The informal economy makes up a significant proportion of the African economy. Where, businesses and working conditions are characterized by small or undefined workplaces, unsafe and unhealthy working environments, unregulated, low levels of skills and productivity, low or irregular incomes, long working hours, and lack of access to information, markets, finance, training, and technology. The activities that occur outside the legal framework are considered informal. That said, millions of Africans heck a living from the informal set-up daily and also vulnerable children. The COVID-19 pandemic consequences have also intensified the difficulties encountered by African workers and this has further increased vulnerable participation in the informal sector.
From context observation, the informal sector in Africa is larger than the formal sector in terms of employment opportunities and output year on year. In some cases, the informal economy is referred to as a shadow economy if associated with illegality and illicit activities such as internet scams, black markets, crime, production, smuggling of illegal drugs, and money laundering, as the case may be.
In many African countries, from Uganda to Kenya, Liberia, Nigeria, Niger, Mozambique, and many others 80 to 90 percent of people work in the informal economy informal. Agreeably, across the continent, it is easy to notice street traders, artisans, vendors, Nano and Micro-businesses, commercial buses, tricycles, and motorbikes (Okada riders) domestic workers, market traders among others all operating informally, broadly speaking you can easily see informality all around the country. The informal economy has witnessed a massive expansion post-pandemic in Africa and the root causes of these include elements relating to economic hardship, decreasing levels of market regulation, weak policy frameworks, and socio-demographic drivers such as population growth, urbanization, rise in unemployment, widening inequality between the rich and poor, low-level education, including poverty. The key drivers of the informal economy, however, are that operations in the sector do not need registrations with any relevant government agencies, and little or no formal education is required with little capital to set up which gives subsistence to many underprivileged and poor Africans.
When workers cannot find opportunities in traditional wage employment, and the need to escape abject poverty arises most times the transition to where alternative is and that is usually in the informal sector of the economy where there is no minimum wage and workers are unlikely to pay taxes, have no holiday rights or labor rights, and often work in dangerous conditions. Most time it is a struggle for them to access microcredit, they lack income security and stable employer-employee relationships. In the midst of all these, it only offers survival. This expanded and large informal economy is perceived by the majority of the elite to be at the bottom rung of the economic system when in truth, they are the major drivers of the economic system because they are too large, important, and relevant to be ignored. Records have it that Africa’s informal sector remains the largest in the world. For instance in Nigeria, it is unclear if the country has reliable data on the National Union of Road Transport Workers (NURTW) activities in the country or the volume of transactions in Gikomba, Kariokor, and Wakulima—the biggest informal markets in Nairobi, Kenya and the popular Greater Kampala informal settings in Uganda with three visible clusters Katwe, Kasubi, and Masaka mention to mention a few. These are visible informal business locations set up within the continent with multi-million daily business turnover, yet the operators are unrecognized or uncaptured by policymakers or relevant authorities.
There are multiple perspectives on informality in Africa, some associate it with lost revenue, unfair competition, low productivity, human rights abuses, and environmental degradation; while others associate it with entrepreneurship, flexibility, and resilience. Overall, the informal economy is enduring; but suitable regulations and policies are required to improve the sector and introduce formalization. The decision for these businesses to formalize depends on the benefits that are derived from formalization over the risks of remaining in the informal economy. If the former outweighs the latter, only then does formalization seem like a viable option to the operators. Clearly, there is a need for governments to embark on a series of measures, interventions, and support to encourage the formalization of these businesses to sustain economic growth and development. As mentioned earlier, this informal sector is too large and important to be ignored, a concerted effort to identify and protect them is crucial for sustainability and economic development.
In recent times the novel Coronavirus (COVID-19) pandemic consequences and economic hardship have negatively impacted these informal businesses greatly. Because they rely on daily income and most of them can rarely “work from home”, so the harsh reality is that most of these businesses need government support. Therefore that presents a good avenue for the African governments to have mass registration and identification and equally reach out to them through social interventions and palliative.
Besides, the International Monetary Fund (IMF) is urging national statistical agencies to gather information on the informal economy to help in policy formulation and for gathering reliable data for economic planning. In this context, careful attention must be paid to the informal economy, and policy solutions need to be in place to encourage and induce their formalization. These suggestions, if efficiently considered might, in turn, reduce the size of the informal economy in the country. Good luck!
Image Credit: Omotayo Tajudeen on Unsplash
