Formal sector versus informal sector: towards reconciliation

More often than not, particularly in Africa, we are used to opposing the formal and informal sectors. Shouldn’t we adopt for once a holistic approach of our economies and try to integrate more and more the informal sectors of our economies by the means of smart and fair policies?

Behind this somewhat negative word, the informal sector – understood as all activities that are beyond the control of the state, whether legal, social or fiscal – there are artisans, mechanics, tailors, merchants, taxi drivers, masons. In short, people who scrap a living. But in this logic of day to day survival, these men and women also walk down a precarious path in the medium to long term. What can you do if you get sick when you only have a small job to earn money to pay for the day’s food? What happens when the informal worker, one he is too old, no longer has the strength to work? It is easy to understand that above all, one must escape from the logic of survival in which too many of our fellow citizens are stuck, often against their will.

According to the African Development Bank (AfDB), the informal sector accounts for an average of 55% of cumulative GDP in sub-Saharan Africa. In some of our countries, the workers who produce this wealth sometimes count for the majority of the active population. Statistics are lacking, but in a report on the informal sector published last May, the International Monetary Fund (IMF)[1] indicated that informal employment accounts for between 30 and 90 per cent of non-agricultural employment in sub-Saharan Africa. Let us recall that there is no clear frontier between the formal and informal sectors: legitimate companies may indeed use informal contractors for certain matters, for example on a construction site.Even the IMF, a former vocal critic of the informal sector, in the report we have just mentioned, shows that times have changed and that the informal sector can be a growth opportunity for our economies.

While international experience indicates that the share of the informal economy declines as the level of development increases, most economies in sub-Saharan Africa are likely to have large informal sectors for many years to come, presenting both opportunities and challenges for policymakers”, the report says. This is all the more true as the number of jobseekers increases exponentially and as a “fight” against the informal sector will deprive our states of an important safety valve, especially for youth. Remember that to absorb new workers, Africa must create 122 million jobs in the next ten years. The IMF adds: The challenge for policymakers, therefore, is to create an economic environment in which the formal sector can thrive while creating opportunities for those working in the informal sector to maintain or improve their living standards”.

Bringing these individual or family businesses into common law is not an easy task, but there are ways and means to make it happen, and above all a strong argument in favor of this move: entering the system makes it possible to fight precariousness, especially if sound policies of health insurance and retirement pensions are accompanying this regularisation. Under no circumstances should policies appear to be a tax burden on micro and very small informal enterprises. Policies must promote access to banking services and improve productivity of these small businesses, so that they create more jobs, pay social contributions for employees, and, only in a second phase, provide tax revenues to the state.

 

[1] Regional Economic Outlook, IMF, May 2017.

Africa Nutrition Map

African Heads of State and Government committed to the goals contained in the 2014 Malabo Declaration, which acknowledges that agriculture and food security are key determinants of nutrition that require coordinated and comprehensive responses from other sectors, including health, education, labour, social protection, and coordinated collaboration with multiple stakeholders.

While it is a well-known fact that Africa hosts half the available arable lands in the world, as a continent Africa still disproportionately suffers from hunger and hunger related diseases such as stunting or malnutrition.

On the margins of the 13th Comprehensive Africa Agriculture Development Programme[1] Partnership Platform (CAADP PP) in Kampala, Uganda, the NEPAD Agency publicised the Africa Nutrition Map.  The Africa Nutrition Map is a tool that indicates hot points on the continent with regards to hunger, malnutrition, and food insecurity.  The map also indicates the growing prevalence of less covered “rich country diseases” on the continent such as obesity or diabetes.

The NEPAD Nutrition Map provides a snapshot of Africa’s nutrition context as at the end of 2016. Too many people still suffer from hunger in Africa. Hunger is a by-product of poverty, but the Nutrition Map also provides points to the opportunity for African leaders to take advantage of the continent’s huge agricultural potential in ensuring the provision of nutritious food,” said Kefilwe Moalosi, NEPAD Agency’s Nutrition Programme Officer.

Africa still imports USD$50bn worth of food each year, even though agriculture and its value chains could provide more employment to its youth and food security to its citizens. CAADP was adopted by the continent’s leaders as the framework within which to redress these and other challenges, by putting the necessary reforms in place to trigger the green revolution that Africa needs. 

[1]CAADP, short for the Comprehensive Africa Agriculture Development, is an African-wide agenda designed to support the transformation of the continent’s agriculture for sustained food security and socio-economic growth.

Africa Day, 25 May 2017

Africa Day is a time for reflecting on who we are – an enterprising, innovative and resilient people. Today we not only celebrate who we are and our achievements, but we also focus on our continent’s future.

25 May, Africa Day, is a day for celebrating the occasion when the Organisation of African Unity (OAU), the precursor to the African Union, was formed in 1963. It is a day when we celebrate the progress made by Africans, while reflecting on the common challenges we face in a global environment.

Industrialisation is the one area in which the continent of Africa needs to make rapid progress. It is not an overstatement that industrialisation is a critical engine for economic growth and development. If managed prudently and effectively it can contribute to creating employment opportunities and re-position the continent to becoming competitive in the global trading environment.

This year, the NEPAD Agency commemorates Africa Day by also celebrating the innovations that entrepreneurs on the continent are developing, under the African Union theme for 2017, Harnessing the Demographic Dividend through Investments in Youth.

The growing extent of youth unemployment poses a fundamental challenge for the whole of Africa. About 60 percent of the unemployed are under the age of 25 and young women are especially affected.

On the positive side, Africa has the youngest population in the world, and it is this population that will supply the much needed human capital and innovations in the years to come, even as the continent becomes more and more industrialised.

Even as the continent faces the challenges of integration and industrialisation, many are the innovations that young enterprising Africans are developing to redress development challenges on the continent. Many are the innovations by young Africans that need to be up-scaled that provide solutions in the areas of biosciences (including agriculture), climate change adaptive innovations, ICTs, advanced manufacturing, to name but a few.

On this special day for Africa, we therefore make a call for the need to ensure that investment into industrialisation and innovation is at par with the growing demands for skills development, employment and entrepreneurship from our youthful population. With a footprint in 52 countries on the continent, the NEPAD Agency provides the gateway to boost the expansion of innovations, providing African solutions to Africa’s challenges. Indeed, the more we think regionally, the faster we can grow into ‘The Africa We Want’ by ensuring the skills of our entrepreneurs and innovators are being shaped as they grow, resulting into the overall transformation of all regions on the continent.

 

A view from Gambia

Earlier this month I had the privilege to address a Ministerial Cabinet retreat of The Gambia. Some of you might recall that The Gambia was embroiled in a serious political impass between December 2016 and January 2017, and as you may remember the then president conceded defeat then changed his mind. Such an action if left unchecked could have culminated into a massive civil and political unrest in The Gambia with a potential spill-over into the neighbouring countries of Senegal and Guinea Bissau.

Certainly some level of divine intervention together with a well-coordinated approach by ECOWAS and the United Nations- potential disastrous ramifications of the former president’s actions was totally averted, and now The Gambia has set out an agenda to unify its people and re-ignite the economy and so on.

My address to President Adam Barrow of The Gambia and his cabinet, highlighted the principles of governance amongst others. But more specifically, I underscored the need for the president and his team of cabinet ministers to serve the people of The Gambia by providing and guaranteeing their security, protecting their welfare, meeting their basic needs, increasing their wellbeing and protecting the weak and vulnerable. Governments must do those things that give the people confidence, contentment, happiness and hope. My advice to them was that they must respond to the needs of their people for education and skills development, health, employment and social protection.

A responsible government must create the space to allow people to participate freely in the processes of governance. I emphasised to President Barrow that he and his team must build and maintain strong institutions of democracy and ensure that they strictly observe the separation of powers between the executive, the legislature and the judiciary. Furthermore, I sited the Singapore experience and also noted the significant strides that Rwanda is undertaking with regards to economic transformation and attracting private investments.

I concluded my address to the Gambian Cabinet by encouraging them to have a regional approach to doing things and I asked them to reflect deeply on where does The Gambia want to fit in Africa’s transformative agenda. And how quickly is the political leadership ready to establish a road map to achieving such a vision.

 

The future of investment in Africa

The Annual AVCA Conference, held between the 3rd and the 7th of April in Abidjan, provided the private equity and venture capital industry with an important platform to discuss the most pertinent investment opportunities and issues in Africa. For the continents’ biggest investors, investment into infrastructure remained a priority. This makes senses as Africa remains underserved in this area. The UN’s Economic Commission for Africa reports that although governments are keen to build new infrastructure, they still lack the ability to develop proposals needed to attract institutional investors.

The report stipulates that of the total $2 trillion raised globally for infrastructure projects, only $59 billion was received in Africa. This sum represents just 3%. In the promotion of investment into projects and specific sectors, many States still suffer from the poor quality of their ‘signature’ due to the lack of substantial financial resources.

There is some reason to remain positive, investments went well in 2016. Private equity players invested $3.8 billion in 145 deals across Africa last year with a range of businesses from agriculture and energy to healthcare and financial sectors. But over and above gaining support from foreign and multilateral partners, African countries will also need to develop domestic financial capital market instruments for infrastructure. It has become imperative for Africa to bridge the gap between individuals with very high liquidity on one hand, and a private sector and States that struggle to finance themselves, on the other. A doubling of domestic saving available on the continent would bring Africa into line with other emerging regions and would provide at least 250 billion dollars (about 180 billion euros).

Is it not time then to move away from relying on taxes and uneven commodity revenue to look into pension funds to back infrastructure projects? Even in countries where there has been pension reform there is a still a dearth of financial instruments which limits the ability to use pension funds to back infrastructure projects in the first place. The role of the State is fundamental in inventing the necessary instruments to reinject the funds mobilized into the real economy.

Channeling remittances to create diaspora bonds can help play an important role in plugging the development gap. Nigeria is the world’s fifth biggest destination for international remittances with 5 million Nigerians living abroad and sending money back to relatives, according to Western Union. Nigeria plans to raise 300 dollars by selling diaspora bonds, issued in June 2017, targeting Nigerians living abroad.

The challenge is to make each citizen a full-fledged investor contributing to the development of his country. Success stories already thrive in the area of collective management with the recent launch of initiatives promoted by private actors (Amethis West Africa, for example, is the first investment fund registered in Côte d’Ivoire) or public actors (in Rwanda, Agaciro Development Fund aims to capture the saving of migrants).

We must not underestimate the place of innovation in contributing to the prosperity of the financial industry. It is not unusual for state projects to serve as “guinea pigs” before reaching the local private sector. After all, the Renaissance Dam, the most important in Africa, kick-started with the funding provided by the Ethiopians.

How African trade and migration are shaping globalization

Globalization is not simply a process that started in the last two decades or even the last two centuries. It has a history that stretches thousands of years and Africa has been at the heart of international trade for far longer than we imagine. From the trans-Saharan caravans and the triangular trade, from the colonial counters to the Coltan of the Kivu, the continent has lived at the pace of the different periods of globalization, without always being in a position to influence or control, let alone take advantage of, global transactions.

Whether one thinks globalization is a “good thing” or not, it is an essential element of the economic history of mankind. According to Amartya Sen, Nobel-Prize winning economist, globalization “has enriched the world scientifically and culturally, and benefited many people economically as well”. Those more skeptical about globalization associate it uniquely with free market policies and an increase in inequality levels. It is true that Africa, particularly sub-Saharan Africa, has lagged behind other regions in the spread of the global economy, and the overwhelming majority of Africans have not benefited from the purported promises of global prosperity.

But globalization also encompasses the exchange of commerce, culture, ideas, information, people. Global networks have created opportunities for nations and communities to operate on a much larger scale worldwide. Previously disparate locations on the globe are now linked into extensive systems of communication, migration, trade and interconnections. This very phenomenon also makes it possible for emerging countries to strengthen their local and independent identities while working to be part of larger transnational alliances.

In this context, what are the questions that Africa needs to ask itself in order to propel itself to a more proactive actor in globalization?

Trade deals need to show that nations are open for business by putting people’s interests, not just corporate interests, at their heart. What must we put in place to resolve the tensions between democracy, the nation state and global economic integration?

A key feature of globalization is connectivity, as illustrated by the expansion of marine and terrestrial fibre optic cables. This offers unprecedented broadband infrastructure and opportunities to master the digital revolution. How will technologies, central to Africa’s economic and social lives, empower African populations?

Africa has the potential to develop a particular model of globalization. This model is the more pertinent in a world context coloured by the British vote to exit the European Union and the result of the recent US presidential election. The latter events are a symptom of popular disenchantment with globalization and a desire for the reactionary raising of national barriers. On the other hand, Africans continue to be outward-looking. In this context, the phenomenon of south-south migration constitutes an important capital for the continent. Can we redefine migration dynamics away from the binary brain drain / brain gain debate into one of holistic continental development?

Globalisation is not a zero-sum game. It is a two-way traffic involving a historical process of border crossings and hybridization and everyone should benefit from it. There is space yet for Africa, through a particular and renewed set of global transactions, to positively influence the direction that globalization will take in the future.

The Inaugural African Economic Platform will strengthen common policies

A new structure to strengthen the South-South economic and political axis was launched in Mauritius last month. The inaugural African Economic Platform (AEP), an Agenda 2063 programme, was attended by the Chairperson of the African Union, several Prime Ministers and high profile personalities of the continent. The AEP is an initiative driven by Africans to provide the policy space for Africans across all key sectors, to set their own agenda, explore realistic continental and global opportunities, and ways of implementing this agenda. Organized by the African Union Foundation, the African Economic Platform is an event to analyze the strengths and weaknesses of African economies and to identify opportunities in various sectors.

The AEP created an avenue for dialogue amongst a range of sectors, including the African political leadership, business leaders in the private sector, universities and intellectuals. All these different stakeholders are critical to driving the economic transformation agenda. The private sector plays a key role in investment, industrialisation and intra-African trade. The higher education sector provides skills development and are the locus for research and innovation. Governments ensure the implementation of fiscal and macro-economic policies and other environments for economic transformation.

The idea for an Africa focused economic platform originated from the need to ensure that annual meetings among African policy makers and regional business leaders do serve the top priorities in Africa’s drive for development and growth. The launch focused on the employment challenges arising from the skills gap witnessed by the disconnect between Africa’s industry requirements for economic growth and the output from academia. The need to develop an integrated African economy to enable the continent to realise its potential for stronger competitiveness in the global economy was also at stake. The outcome of the inaugural AEP, which focused on South-South cooperation, a commitment to Made in Africa and intra-African trade, bodes well for the continent.

At this launch Forum, measurable short to medium term milestones were set in relation to the promotion of intra-Africa trade through the food and agricultural products that the continent produces: livestock, poultry, fish, seafood, among others. Strategies were developed following the conference, including the establishment of a joint standing committee to facilitate trade relations; to remove the obstacles to the movement of goods and services; and to promote joint efforts among African financial centers to facilitate investment. Africa needs USD 200 billion annually over the next four years to reach its targets, while Foreign Direct Investment is USD 60 billion a year. Air connectivity was also reviewed, with the development of a master plan for the African continent in the pipeline.

The AEP launch was a meeting of great minds to discuss how the continent can harness its vast resources to enhance the development of the African people. It is now time to come forward with concrete plans to accelerate investment and competitiveness in Africa. NEPAD has already been active on the front of Human Skills Capital Development through its Skills Initiative for Africa Programme, launched this April. Leveraging the potential of the African Diaspora to participate in and advocate for Africa’s integration and development is a point we will take up next week.