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The Informal Economy in Africa – Can it make a Sustainable Impact? – Jean R. AbiNader

Jean R. AbiNader, Exec. Dir., Moroccan American Trade and Investment Center

Jean R. AbiNader, Exec. Dir., Moroccan American Trade and Investment Center

Jean R. AbiNaderMATIC
January 12, 2018

I follow studies on the economic role of the informal sector because in most of the world it includes the largest number of enterprises and has far more potential for creating jobs than technology entrepreneurs, while facing many of the same challenges. Challenges globally, outside of the West,  are quite similar – from access to finance, technology, markets, fully-serviced work spaces, supplies, and social services, to finding reliable suppliers, human talent, and responsive government regulatory agents.

Morocco is a good example of the potential of the informal sector. According to government statistics, fully 70% of enterprises in the country are in the informal sector, generally defined as entities with five or less employees, unregistered, with no structured benefits or banking relationship. If these entities added one job a year, it would eliminate unemployment in the country, particularly among unskilled and semi-skilled workers. But the road from here to there is full of obstacles that need to be mitigated for the informal sector as well as small and medium-sized enterprises.

A recently released post by Quartz Africa focusing on sub-Saharan Africa, indicated the importance of refining perspectives about the informal sector generally and analyzing how to better understand, value, and utilize the sector’s impact to enhance a country’s GDP.

The article begins, “When it comes to African economies, particularly in sub Saharan Africa, many of us are instinctively aware that most markets are dominated by their informal sectors.” It cites several sources including the International Labor Organization (ILO) that estimates that the size of the informal sector ranges from under 30% in South Africa to 60% in Nigeria and Tanzania, for a continent-wide average of 41%. In terms of employment, it represents some 75% of non-agricultural employment and more than 70% of the labor force in sub-Saharan Africa. More startling is that the informal sector is responsible for over 90% of new jobs created in some African countries.

Interestingly, the article points out that South Africa, with the lowest share of GDP coming from the informal sector, has the most advanced economy in sub-Saharan Africa. It is no coincidence that Morocco ranks usually just ahead or behind of South Africa in most business indicators, a testament to the quality of its infrastructure and growing manufacturing sector with its robust supply chains that are a priority for the country’s development. For the more than 40% of young people who note that they see their future as entrepreneurs, “World Bank research found people with higher education are increasingly seeking work in the informal sector,” according to Quartz.

A white paper, recently produced by researchers at the London School of Economics (LSE), took a look at the impact of digital technology plays on the informal sector. “The paper is generally optimistic, but clear-eyed, about the potential of new information technology to enhance various sectors from agriculture and transport to mobile money and employment. But it cautions, “digital innovations are not only disruptive of formal economies; they can also disrupt structures and routines in the informal economy, bypassing and disadvantaging some precarious workers even as they include others.”

The researchers believe that those at the lowest rungs of the economy could be at a disadvantage if digital technology works to increase productivity, reduce costs, and eliminate low value jobs, without addressing a more holistic view of the economy. They believe that “The focus should be on public benefits, decent work, long-term economic development, and social protection for poorer people. They also suggest a greater focus on public as well as market-led forms of digital innovation.”

It is in this nexus of work as a disposable commodity and work as value-added labor that will define the next generation of employment and the culture of work. Given that many jobs, both white and blue collar, are susceptible to replacement by AI and robotics, governments need to restructure education and training systems and make long-term efforts to influence cultural mores about work so as to make available access to skills that will create mobility for workers that are career changers. The informal economy cannot be left behind. Given the large numbers of people that make it their home, and that many entrepreneurs in the sector can benefit from programs that add technical and business skills to their work ethic, it is an investment that will reap important benefits, if done well.

Perhaps a logical starting point is to bring together representatives of the informal sector, across age groups and diverse services and trades, to understand their perceptions of work, economic mobility, and accessing opportunities for growth and sustainability. Knowing the dimensions of the “elephant in the room” may lead to innovations that enable long-term solutions for countries anxious to enhance their capacities for sustainable economic growth.

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