The need to provide a lifeline for the informal sector emerged as an urgent priority for governments after the global pandemic.
This is because strict lockdowns destroyed the livelihoods of taxi and minibus drivers, street and market vendors, and informal bar and restaurant owners depending on daily incomes for survival.
An informal economy is a widespread and persistent phenomenon that critically affects how fast domestic economies can grow, develop, and provide decent opportunities for their respective populations.
In this regard, sustainable economic development requires a reduction of informal economies, but experts caution that this process is inevitably slow simply because the informal sector is currently the only viable income source for so many people.
For the Namibian economy, out of some 725 000 employable people, the Namibian Labour Force (2018) reported that just about 418 600 are employed in the informal sector. According to local economist Mali Likukela, the informal sector is of vital importance as it provides much needed employment, contributing to an estimated 12% of the GDP. With such a large number of people employed in the informal sector, it is evident that the informal sector is vital to the growth of the domestic economy and hence has to be sheltered and eventually formalised. According to the International Monetary Fund (IMF) report on the Global Informal Workforce published last week, the informal economy is best tackled by steady reforms such as investment in education and policies that address its underlying causes. “Attacks on the sector motivated by the view that it is generally operating illegally and evading taxes are not the answer,” read the IMF report.
The IMF is of the view that providing workers with decent jobs and facilitating the transition of small firms to formality is thus urgently needed to support inclusive development, as acknowledged in the United Nations’ Sustainable Development Goals.
“At the other end, informality can exist when some individuals are too poor or too uneducated to access formal employment, public benefits, and financial services, and therefore need to rely on informal activities as a safety net,” explained the IMF report.
High informality is, moreover, associated with high inequality, as workers tend to earn less in the informal sector compared to their peers in the formal sector with similar skills. The wage gap between formal and informal workers has also been found to be higher for lower skill levels.
The International Labour Organisation (ILO) 2018 estimates that, globally, 85% of informal workers are precariously employed in small, informal firms, with only 11% of informal workers employed in formal firms.
This sense of urgency for the transformation of the informal economy has only been reinforced by Covid-19 crushed informal activities, particularly in developing countries, where large segments of the population are not covered by existing social protection schemes.