Why the IMF doubts the informal sector
Fund points to positive correlation between formal work and growth
London — Unemployment in Nigeria, the largest economy in sub-Saharan Africa, is running at more than 14% and climbing; in SA, the second-largest economy, it is more than 27%. For youth in both countries, it is far more.
This may seem bad enough, but according to IMF calculations, sub-Saharan Africa’s travails are in danger of reaching uncharted territory in less than two decades unless economies can create jobs for their burgeoning young populations.
"By 2035, sub-Saharan Africa will have more working-age people than the rest of the world’s regions combined," the IMF said in a blog post this week. "This growing workforce will have to be met with jobs."
This had major implications for the region’s economy, its security and wider immigration patterns.
In the past, some of the strain had been taken up by the so-called informal economy, dominated by street vendors, household workers and off-the-radar cash jobbers.
The informal sector in sub-Saharan Africa contributed about 38% of GDP in 2010-14, said the IMF. This figure represented a steady decline from about 45% in 1991-99. But, up to 90% of jobs outside agriculture were still in the informal sector. "Most would prefer a job in the formal sector but don’t have that option," the IMF said.
The International Labour Organisation said informal employment was characterised by "lack of protection in the event of nonpayment of wages, compulsory overtime or extra shifts, lay-offs without notice or compensation, unsafe working conditions and the absence of social benefits".
Informal sector work could be both positive and negative for growth. In some cases, it represented entrepreneurship and start-up businesses. But a lot of it was far from opportune for growth. The informal sector tended to offer low-productivity work, partly because it attracted low-skilled workers. "In a country where the informal sector is large, the rate of economic growth is reduced," the IMF said. This suggested countries such as Tanzania and Nigeria, where the informal economy was 50% to 65% of GDP, would fare worse than others such as Mauritius, SA and Namibia, where it ranged from 20% to 25%.
"Countries need to adopt a balanced approach in the design of policies to grow the formal sector. This means focusing on ways to increase the productivity of the informal sector, while working to support the expansion of formal businesses," the IMF said. It also called for better access to finance to create the right kind of jobs.