Time to harness the informal sector

28Dec 2017
The Guardian
Time to harness the informal sector

LIKE in most parts of Africa, if not all over the continent, the informal sector in Tanzania is big business that plays a pivotal role in the national economy and lives of majority people.

The parallel economy as the informal sector is also known to have significant job, income generation potential and stimulation of social economic growth in both urban and rural areas.

African informal economies are also among the most buoyant sectors that could contribute significantly in many vital socio-economic aspects such as tax generation and job creation if accorded proper chance.

Unfortunately, many governments and development partners seem to ignore this reality and continue to sideline the sector when drawing national growth and development agendas. Nothing shows better this alienation than the fact that informal operators are never consulted or listened to when it comes to planning and policymaking.

The International Labour Organisation (ILO) defines the parallel economy as all economic activities by workers or economic units that are—in law or practice—not covered or sufficiently covered by formal arrangements. These are mainly the unregistered and hard-to tax groups such as small scale traders, farmers, small manufacturers, craftsmen, individual professionals and many micro and small scale enterprises.

ILO estimates the sector’s average size as a percentage of gross domestic product in sub-Saharan Africa to be 41 per cent. This ranges from under 30 per cent in South Africa to 60 per cent in Nigeria, Tanzania and Zimbabwe.

According to the agency, the informal economy represents about three-quarters of non-agricultural employment, and about 72 per cent of total employment in sub-Saharan Africa. It also says that about 93 per cent of new jobs created in Africa during that 1990s were in the informal sector.

In Tanzania, the Integrated Labour Force Survey (ILFS) conducted few years back indicated that 40 per cent of all households were in informal sector activities. By mid this decade, the urban  informal  sector  employed  about  66  per cent  of  the  people  for  whom informal  sector  work  was  the  main  activity  and  only  16   per cent  of  those  for  whom  it  was the secondary activity.

In terms of national output, the ILFS showed that the size of the Tanzanian informal sector was significantly large despite its contribution to GDP having dropped from 62.5 per cent in 1991 to about 39.5 per cent in 2010.

In a recent cross-cultural management note, a British professor says that the informal economy will continue to be as important as ever to Africa and its future development. He also claims that African governments, and international organisations like the World Bank and ILO, do not like the informal economy.

As a result, he argues, national and international policies have veered from being supportive to become antagonistic. The antagonism is driven by a range of reasons. Informal operators do not pay tax. In addition, reports abound of child labour, low wages (especially for women) and low job security.

Despite these shortcomings and its continued marginalisation, the informal sector is expanding and will take quite some time to formalise. In fact, it is here to stay.

In that regard, efforts should be made to harness its potential and ensure it plays a more strategic role in national development through sober policy interventions that recognise its contribution and promote its existence.