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The informal sector deserves more attention in African development

Current developmental discourses focus more on shoehorning Western-inspired policies into African governance rather than exploring how existing economic models can be adapted to our countries’ needs. Given its importance to local economies, the informal sector deserves more attention as a driver of development.

According to The International Labour Organisation (ILO), the informal sector equates to 41% of Gross Domestic Product in sub-Saharan Africa. Unsurprisingly, this varies across African countries, ranging from under 30% in South Africa to 60% in Nigeria, Tanzania and Zimbabwe. Furthermore, Terence Jackson, Professor of Cross-Cultural Management, Middlesex University, notes that the sector represents about three-quarters of non-agricultural employment and about 72% of total employment in sub-Saharan Africa. About 93% of new jobs created in Africa during that 1990s were in the informal economy. These statistics alone illustrate the significant role that the informal sector plays in African economies. However, local politicians often neglect the informal economy, undervaluing its impact on economic growth.

The informal economy’s most important feature is its ability to create jobs. The African Development Bank estimates that the informal sector accounts for 80% of local labour forces and that nine out of 10 rural and urban workers on the continent have informal jobs. Academics view the informal sector as a safety net, as it provides employment for people who often lack the qualifications needed for the formal sector. As a result, these workers can achieve a higher standard of living as the employment enables them to have an income, which then allows them to purchase more goods and services.

Although the informal economy represents an opportunity for many people to generate decent incomes, informal workers lack employment benefits, income security and social security assistance. Consequently, policy makers need to assist SMEs in the informal economy to create more jobs while ensuring that actors within the taxation framework enable informal workers to obtain social security. For this to work effectively, policymakers need to consider the variety of industries within the informal economy with regards to the level of formalisation, status of employment, income levels and the industry’s capacity to grow. While the breadth of factors makes uniform solutions unrealistic, different responses will not only make a substantial commitment to the sector’s progress to formality, but also have a dramatic effect on labour conditions and poverty reduction.

It is more important that policymakers think more inclusively and consider how historical, cultural and socioeconomic factors impact future development policies. I look forward to seeing how the informal sector gains more recognition as a contributor to sustainable development on the continent.

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