Unleashing the potential of the private sector – whereby the informal economy traces the way forward

In every African neighbourhood, in every family almost, there is an entrepreneur with a side business who seeks funding from a tontine. Africa has more than 50 million micro small and medium businesses which contribute 33 % of the continent’s GDP . Today, the informal sector in Africa is not just a label, it is an established way of life, a tradition. Many of our big African enterprises started off small in the informal sector. NEPAD seeks to respond to the expectations of citizens in all matters of public service. One of our priorities is to nurture a dialogue between the public and the private sectors with the view to removing the hurdles to entrepreneurship and have the higher possible impact on the ground.

Although in the past, little attention has been paid to the role of the informal sector in fostering growth, the informal economy in Africa is big business, it is a huge employer and will continue to play a key role in the future development of Africa. It represents about three-quarters of non-agricultural employment across the continent, and about 72% of total employment in sub-Saharan Africa .

Here are some trends that we need to take into account if we are to find ways of unleashing the full potential of the informal sector:

– the informal sector in most African economies offers opportunities to the most vulnerable populations such as the poorest, women and youth;
– people with higher levels of education are entering the informal sector as a career of choice;
– a closer look at the informal sector in Africa provides a glimpse of what could be achieved if Africa’s economies and financial policies were more attuned to the continent’s realities;
– the informal economy is often community-based in the spirit of social entrepreneurship, tapping into an indigenous African collectivist mode.

However, although the informal sector is an opportunity for generating reasonable incomes for many people, it continues to overlap with poverty because it does not cater for secure income, employments benefits and social protection. The way forward, therefore, lies in organizing the informal sector and recognizing its contribution to economic development by raising government awareness, allowing better access to financing, and disseminating information on the sector.

Formalization goes hand in hand with the fear of taxes. Governments have a role to play in helping to nip this fear in the bud. In a context where better cellular telecommunication and access to cheap smartphones are a reality, we need to encourage informal sector workers to embrace modern technology, the internet and social media. For example, ICT and Fintech offer innovative administrative solutions which can make insurance available to our entrepreneurs. Access to financial services allows people to earn and save more, build their assets and protect themselves against external shocks. But financial inclusion also needs to be supported by education, skills development and training (including financial literacy) focused on sectors such as agriculture, food production and rural manufacturing. Finally, virtual platforms have the potential to provide the informal sector with greater visibility, voice and representation.

The informal sector has become a major driver of economic opportunity and innovation and NEPAD remains determined to enhance the transitional intersection to the formal economy for a beneficial impact on all actors.

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