One of the central challenges facing much of Africa is unemployment, in particular youth unemployment. The African Development Bank estimates (see figure 1) that of Africa’s approximately 420 million young people (aged between 15-35) only one-sixth (16.6% or 70 million) are in formal employment. One-third are partially or vulnerably employed, and half are not employed at all. That means 140 million young African’s are at risk of losing their job at a moment’s notice and 240 million have no job and little prospect of one.
(fig.1. source African Development Bank)
This is a disaster. Half of Africa’s youth, their potential contributions to society and personal dignity and well being, is wasting away. Is it any wonder that these young men and women are risking life and limb on horrific journeys to try and get Europe for the prospect of a better life?
This though, is only half of the story. Africa’s youth population is expected to double to over 850 million by 2050. If the continent cannot find a way to harness the potential of its youth, then the continents demographic dividend could turn into a demographic doomsday. As young unemployed Africans with no stake in the economy and no prospect of a better life turn to dangerous radicalism, extremism or crime as a way out; migration will be the least of our worries.
Thus, the question becomes how do we avoid this demographic doomsday scenario? One answer is to rapidly grow the formal economy and employment via industrialisation. This is the path that much of the continent is trying to pursue. Investing in infrastructure, ease of business reforms, business incentives and trade expansion, all aimed at spurring economic growth and employment. Frankly, it has not been enough. While growth has been positive it has not been at the rate we need, and not nearly enough jobs have been created.
What is needed is a policy for the biggest non-agricultural employer on the continent, the informal sector. The majority of those in informal business (and many with jobs who have a side hustle) depend on the informal sector for their livelihoods.
Alongside agriculture, the informal sector is the foundation of the African economy and its time our policies and laws caught up to that reality. Doing so would help solidify fragile livelihoods as well help drive growth and opportunity in the economy. We can start by changing our laws to redefine employment to include the informal sector and investing in the skills, knowledge and capabilities of those in the sector.
The Informal Sector in Africa
The informal sector can be broadly defined as activities or enterprises that produces and sells good or services but are not formally registered and do not pay taxes.
The International Labour Organisation (ILO) estimates that the informal sector represents 41% of GDP on the continent and 66% of total employment in Sub-Saharan Africa and 52% in North Africa, and that eight in ten (80%) of young workers end up in the informal sector. These figures tell us an important fact about the reality of employment in Africa, that most people earn their livelihoods through their own ingenuity and drive, hustling, and either working for or running small enterprises, they don’t have an employment contract or get a pay check. Thus, the laws, regulations, and protections of labour and employment laws are irrelevant to them. The second key thing that stands out about Africa’s informal sector is its resilience and adaptability. It has survived the ravages of one party States and dictators, near collapse of the economy in the 1990s, endemic rent-seeking and corruption, changes in weather patterns and the cycles of economic booms and busts.
It is time that government policy focused on enabling, harnessing the sector by integrating it into the wider economy, not at the exclusion of wider policy goals such as industrialisation but as part of it.
Redefining Labour and Employment
The first step to integrating the informal sector and the people in it to the wider economy is through legal definition and recognition. Just as labour and employment legislation across the continent recognises, regulates, and protects people in formal employment; similar legislation for informal sector could provide the people and businesses in it with legal protection and a foundation upon which they can build and grow.
Informal sector legislation and policy would not simply be applying the rules of the formal sector to the informal sector (which would be ignored anyway); rather it should be crafted for the needs of the informal sector and would include the following:
- A valid legal definition of an informal sector business and job with a simple way of registering it. Registering an informal business should be as easy as getting a SIM card or a mobile money account. The goals are not to tax or regulate the sector but for registration to be a gateway to the enabling and protective elements of the laws and policy.
- Simplified contracts and small claims courts. A constant risk in the informal sector is that you do not have the protection of the law, if you make an agreement with someone to buy or sell something it is based on their word alone. Providing a simple contract template that all can use gives buyers’ and sellers’ basic rights (such as refunds on non-delivery of goods or services). A small claims court to enforce disputes under these specific contracts quickly (rather than the expensive, laborious and slow normal court system) would engender trust and facilitate business.
- Banking and credit access. Make it possible for informal enterprises to use their registration to open bank accounts, access credit and use their assets (e.g. a motorbike) as security for loans.
- Provide access to national health, pension and welfare schemes. Most national health, insurance, pension and welfare schemes are based on a (formal) employee contribution model, where a portion of your salary is contributed to various schemes. On a continent where most people are not in formal employment it means that these schemes are underfunded, and many do not include everyone. Providing a way into these schemes for the informal sector like a simple subscription or yearly fee would be a way to both expand them to the wider population as well as boost their funding
- Allow informal employees and businesses to organise. Allowing the informal sector to form co-operative societies, unions and associations would open new avenues to credit (through the pooling of savings in co-operatives), better working conditions and more powerful voice to advocate for their interests.
Legal definition and recognition opens the door to the protection and progress of the livelihoods that depend on the informal sector. Laws may be boring, but they are crucial.
Capacity Building
Legal recognition is only half the equation, for the informal sector to move from being a source of subsistence for individuals to a source of growth for the economy. Africa needs to give the people in it the tools, skills and knowledge to create, recognise and take advantage of opportunity.
The first aspect of capacity building is coupled with legal recognition. Changing laws is ineffective if the people they are aimed at are not aware of the changes and how to take advantage of them. Thus, the capacity building exercise would be a public education exercise, focused on making people within the sector aware of the changes and how to take advantage of them.
The second is around skills and knowledge training. Putting together programs that train people on key aspects of business administration, opportunity identification and marketing, crucial skills needed if they are to successfully invest and expand beyond subsistence.
The Informal Economy as an Opportunity
Most policies that African governments have come up with around the informal sector are focused on formalisation and extracting taxes and most policy around employment growth is focused on expanding formal employment. While these goals make sense, they ignore the reality of the crucial role that the informal economy plays in livelihoods and the economy of Africa.
Employment in the informal sector is not wrong or inconvenient, it is normal for Africa. And, for Africa’s development to be truly African it must not only be led by Africans but work for the majority of Africans, many of whom are employed in the informal sector.
Few if any of the development initiatives pursued by governments and institutions across the continent are aimed at furthering this sector. This approach ignores and underserves a sector which has been the foundation of the African economy, which has, since independence proven to be resilient, innovative and frankly, African.
Redefining employment in Africa to recognise and support the informal sector will not hamper or stop industrialisation or the growth of formal employment. Rather it is about understanding that the giving the hundreds of millions of Africans whose lives depend on the informal sector a stake in the economy and the opportunity to grow, is not only good for the economy it is good for people, and if that is not what development policy is about it is what it should be about.
Also published on Medium.