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.

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(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

 

Working Poverty

During the past decade, there has been a rise in the number of people pursuing alternate means to employment as a means of raising their living standards. This can be largely be attributed to the high levels of unemployment as well as the rising number of people that are engaged in poor quality jobs. The informal sector creates poor quality jobs and is an avenue for a large percentage of the population to find an extra source of income.

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In the light of this factor, the International Labour Organisation (ILO) has released the World Employment Social Outlook 2017 report. It focuses on trends in job quality, paying particular attention to working poverty and vulnerable employment. What come out clearly is the contrast in the growth of the regional economies over the past decade vis-à-vis the employment and poverty trends. The report states that Sub-Saharan Africa continues to report the highest rate of youth working poverty globally, at almost 70 per cent in 2016, while facing rapid growth in the number of youth in the labour force.

It further states that Sub-Saharan Africa’s unemployment rate is forecast to be 7.2 per cent in 2017, unchanged from 2016. While the unemployment rate remains stable, the number of unemployed is expected to increase from 28 million in 2016 to 29 million in 2017 due to the region’s strong labour force growth. Poor quality employment, rather than unemployment, remains the main labour market challenge in the region. With this in mind, the lack of productive opportunities for youth and adults alike meant that 247 million people were in vulnerable employment in 2016, equivalent to around 68 per cent of all those with jobs.

Statistics from the report show that an additional 12.6 million youth in the region will enter the labour force over the next four years. Due to growth in the working-age population, the number of people in vulnerable forms of employment is expected to increase by 14.6 million. Further, the outlook is particularly challenging for women, who are more likely to be in vulnerable employment, largely as contributing family workers. The share of female workers categorized as contributing family workers, at 30.6 per cent, is more than twice the rate for their male counterparts, at 14.0 per cent, with women additionally over-represented in informal non-agricultural employment.

The issue of vulnerable employment is linked to that of working poverty. The report adds that Sub-Saharan Africa continues to be characterized by elevated rates of working poverty, with 33.6 per cent of all employed people living in extreme poverty in 2016 – i.e. on less than US$1.90 per day – and an additional 30.1 per cent in moderate poverty – i.e. between US$1.90 and US$3.10 per day. This corresponds to over 230 million people in sub-Saharan Africa living in either extreme or moderate poverty.

These numbers are a strong indicator as to why the informal economy continues to consistently grow in the region. The downside to having a large informal economy is that those that are involved in the micro businesses cannot afford to access proper medical attention as well as other social welfare benefits. It would be prudent for policy and decision makers to look into and implement strategies that grow the capacity of informal businesses to enable them to become profitable entities. This will reduce the high levels of poverty by providing sustainable incomes to a vast majority of households.

litualex@gmail.com 

Informal Economy Analyst 

Informal Business Dynamics

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One of the key areas of focus when setting up a business is knowing who your customers are. Targeting the right type of clientele is one of the pillars upon which the success of a business is based. With this in mind, it is important for a start-up business to know beforehand what their niche market is so as to channel its resources in the right manner. Aspects like getting the right location as well as having the right information on the profiles of customers within ones area of operation are key factors that dictate whether a business will succeed or fail. This is no different for informal businesses.

This aspect came out clearly during a recent visit to Nanyuki, a town in Laikipia County – Kenya, while interviewing different businesses in the informal sector. Victor Gaita, the chairman of the Nanyuki Municipality Jua Kali Association which has a membership of 150 businesses, pointed out some factors that determined the levels to which businesses within the association generated income. The first was that despite the fact that some of the craftsmen had the requisite skills to make high quality furniture like beds that would cost Kshs 35,000, they seldom did because these sold much slower than those that cost Kshs 4,000. The latter cost appealed to the low income clientele who frequent their premises.

Another factor that determined the level to which members generated income was their location. Those that operated from residential areas had higher returns than those that are located in the market places. This is due to two factors. The first is that those in the residential areas were not frequently visited by the county officials, which reduced the amount of bribes that they had to pay. This angle has a downside to it, in that due to the fact that the county officials do not frequent the residential areas, these businesses get away with not having to pay most taxes that are required of them, which gives them an unfair competitive advantage.

The other factor is that the cleanliness of the environment under which they operate determines the type of clientele that will visit their business premises. Those that are located in the market places often have to deal with the inefficient service provision by the county government when it comes to garbage collection. They are also congested in their working spaces, something that doesn’t encourage clients to visit their premises. Those in the residential areas operate in clean and spacious environments hence end up attracting higher end clients.

Phyllis Micheni is the chair of Jambo Kenya Women Group which is an association that is comprised of 15 members. Their core business is the manufacturing and selling of curios that include wood crafts, jewellery, hand woven carpets and African themed clothing. She noted that most of their clients were mainly tourists and locals that have a higher income dispensation due to the quality of their products and costs of production. Their prices were too high for the local clientele. Their main challenge was marketing their products and are thus looking into ways in which they can upscale their vending points in areas frequented by tourists.

 

litualex@gmail.com

Informal Economy Analyst 

The Importance of Gender in the Informal Economy

Women constitute an important category of both the labour force and the vulnerable groups in the Kenyan economy. In the recent past, the informal sector has become an increasingly important employer of the female labour force in the country. Despite this development, The Kenya Economic Update 2016 estimates that more than one quarter of all urban active women are unemployed. The unemployment rate reaches 40 percent for young women. This presents an opportunity to stakeholders in the policy making institutions to enhance the drive to improve the quality of employment and working conditions for women engaged in this sector.

Women are major actors in the informal sector of the Kenyan economy and although sex-disaggregated data are not available, the ILO estimates that women own almost half (48 percent) of micro-, small-, and medium-size enterprises (MSMEs) in Kenya. 85 percent of female-owned MSMEs are in the informal sector and two-thirds are located in rural areas. Thus many women are stuck running micro, small and medium sized enterprises (MSMEs) in the informal economy. One of the factors informing the dominant presence of women in the MSME informal sector is that women tend to be ‘time-poor’, combining family duties with running their businesses, and they have limited access to financial resources. The time and cost involved in the registration process may literally make registration impossible for many women. Further, most women cannot afford lawyers or other professionals to handle procedures such as registration, tax and other legal requirements expected of businesses in the formal sector.

Research conducted by the Women in Informal Employment Globalizing and Organizing (WIEGO) found that in terms of non-agricultural urban work, 34percent of the workers are formal and 61 percent informal, leaving 4 percent who cannot be classified as formal or informal. There are marked gender differences in that, 40 percent of men are formal workers, compared to 26 percent of women, 58 percent of men are informal workers compared to 66 percent of women. The remaining 2 percent of employed men and 8 percent of women do not have enough information to classify them as formal or informal. Overall, 38 percent of all urban informal non-agricultural workers are in trade, 25 percent in non-domestic private services, while 10 percent do domestic work. Again there are marked gender differences. Nearly half (48 percent) of women informal workers in urban areas are in trade, compared to 30 percent of men.

Again according to WIEGO, in terms of earnings, the overall monthly reported average in the country was a little under KES 12,000. However the average for men is one and a half times the average for women. Urban non-agricultural work has a higher overall average at over KES 18,500, but the average for men is 1.6 times the average for women. Earnings for informal urban non-agricultural work are less than half the average for all urban non-agricultural work, including both formal and informal with men earning 1.7 times the average for women. Given these insights, there is increased recognition that women tend to be concentrated in the more precarious forms of informal employment. It is also clear that from a gender perspective, there still exists a broad disparity when it comes to the levels of remunerations.

Policy makers need to focus their strategies on supporting working poor women in the informal economy seeing as they form a majority of those engaged in this sector. By doing so, a huge step will have been taken in the right direction in as far as reducing poverty and gender inequality is concerned.

litualex@gmail.com
Informal Economy Analyst