Informal sector must desire to formalise trade

Sitshengisiwe Ndlovu
The term ‘informal’ conjures negative innuendo associated with illicit or illegal activities. Research has noted that employment in the informal sector is referred to as informal employment and whereas in a formal setting it is referred as casual labour. There is a tendency as well to restrict the informal activities to trade and yet strictly speaking, the informal sector is diverse and encompassing almost all industries.

The informal activities such as construction, communication, tailoring, agriculture, vending and retail all offer inclusive  opportunities that come with supplement income that provide livelihoods to families.

The operating environment of these enterprises is characterised by lack of adequate facilities compounded by volatility that makes the businesses vulnerable and susceptible to liquidation and closures.

Furthermore, the businesses are targets of harassment by local authorities. It could be the  transient characteristics that have fostered a negative perception of the informal sector.

According to the findings of the International Monetary Fund(IMF) research, despite the informal sector contribution to livelihoods and the economy at large, poverty levels are twice as  high in the people employed in the informal sector  than in the formal sector. This is due to low productivity, low income and limited access to Government benefits.

It has been a pre-occupation of most governments to measure the economic activity of the informal sector so as to enable the sector to have access to state incentives and benefits that may contribute to their growth.

However, the very complex nature of the businesses in the  informal sector,  symbolised by lack of auditable, lack of  development strategies  and lack of participation in labour surveys measuring the activities in the informal sector has been elusive.

The need to have statistics on the informal sector has been driven by the call to regulate the informal sector and scale it up to formal business.

The International Labour Organisation is concerned about the working conditions and the unprotected workers’ rights obtaining within the informal sector.

The ILO calls for regularisation of the informal sector in order to protect the workers.

According to ILO 92 percent of the labour force in developing countries are women. The plight   of women is compounded in that they are paid less in both the formal and informal sectors.

ILO further reminds policy makers that the need to formalise cannot be restricted to payment of taxes as the informal sector is already paying VAT (Value Added Tax) on their business input purchases without claiming the refunds as provided by the Vat regulations.

In addition, ILO recommends policy makers to relax entry barriers for these informal sector businesses through lowering business registration fees and adjusting tax thresholds. This becomes an incentive to have the businesses formalise, while the potential tax base is expanded.

The IMF view to formalise is driven by fiscus considerations among a host of other factors. The lack of statistics present challenges to governments to plan and assess economic  inclusive growth accurately. Informality is inherent with revenue gaps with a negative impact on the fiscus that cripples governments in the provision of public and social services. Women are the largest consumers of public goods. When governments fail to provide for public goods like health and education it is the women who suffer most.

Africa Continent Free Trade Agreement has to contend with the large share of the informal economy and informal intra —regional trade. The informal sector trade barriers differ from the formal trade barriers thereby compromising the business competiveness of entities in the informal sector.

The bureaucracy at entry points and the lack of knowledge in customs procedure and trade related information makes them susceptible to corruption and in some instances they experience outright harassment.

In addition, the AfCFTA  rights and benefits may not be known to the informal sector especially the revised tariffs that may have a positive impact on the landing costs of their products.

AfCFTA has set up the Africa Union Trade Observatory to assist these informal traders, however, the setback will be that these businesses will not be even aware of such remedies like the simplified trade regime that can be availed to them.

Advocacy has to reach the informal sector  so that the benefits of AfCFTA will not only be for big businesses but will be for the businesses found in the informal sector.

The informal sector must desire to formalise their trade to further access greater security, insurance and institutional support that is not ordinarily enjoyed by informalised businesses.

It will be a sad day when AfCFTA is going to be only associated with big corporations and yet there are provisions for the small businesses if only they could register and become formal businesses.

Almost the whole of Africa appreciates the contribution of the informal sector because of its inclusivity dimension and creating jobs and livelihoods. However, it is not enough for these businesses to remain informal as there is a lot to lose by continued informality.

It means the economic contribution by the sector is not documented and furthermore policy makers face challenges in designing development strategies that encourage socio–economic inclusive growth that offers dignified jobs. Among these strategies, policy makers could employ development oriented approach that encourage these informal businesses to be entities that are organisationally and financially distinct from their households.

Basic digital skills and record keeping skills will prove to be helpful for these organisations when they apply for relief stimulus packages during difficult periods of uncertainty such as the one of Covid-19 we are currently facing.

Sitshengisiwe Ndlovu: MBA/UNCTAD: Trade and Gender Linkages/ IAC Dip/Cert: Trade in Services and SDGs: Robert Schuman Center of Advanced Studies/IDEPCert: Making the African Continental Free Trade Agreement Work. She writes in her personal capacity and she may be reached on email address: For more on trade matters visit her Blog on

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