The Informal Economy in Job Creation?

The Statistics...

According to the 2010 Poverty Reduction Strategy Paper (PRSP) by the Kenya government to the IMF, the MSE sector in 2007 contributed to ‘74.2 per cent of the total employed population and about 18 per cent to the country’s GDP’. Women working in the informal sector comprise of more than half of the labour force and a majority own micro or small enterprises or work as employees within the sector. Unemployed youth including high school and university graduates also end up working in this sector. The ILO states that prior to the global economic crisis, over three quarters of workers in Oceania, Southern Asia and sub-Saharan Africa were without the security that wage and salaried jobs could provide.

Jobs in the informal sector

As a result of the 2007 economic crisis unemployment is rife in most countries whether in developed or developing countries. Nevertheless, alarming rates of unemployment are evident in Africa with a majority of countries having an average of a 40% unemployment rate. Due to a shrinking formal sector most of the labour force has been forced to take refuge within the informal sector by either creating ad hoc jobs through starting a small or micro enterprises or by working as casual labourers within the sector.

The Informal sector in Kenya employs approximately 70% of Kenya’s labour force.  This immensely large figure tells us of the huge role that this sector plays in job creation. The majority of these jobs are either on a day to day basis with no long term prospects, contracts or minimum wage regulations. Wages earned are said to be approximately between USD$1 and USD$2 a day.

Typical jobs in the sector would be handy men/women, casual labourers, mechanics, waiters, cleaners, hawkers, hairdressers and domestic workers and more specialist jobs such as engineers, designers and small scale manufacturing among others.

A publication by the International Labour Organization (ILO) rightly states that, ‘any economic development should be tied in with employment centred development in order to tackle poverty and inequality within a country’. 

Creation of secure jobs that pay well is achievable within the informal sector and should be at the fore of government policies related to economic development, enterprise development and poverty reduction strategies. The ILO talks of Local Economic Development (LED) policies which are focused on encouraging a bottom up participatory process of dialogue through public-private partnerships. According to the ILO several success stories to the LED approach has been experienced in countries such as Tanzania, Cambodia, Namibia and Madagascar.  Measures taken, included the allowance of labour-based contractors access to public tenders; a training process for MSEs in gaining management and technical qualifications; improving choice of technology and the working conditions of employees within the informal sector.

By adopting long term strategies, the benefits will continually be reaped by consecutive generations. Africa’s youth are facing high unemployment as a result of quick fix strategies in the past (or present...) which only tackled the problem for the present but neglected the future impact or the sustainability factor of the projects implemented thus contributing to the vicious cycle of unemployment, poverty and inequality. 

Small Scale Manufacturing project - Practical Action

A Mechanic

                                              

Partnerships

One of the limiting factors as to why a majority of these Micro and small informal sector enterprises fail to grow and offer job security is due to the lack of appropriate technologies and equipment for producing their products.

This can be overcome through collaboration or partnerships within the sector and with other sectors namely, the private sector, public sector and with nongovernmental organisations.

One effective partnership that is helping create long term jobs and improve the livelihoods of poor people is by an NGO known as Practical Action. Practical Action challenges poverty through the use of technology by enabling disadvantaged communities gain access to technology and strengthens their capabilities through sharing information and knowledge that is vital to narrowing the technology divide that exists between the poor and the rich.

Practical Action’s work is extended to micros and SMEs across different countries. In Kenya, for example, Practical Action has tool hire workshops that allows small scale artisans to use expensive equipment such as lathes, drills and milling machines which thus enables them to produce better quality goods and improves their scalability. By enhancing the quality, diversity of products and volume of goods produced SMEs are therefore able to attract foreign and regional markets, scale up, utilise labour intensive manufacturing equipment, employ more people and offer more secure jobs. Countries such as Bangladesh, Chile and South Korea 'dramatically reduced their poverty levels by increasing labour intensive jobs in the manufacturing sector'.  

Moving on to Private sector partnerships between large and small enterprises, it is important to take cognizance of the fact that small businesses are agile and innovative, whereas big businesses have market share and capital. Take the example of Amazon, the world’s largest and online retailer and leader in technological innovation. Amazon partners with retailers worldwide, personal sellers, small businesses and large businesses as well, who by paying a membership subscription to Amazon are able to gain access to Amazon’s tens of millions customers. It’s a win win situation for all. With this example, it would therefore be fair to say that the 20th century  business models are quickly embracing partnerships between large and small enterprises and each complements the other.  

SME development policies and approaches in developing countries need to embrace this 20th century business shift and open more doors for cross linkages between large enterprises and small. While the Amazon example gives the bigger picture, on a country specific level partnerships between large enterprises and small enterprises would contribute immensely towards job creation, adaptation of new technologies at a grassroots level and thus propel economic development forward. The neoliberal approach of financing or mainly supporting large enterprises with the assumption that economic gains at the upper end will trickle down to benefit those at the bottom does not hold currency any more. In the words of Schumacher the author of small is beautiful  ‘no country that has developed has been able to do so without letting the people work’.

SMEs are vital to a country’s economic progress and any support to this sector would go a long way towards achieving MDG goal1b. Most micro and small enterprises in developing countries are unfortunately found within the informal economy. While the issue here should not be their status, I believe that the world should not ignore the fact that to help counter stagnancy and the cycle of poverty; entrepreneurs’ capabilities need to be enhanced and not constrained. Financial support is key but so are technological support, sharing knowledge and information as well as business training. Through mutual partnerships with different stakeholders Africa’s SMEs and MSEs will lead the way out of poverty and inequality.  A better world is possible if governments, agencies, corporations, NGOs and communities work together towards reducing dependency and creating sustainable livelihoods in the developing world.