On the outskirts of Nairobi, Ngong Road is lined by fundi’s stalls – many small workshops making rustic furniture with hand tools, few employees, and limited space and scale. Though it appears that aggregate demand for the goods provided by this industry would allow for scale, consolidation and growth, these small enterprises continue operating at small scale with limited capital and producing goods of moderate quality at high labor cost.
So how do we inspire innovation and growth in informal manufacturing industries like woodworking in Kenya? Two common hypotheses are capital and capital, the first capital includes physical capital – inventory, materials, machines – while the second includes human capital – education and training. There is good evidence that capital, in the form of cash grants or grants of tools, spurs business growth. The evidence on training programs is mixed – some successes and a lot of failures.
While capital grants and training can have positive benefits on small enterprises, they are costly interventions. In a recent IGL study, we assessed more cost-effective approaches to ameliorate physical and human capital constraints. First, we considered the impact of shared physical capital. Cash grants may cause small enterprises to grow by furnishing investment (e.g., machines) or working capital (e.g., raw materials). Investment in machinery causes a non-linear change in production capacity, however, and the limited scale of small enterprises may not allow them to utilize new machinery at capacity. If so, shared machinery may be more efficiently utilized, and cheaper per user, if offered on a shared basis to many entrepreneurs. Second, technology based training rather than in-person training might be more cost effective, but the impact is not well-established.
To explore the impacts of access to shared physical capital (coupled with training) and digital training, we opened and operated a tool library in the informal furniture district in Nairobi, Kenya. The tool library, aptly named “WorkShop”, offers capital in the form of access to quality, industrial grade tools, as well as skills in the form of training classes from a five-week curriculum on business practices, technical skills and customer management. We also developed a custom app, allowing carpenters to access digital information on material selection, design, manufacturing techniques and business practices. We tested the impact of WorkShop’s offering with a randomized control trial: ~100 randomly chosen woodworkers in Nairobi were offered access to the full suite of WorkShop services, while another ~600 were given access to the app alone.
Things rarely go according to plan, and one of our initial surprises was that few of the 100 carpenters offered access to WorkShop were able and interested to take advantage of the offer – only 17 of the initial group took up services. Qualitatively, we learned that it is difficult for carpenters to take much, if any, time away from their businesses to participate in training, and that even small distances to reach the tools were a barrier – particularly when it required transporting timber.
Despite challenges, we found that carpenters do benefit from access to physical capital and training WorkShop participants increased the number of new designs they created by more than five times relative to the control group, and were 72% more likely to have purchased new tools themselves. Though we see increases in innovation and investment, we did not find impacts on the short-run on financial outcomes for these informal firms – neither profits nor productivity increased.
With encouraging initial results, WorkShop has developed a self-sustain business model, and aims to scale well-beyond the initial cohort with the hope of having more profound impacts on small manufacturers in Kenya.