industrialization process and generation of employment opportunities. The sector provides to potential employees for both the informal and formal sectors, thereby helping to improve the quality of life to those who would otherwise be without any source of livelihood. Also, the informal sector has a capacity to mobilize investments and produce affordable goods and services to the ever-increasing population. For these reasons, various stakeholders are targeting the sector so as to enhance the potential benefits. Despite these efforts, the sector has not become the expected solutions to Kenya's developmental problems.

The concern of this study was to investigate the determinants of investment in the informal shoe-making sub-sector in Kibera area of Nairobi Province. Data was collected from a sample of 40 shoemakers in the area. Both linear and log-linear multiple regression models were specified and estimated and the results interpreted based on the log-linear model, which was adopted as the suitable one for analysis because it had more significant variables, and higher R2 and F-statistics. The results suggest that output of the firm; price of investment goods, entrepreneurs' dependants and of investment in the sub-sector. Contrary to a prior expectations, the coefficients of transfer payments, training, accessibility of the enterprise was negative. Further, the study found that none of the respondents had benefited from the assistance package provided by the government, donors, and other stakeholders. Thus, these shows that the promotion services aimed at the sector do not reach the entrepreneurs in the sub-sector. This paves way for various policy recommendations.