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.

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