Informal Employment in Urban Kenya and Nigeria: Structure, Determinants, and the Impact of Formalization Policies

Urban informal employment is dominating labour markets in Kenya and Nigeria, and our study compares the structure and determinants of informal work in these two countries, evaluating the recent formalization policies (digital IDs, SME registration reforms, and mobile finance). Using a mix of household and enterprise survey data, and employing multinomial logistic models, we analyse individual and firm-level factors associated with informality. We also assess the effects of Kenya’s digital identity rollout and mobile-money ecosystem in contrast to Nigeria’s nascent digital initiatives and SME registration drives. Our descriptive results show extremely high informal shares (e.g. ~81% of non‐agricultural jobs in Kenya, ~92% of all jobs in Nigeria, alongside notable gender and youth imbalances. We also conduct an empirical analysis, where our regression model outcomes indicate that higher education, formal finance access, and means of regulatory reforms like simplified registration have significantly reduced the probability of informality, with somewhat larger impacts in Kenya than in Nigeria. The discussion in this paper highlights that Kenya’s more mature digital infrastructure like the M-Pesa, and near-universal ID has aided formalization, whereas Nigeria’s informality remains stubbornly high despite policy efforts, partly due to low mobile money uptake and incomplete ID coverage. We conclude with policy recommendations, such as enhancing digital ID trust and expanding SME One-Stop Shops, note study limitations, while also suggesting areas for future research on informal-firm dynamics.