Informal sector needs support
Posted Tuesday, February 18 2014 at 02:00
The informal sector, though often viewed as a sector for small, unproductive and under-capitalised businesses like fruit vendors, contains a significant share of sizable, profitable and productive businesses.
On Friday, February 14, the Daily Monitor published an interesting piece showing that the informal sector is now growing faster. The article clearly highlighted the threat that the informal sector posed to the government’s capacity to collect taxes and meet national obligations.
The mention of informal sector brings back images of the KCCA’s enforcement officers evicting ‘illegal’ businesses in Luzira, a Kampala suburb, recently. As a country, we seem at odds with ourselves if we are destroying the fastest-growing sector that contributes 43 per cent of the economy as mentioned in your article. Is it possible that it is the laws that should be amended to accommodate the informal sector other than attempting to get the informal sector to conform to the laws?
The informal sector, though often viewed as a sector for small, unproductive and under-capitalised businesses like fruit vendors, contains a significant share of sizable, profitable and productive businesses. These could include the metal fabricator who turns more than Shs10 million per month, the restaurant owner who employees 10 people, or that factory with 70 per cent of its employees on informal terms (temporary).
This may partly explain why, according to UBOS, 66 per cent of employees that initially had formalised jobs/contracts of employment in 2009/10 had changed to informal employment arrangements in 2011/12.
While this may partly be due to the tough economic circumstances, policy makers should also re-think how they approach the informal sector. The exodus of people to the informal sector, coupled with the fact that more than 90 per cent of the non-agricultural labour is employed in the same sector, is a clear indication that something is working in the informal sector and there may be more lessons the formal sector can learn from it than we care to acknowledge. An evidence-based understanding of the informal sector may enable the government to design policies that shall empower the sector.
Such a process starts by the government becoming a closer friend to the informal sector. Approaching the informal sector through the tax man as it is often done or heavy-handedness on the most vulnerable in the sector (women vegetable sellers in taxi parks) may be counter-productive. Deliberate efforts to support and strengthen this sector will build trust between the government and the sector.
As we discuss how the informal sector should shade its imperfections in order to fit in the narrow door that has been created by the existing laws and regulations, we should consider widening the door which seems to keep many hardworking and productive people out.
I believe the informal sector presents a good opportunity and the continued perception that it is a ‘threat’ may deny us the chance to harness its potential to develop our country.