Reality gaps in formalisation of wooden furniture microenterprises in Kenya

The informal wooden furniture microenterprises, Jua Kali-WFMEs, play a crucial role in job creation and securing livelihoods across Kenya. Due to their informal status, however, Jua Kali-WFMEs face numerous social and economic difficulties. Formalisation, which involves bringing enterprises under regulations, is a crucial approach to address these challenges. To enable an effective formalisation strategy, this study applies a mixed method research design to characterise Jua Kali-WFMEs in Nairobi and examine key factors influencing formalisation. Findings show that Jua Kali-WFMEs operate along the formality continuum, exhibiting a dualistic structure of lower- and upper-tier informality. The upper tier consists of Jua Kali-WFMEs that achieve higher profits and labour productivity, while demonstrating better adoption of formal business practices. Underlying factors influencing formalisation include business premises, access to affordable credit, revenue and profit. Additionally, unofficial financial transactions and rising timber prices, partly driven by supply shortages and the COVID-19 pandemic, hinder formalisation by reducing business profitability. Findings reveal that formalisation strategies need to be tailored to the specific needs of Jua Kali-WFMEs. For the lower tier, interventions need to emphasise the provision of business premises and facilitation of affordable credit. By contrast, adequate high-value market access to promote business growth, coupled with fair enforcement, can enable upper-tier microenterprises to fully formalise their business. For social security compliance, schemes aligned with entrepreneurs' financial capacity and sustained dialogue with relevant authorities are crucial for microenterprises in both segments. Future studies require the explicit assessment of the impact of environmental policy on enterprise formalisation and vice versa.