The informal economy is big business in Africa. Current information is that the powerful informal economy in Africa continues to 'embrace' new technology, mobile communications and the internet. If this continues, not only is data capture inevitable, the uniqueness of small businesses and their development will remain intact; keeping the informal sector a significant growth factor.
Technology is the new opportunity for Africa's large informal sector!
At easily an average of 40%of the continent's GDP, the survival of the sector could depend largely on creative legal frameworks that enhance its productivity without distorting its ease of access. It is therefore imperative to understand the informal economy's features, exemplified in the International Labor Organization's (2015) extract of 5 key facts about the informal sector in sub-Sahara Africa:

  • The sub-continent has the highest labor force participation rate of all regions, estimated at 70.9 % – compared with a global average of 63.5 % in 2014.
  • Non-agricultural employment in the informal economy represents 66% of total employment in sub-Saharan Africa.
  • Most countries for which data disaggregated by gender is available, the share of women in informal employment in non-agricultural activities outnumbers that of men, where 74% of women's employment (non-agricultural) is informal, in contrast with 61% for men.
  • Informal employment is the standard condition among most youth in Sub-Saharan Africa, where at least eight in ten young workers in all eight School-to-Work Transition Survey (SWTS) countries fall into the informal employment category.
  • Self-employment constitutes a greater share of informal employment (non-agriculture) than wage employment, as it accounts for as much as 53% of non-agricultural employment in sub-Saharan Africa.

Africa's informal sector has generally been viewed as "lacking in concept"; developed not necessarily out of experience or data, but rather,

its emergence in response to the need to ameliorate the harsh consequences of governments' inability to meet societal expectations of quality service delivery, jobs creation and poverty alleviation. Informal markets thus became incubators of job creation, such that they now account for as much as 45% to 60% of the urban labor force on the continent.

 Regrettably, lawyers, policy makers and financial institutions have failed to produce the 'tools' of "infrastructure-for-development"- laws, policies and financial solutions, necessary to aid improved efficiencies for the sector.

For policy makers there must be 3 core drivers for reform:

  • Frame-working-to shape the value chain of activities that encompass the informal sector, thereby preserving its core elements of effectiveness. Organize, don't just formalize! Formalizing kills the essence of informality. Support a framework that enhances the enforcement of obligations in tort and contract, such as 'unfair contract terms laws' and 'simple and affordable dispute resolution' concepts. (To secure the enforcement of obligations)
  • Data capture-to [re] form out of observations and data. Data capturing will enable better planning for sector needs, while improving the ability of financial institutions, law and policy makers, to create policies that will better serve the sector. (Technology keeps data)
  • Contextualization-to drive appropriate actions of "infrastructure-for-development" and achieve the desire of improved efficiencies in the sector. (Keep the essence of African businesses)

The investing public on the other hand, should note that the formal and informal sectors are not mutually exclusive. Technology will lead to future business opportunities in the creative industry, consumer markets, retail, sports and many more. Understanding Africa's developmental requirements is therefore a major imperative for sustainable growth. It is also useful knowledge for investors on the continent.

August 2017

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