Africa’s informal economies continue to grow at pace, providing jobs and income for the majority of inhabitants. On 24 February, ARI hosted an expert panel to discuss the importance of the informal sector and regional differences between sectors; and to highlight work that is being done to improve the environment within which informal workers operate.
Informal employment was defined by the International Labour Organization in 1993 as “jobs or work without employment-based social protection in informal enterprises, formal firms and/or households”. It includes self-employed workers, wage workers and contracted or sub-contracted workers that may work in the formal sector but through informal arrangements.
Marty Chen, Co-founder and International Co-ordinator, Women in Informal Employment: Globalizing and Organizing (WIEGO):
- WIEGO is an action-research-policy network working in 20 countries across Africa. We learn through both action and research. Improving statistics on the informal sector is key: better data is required to advocate more effectively and to inform policy discussions.
- The informal economy accounts for 66% of non-agricultural employment in sub-Saharan Africa. In southern Africa the figures are much lower than the average, but in Mali and Madagascar the figure is over 80% – and in Uganda it is 94%. The degree of informality varies regionally in Africa; it is also disproportionately female and significantly shaped by ethnicity.
- Ongoing, active dialogue between informal workers and city authorities will help to create inclusive urban spaces in Africa. WIEGO supports the development of negotiating platforms, by building the capacity of local organisations to enter into and maintain dialogue.
- Most informal workers are poor; most working poor are informally employed. In this sector it is generally the case that earnings are low, while business costs and risks are disproportionately high. Informal workers operate in a very uncertain environment.
- Contrary to popular perceptions, informal workers do not operate outside of the state. In fact, they are directly impacted by the policies, plans and practices of city authorities and local governments – often in punitive form. Increasingly, efforts to “modernise” cities are making them more hostile to informal traders; but the main message of informal workers to authorities is “regulate us, but do not criminalise us”.
Kate Meagher, Associate Professor, London School of Economics:
- A historical understanding of the informal economy in Africa highlights how different institutional histories shaped the development of very different informal economies.
- In the pre-colonial era the informal economy was the economy, but that does not mean there was uniformity across the continent. In West Africa, where centralised states and empires dominated, a more urban environment and regulatory systems for economic activity were well developed. In southern Africa, the complexity and density of regional trade networks and economic systems was much lower.
- The colonial period witnessed the first wave of informalisation in the sense that all economic activity now operated outside newly created, imposed states. Different types of colonial states shaped the differing developments of informal economies in Africa. Cash crop economies, most prominent in West Africa, allowed local informal activity to continue uninterrupted as it did not interfere with agricultural production. Labour reserve economies, predominantly found in southern Africa, were accompanied by a more controlling state that crushed and criminalised economic activity which competed for human resources. The concession economies of central Africa, run through brutal systems of labour control, were shaped by extensive criminality and repression.
- Different African states had different independence histories, but one largely similar shared experience was the introduction of structural adjustment programmes in the 1980s. These led to a severe contraction of the formal sector, thereby forcing an even larger share of population into informal economic activities.
- In the 1970s, the average size of the informal economy in cash crop regions was 58% of the non-agriculture labour force; in concession economies, it accounted for 49%; and in labour reserve economies just 19%. The figures that have all increased substantially in the past forty years.
- In former cash crop economies, the percentage of self-employed is far higher than that of wage workers; in labour reserve economies, this is reversed. A large share of informal employment in southern Africa is with formal companies.
- Africa’s informal economies can generate more employment. Individual entrepreneurs can evolve their activities into small businesses, given the right support. Micro-credit is not helpful, but technical training and local sub-contracting can support a framework that might help address, in part, burgeoning youth unemployment.
Verner Ayukegba, Principal Analyst, Sub-Saharan Africa at IHS Economics and Country Risk:
- In Africa, it is extremely difficult for people who have registered business to access capital – let alone those in the informal sector. In addition, the cost of being “legal” in African economies is very expensive. To register a business, due to government efforts to clamp down on tax avoidance, you are often required to pay taxes in advance of starting trading.
- Governments often pay lip service to improving the business environment: practical steps do not always match up to the promises. For many people, it makes sense to stay in the informal sphere.
- The extent to which the informal sector drives the entire economy is difficult to ascertain accurately because of a lack of data and the absence of a critical understanding of how informal activities manifest themselves. Take motorcycle drivers in Cameroon, for example. They are a fundamental part of the economy but their value is not yet being captured and their potential harnessed.
- Organised groups in the informal economy, such as motorbike unions, have power in a city; they can do more to leverage it for positive change. If they speak loud enough governments will not be able to ignore their demands and will have to listen responsively.