Informal Economies: What Should Africa Do?

Published on 28th September 2009

Jua Kali artisan                          Photo courtesy
The informal economy (IE) is fast expanding and accounting for more than half of the new jobs in Latin America and for more than 90 percent of the labour force in India. It is the mainstay of most Youth and Women workers in Africa. It accounts for around 80 percent of new jobs in Africa, where the share of the informal employment varies from 20% in Botswana to over 90% in Mali, including the agricultural employment. Furthermore, 70% of them are self employed workers, mainly in street vending and trading. The improvement of the I.E. will result in improving the employment status of these vulnerable and marginalized groups, and will reverse the high level of unemployment affecting these segments of the societies in the Continent.


Major Contributor to Wealth


The World Bank estimates that the Informal Economy generates 40 percent of the GNP of low-income nations and 17 percent of the GNP of high-income ones. In Africa, the informal economy contributes significantly to the Gross National Income (GNI), to income generation of the majority of citizens. This is in addition to its contribution to the formal economy. According to data from the World Bank work on bench-marking business regulations, the size of the informal economy as a percentage of gross national income (GNI), ranges from under 30 percent in South Africa, the continent’s largest economy, to almost 60 percent in Nigeria, Tanzania and Zimbabwe. The average size in sub-Saharan Africa (SSA) is 42.3 percent. It contributes to enlarging the middle class in the Continent.


But there is a link between working in the informal economy and being poor. Average incomes are lower in the informal economy than in the formal sector. As a result, a higher percentage of people working in the informal economy, relative to the formal sector, are working poor.


Household income generation and social stability


The informal economy creates jobs for unskilled workers and relieves urban employment tensions. It also offers a social security buffer in cyclical downturns, economic crisis or when the public sector is downsized. Informal micro-enterprises often operate in the poorer parts of African urban areas as well as in rural areas where Income-Generating Activities (IGAs) are the predominant forms and constitute an important source of household income supplementing farming incomes.


A youth and gendered terrain


The Informal Economy is a major job provider in Africa, particularly for the Youth and Women in the urban labour markets. It employs up to 31% of South Africa’s labour force, and 95% of Benin, over 90% of Cameroon. Africa is faced with a Youth unemployment and demographic challenge, having the fastest-growing and most youthful population in the world. In addition, the global financial crises threatens to further strain labor markets and exacerbate a tenuous situation for Africa's youth with few job prospects and little hope of future advancement, thus likely to increase their criminal activities or push to join armed conflicts in some countries. It is argued that creating viable jobs for young people is a precondition for Africa's poverty eradication, sustainable development, and peace; and in countries emerging from conflict, access to employment for youth is integral to peace-building processes .


In sub-Saharan Africa, women are over-represented in the informal sector where they  are represent 92 per cent of the total job opportunities outside of agriculture (against 71 per cent for men); and almost 95 per cent of these jobs are performed as self-employed or own-account workers and only 5 per cent as paid employees. In fact, Africa has the highest share of women employed informally, compared to the rest of the world.


Challenges of modernizing the IE


Social protection deficit and Weak Working Conditions in the Informal Economy


For countries with large informal economies, one of the highest priorities is social protection for the workers in that sector. It is assumed that modest improvements in working conditions, material management and waste reduction, basic safety measures and human relations management can quickly produce tangible results in terms of productivity and profits- and help them to move to the formal economy. 


The lack of social protection is a key defining characteristic of the I.E, as well a critical aspect of social exclusion. The Social Protection coverage in Africa is still patchy, with many informal- workers not covered and widespread public feelings of insecurity. Only some 20% of the world’s workers have adequate social protection. In Africa, not more than 10% of the labour force, mainly those in the formal sector are covered by statutory social security schemes. Working conditions in the informal economy are precarious, unsafe, and very poor both in terms of remuneration and occupational health and safety – including sexual harassment and violence against women. Informal workers, in particular rural workers, suffer also from market distortions where farmers are price takers and hardly experience the position of price negotiators.


Social protection of the African Informal workers, including the rural workers which represent together 70-80% of the workers, must be viewed as an issue of human right, human security, productivity, equity and social solidarity.


The Priority Area 4 of the Ouagadougou Plan of Action on Employment Promotion and Poverty Alleviation (EXT/ASSEMBLY/AU/4 (III), calls for “improving and strengthening the existing social protection schemes and extending it to workers and their families currently excluded, as well as occupational safety, health and hygiene”, targeting the workers in agriculture and the informal economy. The goal is to offer a minimum package adapted to each part of the I.E; the minimum package should include coverage of health care, old age, maternity protection and, according to the branch of activity concerned, occupational hazards (Dakar Workshop on Improving the informal economy, October 2008).


Africa is faced with numerous constraints in effectively reaching the ILO Social Security standards through implementation of the Income Security Recommendation, 1944 (No. 67), the Medical Care Recommendation, 1944 (No. 69), and the Social Security (Minimum Standards) Convention, 1952 (No. 102, which identifies nine areas of social insurance. 


The reasons of low level of social protection in the informal economy and rural sector are various: weak knowledge of, data and statistics on the specific coverage needs of these categories of workers, their lower contributory capacity, legal constraints (seize of the employer, occupational reference group often excluding self-employed, casual and domestic workers), and institutional, administrative and procedural obstacles.


The Continent needs to go by the approach of Social Protection for informal and rural workers which covers not only social security but also non-statutory schemes: various non contributory schemes, mutual benefit societies, grass-roots and community based schemes.


The challenge is enormous but it will be borne in mind that the informal and rural workers give priority to more immediate needs such as food, housing, education and health for themselves and their families.


Some African countries experienced universal social security schemes, as Ghana and Namibia with their respective National Health Insurance Scheme (NHIS) and National Insurance Scheme (NIS). Other countries put in place Community Based Insurance Schemes, as Guinea Bissau and Tanzania with their respective Abota Village Insurance Scheme (ABIS), and Community Health Fund (CHF), Mutual Society for Health Care in the Informal Sector (UMASIDA). West Africa experienced Mutual Health Insurance Schemes which could represent a promising approach to community based health insurance for the informal and rural workers and producers.


Some international successful social protection schemes can inspire Africa: progressively extending compulsory social security to the informal economy (Republic of Korea), National Pension Scheme (Japan), Social Security for home based workers (Portugal and South Africa), Grameen Kalyan of the Grameen Bank (Bangladesh), the Indian Rural Employment Guarantee Act (1976) with its programme (2005) providing at least 100 days of wage employment to every rural household,  and the ILO STEP (Strategies and techniques against social exclusion and poverty program) . It is worthy to refer to the Global Business Coalition on HIV and AIDS supported by 180 international companies to promote best practice company anti-AIDS programmes in the workplace .


Lack of Recognition


The lack of or insufficient recognition and legal protection of the informal workers under legal and regulatory frameworks is fuelling their high level of vulnerability and poverty. The representational gap the informal and rural workers  is a impacting negatively and will entrave their effective access to productive assets, capital and products markets, training and health systems, infrastructures and public services. Furthermore, the existing informal professional organizations are hampered by various constraints pertaining to the registration regulatory framework, their limited technical capacity, their financial shortcomings, weak management infrastructure and lack of human resources.


There is a need off fostering representative, democratic and functional organizations in the rural and informal economy. National and local governments are keys in improving the enabling environment of the I.E, particularly an effective representation of workers in the sector. The Durban Urban Policy for the informal economy and the Kenyan Informal economy policy provide good practices and a way forward in this regard.


Subsequent to their weak professional organization, representation and legal status, the informal workers and enterprises are not often involved in ‘setting’ formal policies and regulations.


To ensure that appropriate policies are put in place, the informal workforce needs to be visible to policy makers and have a voice in the policy process and take up their impulsion role towards the state.


In view of the above, the Dakar workshop recommended to “facilitate the establishment of professional organizations operating in the I.E and promote social dialogue involving all the stakeholders of the sector in policy and standards setting processes…at all levels of decision making, local, national, regional and continental”. Trade Unions are deploying efforts to help organizing the informal workers. Nevertheless, informal workers and rural workers should be recognized as distinct occupational groups with specific needs and interests.


The approach to enhance voice and effective participation of the informal workers in policy processes and decision making should be based on strengthening the various existing types of informal actors’ professional associations and network structures. The ITC can be used to support informal economy actors network at national, regional and continental levels, as it is the case for six countries of Central America through the establishment of SIPROMICRO Website ( whose objectives are to (i) strengthen associations of micro enterprises, (ii) improve their access to information and disseminate innovative approaches to the promotion of micro enterprises, and (iii) improve the performance of national micro enterprises through their regional forum .


Women and youth, who make up the bulk of workers in the informal economy, are especially without representation and voice. The Ouagadougou PoA advocates for their effective representation through “promoting the establishment of co-operatives and youth and women associations”. The ILO CoopAfrica Program is pursuing this objective in selected African countries.


The ILO’s Rural Workers’ Organization Convention, 1975 (No. 141) and Home Work Convention, 1996 (No 177) provide guidelines to assist in set up and enhancement of informal workers professional associations. However, few African countries have ratified these Conventions.


There will be interest in developing cooperation  with international organizations of informal entrepreneurs established in other countries, such as, StreetNet (an international alliance of street vendors), HomeNet (an international alliance of home-based workers), Self-Employed Women’s Association (SEWA) and National Alliance for Street Vendors of India and the like.


Poor Information base in the Informal Economy: Need of Improved Statistics on the Informal Economy


There is a need to improve the knowledge base regarding the Informal Economy, in order to support both the policy making, advocacy and lobbying activities. Improved statistics on the I.E would increase its visibility as well the understanding of its composition and of the processes behind its growth, including its contribution to economic growth and its link with poverty. The ILO Compendium of Official Statistics on Employment in the Informal Sector (2000) contains harmonized measures for informal employment facilitating harmonized country reports. People’s Security Survey (PPS) can be used as the ILO’s tool designed to address the issue of insecurity related to people’s income and work in their today’s working environment.


The Ouagadougou 2004 Action Plan pledges “setting up and continuously up-dating of national data base on employment and poverty” as well “strengthening data collection and analysis as well as labour market    information systems”. This is in line with the Ouagadougou Declaration stipulation on “including initiatives on employment creation and poverty alleviation as indicators in the NEPAD African Peer Review Mechanism (APRM)”.


All these provisions apply to the Informal Economy where the statistical infrastructure is poor and needs to be improved if any upgrading policy dedicated to the sector is to be successful and improve the welfare of those employed therein.


Courtesy: African Union.

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