In Africa, the informal sector accounts for more than 55% of the entire GDP and 80% of the employment. The grey economy has essentially become the unchronicled wind beneath the wings of the continent.
Africa’s informal sector is fast moving past illegitimacy towards spurring the continent’s economy forward. It is now home to the continent’s most savvy and creative brains. Without constitutions and corporate bureaucracy to impede innovative thought, the informal sector has become the figurative Silicon Valley of Africa. The informal sector’s liquid nature is also not to be underestimated considering the failing formal channels of trading in some African countries. What Africa needs to do is fit this figurative El Dorado in the matrix of development.
According to the Economist, the “grey” economy, more commonly referred to as the informal economy “consists of legal activities whose participants fail to pay tax or comply with regulations”. In essence, the informal economy is not governed by any regulations that would normally be used in a normal business setting. This explains why governments have always considered informal trading a plague that needs to be done away with. However, this view has been seen to be skewed and with the modern leader has come a transformation in outlook with regards to the informal trader. Most leaders are now starting to harness the informal sector rather than demonise it considering that it accounts for more than 55% of the continent’s GDP and 80% of the employment. The grey economy has essentially become the unchronicled wind beneath Africa’s wings.
Photo Credit: Edward Echwalu
2011 was a ground breaking year for African universities as Uganda’s Makerere University took its electric car, the Kiira EV for a 4km test drive. What is fascinating about the Kiiira is the choice of artisans which cut across academic background and ability. It was the first major break showing the formal sector’s growing appreciation of the informal craftsmanship.
“CEDAT (Makerere’s College of Engineering, Design, Art and Technology) designed the car but a lot of parts were actually fabricated by informal artisans. It is an important innovation, that these guys who have no formal engineering training would be able to interpret those designs and translate them into a product,” said Dr Dick Kawooya, a researcher with Open African Innovation Research and Training Project (Open A.I.R).
The Kiira EV will go into production in 2018 and it will remain a trophy of the growing African success at harnessing the informal sector for the betterment of the economy.
Apart from the highly relevant skill set the informal sector hosts, it is a widely held truth that the informal sector now boasts of billions of cash that governments never get access to. This is a disadvantage in terms of revenue collection but it is proof that Africans who are failing to get formal jobs are not sitting on their hands and waiting for hand-outs. The African picture of starving women and children is fast becoming a thing of the past, not by government action but by the work of driven citizens who are becoming the change they want to see. Estimations over the past few years have shown that Zimbabwe alone has easily over USD$7.4 billion circulating in the informal markets. Surely other African countries have just as much money changing hands in South African “stokvels”, village markets, pavement vending stalls and backyard garages. Having figured this out, Ghana has taken positive steps towards enabling the government to be hands-on with regards to the informal sector.
“What is required is a policy crossover. We cannot assume such activities are illegitimate when making policy. We need to make legitimate activities in the informal sector quantifiable so we can respond adequately,” explained Ghana’s Vice President, Kwesi Amissah-Arthur with regards to the position of the Ghanaian government towards the grey economy. He was speaking at the World Economic Forum where he sought to drive home the fact that the informal sector is now the new normal and governments need to appreciate the fact and find ways to promote every economically expedient activity. He went on to then speak about the Ghanaian pension system for rural farmers that is working towards pulling the “informal sector closer to formal”.
Steps like those Ghana has taken to legitimise its informal sector are what every country should be emulating. The informal sector needs to be harnessed to enhance economic growth and also account for the strides being taken in the grey economy. Banks have a large role to play by implementing banking policies that incentivise banking. The current state of affairs does not encourage informal workers to bank their money because they feel they simply can not afford it. Mobile banking services like Kenya’s M-pesa and Zimbabwe’s Ecocash have neatly fitted into this banking niche. If they also reduce their charges, they might encourage informal traders to start banking their money thus pumping it into the formal sector. It is also important that more academic institutions follow the example of Makerere University that appreciated the informal artisan’s craft and incorporated it in developmental projects. More projects that harness every aspect of Africa’s economy need to be initiated without discriminating against anyone, formal or not. In actual facts, established institutions should work hand in hand with the informal sector to build a vibrant formal economy with technologically relevant products.
Lastly, governments need to find ways of revenue collection that are not punitive in nature so as to effectively get a piece of this growing pie of African wealth. Informal economic activities are usually done on a subsistence level and if they are to grow into larger enterprises, governments ought to be patient about revenue collection. The main focus should be how to grow this lucrative El Dorado that Africa has and sustainably milk it for the development of the continent.
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