The Role of Informality in Urbanization and Industrialization

The Economic Report on Africa 2017 was released by The United Nations Economic Commission for Africa(UNECA). This year’s report looked into ways in which the continent can harness industrialization to better structure the fast pace at which urbanization is taking place. Given that Africa is the fastest urbanization region after Asia, the report puts emphasis on the fact that only under the right policy frameworks can this momentum be leveraged so as to accelerate industrialization.

Image result for urbanization and industrialization africa

(Source: http://www.uneca.org)

Some of the proposed measures point to ways in which informal businesses can be made a part of this process. One such measure was to bank on the links between informal and formal sectors, for these are mutually beneficial and dependent. Those involved in industrial land use planning should consider the needs of informal enterprises, given their importance for job absorption and the challenges they often face in finding adequate premises for work.

One option is to try to meet industrial firms’ location-specific needs through Special Economic Zones (SEZs) and industrial zones. These will bring the most benefits if they are well connected to the urban economy, including the informal sector firms that can provide low cost inputs and use linkages as a path to growth and formalization. SEZs present opportunities for co-investment by formal firms and the public sector in infrastructure and technical and vocational education and training, which can broaden participation in economic growth and provide avenues for inclusion of critical workforce groups such as women and youth. These links to markets and skilled labour are critical.

The report further states that studies suggest that informal operators benefit from clustering through the various sectors in which they operate, and that they generally have a positive impact on their formal sector counterparts. It is with this in mind that agglomeration economies should be considered in the context of locational policies related to the informal sector and a path to formalization. Agglomeration economies can benefit the informal sector particularly through proximity to suppliers and purchasers.

Also, low-tech, labour-intensive infrastructure projects accessible to SMEs are a major opportunity for urban job creation. Lower-skilled labour-intensive technologies have high potential in some public investment sectors, including roads. A good example is that of Ethiopia whereby between 2005 and 2008 through a cobblestone roads and pavement programme, more than 90,000 jobs for young people were created. This led to the establishment of 2,000 small and medium enterprises. The project included backward linkages to domestic inputs—cobblestones—and labour-intensive skills in quarrying, chiselling, transporting and paving. The programme, implemented in 140 towns and villages, built around 350 km of road.

In terms of access to finance, Sudan has taken steps to improve this for industrial firms, including SMEs. Policy efforts in 2013 simplified the regulatory framework for financial access and new bank branches, and the central bank made preparations for mobile banking. These reforms targeted small enterprises, which make up 93 per cent of manufacturing firms, by requiring that commercial banks set aside 12 per cent of resources for microfinance. It is with this spirit that African countries must leverage the force of urbanization to drive and enable industrial development for a prosperous and equitable future.

litualex@gmail.com

Informal Economy Analyst

 

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2 thoughts on “The Role of Informality in Urbanization and Industrialization

    • Litu July 11, 2017 / 12:50 am

      Thank you

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