Informal Economy in African Economic Development: Contributions and Drawbacks
Though the informal economy is introduced as a vital and large part of the overall African economies, it is still hard to find one specific definition of this concept. Researchers and policymakers suggest using such terms as shadow, gray, black, or unreported economy and the informal sector to understand its contributions and drawbacks and identify policies that may help to raise incomes in the chosen sector (International Labour Office, 2012; Medina, Jonelis, & Cangul, 2017). Regarding the examples and opinions taken from different sources, it is possible to say that the informal economy is any type of economic activity and job that cannot be taxed, monitored by the government, or included in the GDP of a country. At this moment, the informal sector of sub-Saharan Africa consists of 33% of non-agricultural employment in South Africa and 82% in Mali (International Labour Office, 2012). Many household enterprises where Africans can work remain formally unregistered. However, there are also several ways on how to keep activities unregistered even in registered organizations, and the most frequent example is the work of taxi drivers who can earn some money when their meters are not working.
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Nowadays, many countries find it necessary to measure informality of the economy because of a number of evident and hidden benefits and weaknesses. Medina et al. (2017) introduce several methods with the help of which it is possible to estimate the actual size of the informal economy. For example, surveys and samples can be used to gather replies in a volunteer form and take into consideration personal experience and attitudes. Sometimes, this information may be not enough from the statistical point of view, and the decision to check auditory tax reports is made. In addition to direct approaches, several indirect methods also known as indicator approaches can bring positive results. Taking into consideration available methods and models to measure and evaluate the informal economy, African societies have to recognize its strong and weak aspects to avoid economic misunderstandings and financial challenges.
The central contributions of the informal economy in regard to African societies and economies are as follows: the possibility to decrease the unemployment rate of the region, the creation of new working places, the presence of low barriers to enter the sector, the increase of population income, and the promotion of African economic growth. Not all organizations find it profitable to register their actual incomes and pay large taxes for every worker. Therefore, they choose hidden activities and introduce simple reports to cover their expenses. As a result, people can have high salaries and earn as much as they actually can without being afraid of their work being taxed. Additionally, many customers may notice that the companies where the informal economy is supported establish low prices and promote frequent sale policies. People will never refuse an opportunity to pay less for products and services.
Another important benefit of the informal economy is a possibility to have part-time jobs. Many African women are eager to work and earn a living without an obligation to choose between work and home. Some women, in their turn, want to work full-time but can find only part-time opportunities (International Labour Office, 2012). The informal sector is the place where people are free to make decisions regarding their personal and professional needs. Finally, the establishment of fair and trustful employee-employer relationships is the benefit that cannot be ignored. Not all Africans may allow higher education and working experience at a young age. As a result, they cannot find official jobs and earn money. The informal sector opens its doors to all citizens, regardless of their age, education, experience, or social status. Every person who can work is able to earn and avoid unemployment difficulties.
At the same time, several factors that may weaken African economic development because of the presence of the informal sector should be mentioned. One of the most evident drawbacks is an evident lack of legal protection that can be offered to employees by the government. The informal economy supports many economic activities that are usually excluded from any benefits and rights (Medina et al., 2017). If informal employees want to cover their property relationships, apply for commercial licensing, or develop special labor contracts, but their employers are against such ideas, positive decisions can be hardly achieved (Medina et al., 2017). As soon as the government is not able to control all employment sources, a number of concerns and unclear situations occur. The examples include child labor, drug trade, prostitution, and the growth of unethical behavior in the workplace.
The absence of a common and properly identified tax base in African countries lead to certain negative outcomes. For example, developing countries lack a chance to compare the differences in working conditions between formal and informal sectors (Medina et al., 2017). The economies become dependent on such factors as personal capital or social capital due to poorly recognized property rights and small resources of the regulatory system (Langdon, Ritter, & Samy, 2018). In other words, everything can be perfectly organized and accepted in the informal sector till a problem, concern, or discontent is recognized, and people may be in need of social support and governmental help. Finally, it is necessary not to forget that the informal economy does not bright any public goods and social security to the countries it is supported in. Therefore, poor working conditions, unfair treatment, the absence of social benefits, and no official protection should be defined as the central weaknesses of the informal economy in African countries.
Today, African societies aim at raising incomes and promoting human development for working people even if they choose the informal sector. Before one starts developing some policies and thinking of alternatives, it is necessary to admit that informal employment is a widespread notion from the global point of view. It is hard to remove it completely. However, there is a chance to investigate different aspects of the informal economy and understand how to reduce the risks of low earnings and poor working conditions. The International Labour Office (2012) reports that many informal workers continue suffering from “significant decent work deficits” (p. 1). To improve the current economic situation and stabilize working condition, it is better to start with an identification of specific groups of workers who are challenged by informal employment and gathering information about people’s age, intentions, demands, and other important for work issues. These groups are domestic or home-based workers, street vendors, and waste pickers (International Labour Office, 2012). Every person should be aware of their rights and freedoms despite the sphere of employment.
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Several types of policies can be effective to solve the problem of the informal economy in African countries. For example, information policies can be used to understand what methods can be used to gather information about formal and informal organizations and people who prefer the informal sector instead of receiving benefits from formal employment. Social and education policies may be offered to explain how to collect and tabulate data through technical assistance and training (International Labour Office, 2012). Even the promotion of health policies can help to raise incomes for people. As soon as they learn the opportunities offered by the formal sector, they can understand how crucial their physical and mental health can be. People should not spend their money on treatment in case damage has a manufacturing nature. In general, increased awareness of the benefits of the formal sector, statistical control of wages and employees, and active participation of the government can be rather helpful in raising incomes for the citizens of African countries where the informal economy is promoted.
Urban Bias Reduction Through National Policies
Despite the fact that many countries demonstrate considerable growth and development in political, economic, and social sectors, the question of mass poverty remains open and bothers millions of people. In sub-Saharan Africa, the process of urban expansion has already begun with its speed being hardly compared with other countries. Langdon et al. (2018) explain these changes due to high rates of natural population and migration that is observed from rural areas. The process of urbanization is explained by the necessity to reduce poverty and provide as many people with employment opportunities and development as possible.
However, in addition to a number of new changes and benefits, urbanization is also characterized by certain problems and pitfalls. For example, fast growth of African cities is challenged by poor institutions and insufficient infrastructure that is required to promote competitiveness and productivity (Foster & Briceno-Garmendia, 2010). However, one should understand that growth and speed are not the only issues to be considered. “Urban bias” is the term to pay special attention to because of its impact on the development of public policies towards existing rural and urban expectations.
Not many researchers and academics use the term “urban bias” in their works. Still, its presence and impact cannot be ignored because it helps to understand better the conditions under which economic development occurs. Urban bias is an argument that is frequently used to explain the relationships between the representatives of urban and rural areas and the possibility of urban citizens to influence economic events due to the level of pressure they may have on the government. In other words, urban bias occurs as soon as urban citizens address the government in order to protect their rights and make sure their opinions are taken into consideration despite the intentions of the citizens from rural areas. However, Foster and Briceno-Garmendia (2010) underline a mutual dependence of rural and urban development and the necessity to integrate both areas in case national growth is the goal that should be achieved. Attitudes to urban bias have been changed with time.
Personal attitudes and social relationships influenced the importance of urban bias in Africa. Several decades ago, the image of “urban bias” was closely connected to the fact that rural citizens were able to use more opportunities, improve their knowledge, and earn huge money. With time, this attitude has been dramatically changed because many sub-Saharan African countries depend on how well their agricultural sector is developed at the moment. Africa’s agricultural sector, as well as the rural economy, is central to the overall economic development (Foster & Briceno-Garmendia, 2010). The better the integration of these two concepts is, the lower poverty rating is.
At this moment, in many African countries, a variety of national policies were implemented. The goals of these policies were to charge urban bias, to promote national development, and to generate benefits for cities, even if they had high prices for other areas of countries (Langdon et al., 2018). For example, the African government made a decision to raise taxes on agricultural export in order to increase overall tax revenues. However, taking into consideration that fact that new prices were developed for international markets, only local farmers who had to produce crops and other products could feel the difference and reduce their incomes to meet new tax standards. As a result, rural development was challenged, and urban areas gained benefits.
Another example of policies that proves unfair treatment to rural areas of African countries included price control on food. On the one hand, the government believed that this step was successful in terms of fighting against inflation and protecting the citizens of cities against high prices on local rural food (Langdon et al., 2018). On the other hand, the same step lowered incomes of farmers and deprived them of an opportunity to earn high money for high-quality services they could offer.
Finally, even the intentions of the government to control and promote domestic manufacturing influenced the work of farmers in African countries during the last several decades. As soon as the independence was achieved by many African countries, the government established tariff barriers on manufacturing in rural areas so that farmers and other agricultural workers reduced their incomes, and urban citizens could use low-interest credits and “tax” holidays to buy cheap food (Langdon et al., 2018). All these policies and strategies provide that urban bias is an integral aspect in many African countries. It is impossible for Africa to create policies in terms of which both types of areas could gain benefits. As a rule, only urban areas were characterized by positive outcomes.
It is necessary to think about the conditions under which urban bias and regional disparities can be reduced or even eliminated in African countries. One of the main steps that should be taken by African countries is the improvement of the link between rural and urban areas (Foster & Briceno-Garmendia, 2010). Today, this link is not stable because of poor electricity in certain regions, unstable transport networks, and a lack of water provision (Langdon et al., 2018). The solution of these problems is a number one step in reducing urban bias. Infrastructure provision has to be improved. ICT services have to be developed in the same way in rural and urban areas.
Urbanization of Africa is a question of time. It is based on a number of structural transformations that include productive employment and the promotion of sufficient public goods (Adesina, Gurria, & Clark, 2016). Structural transformations are used to move available economic resources and increase productivity activities. One of the recent examples of such transformation is to support of the green revolution and the development of new city-country relationships. Agriculture and rural development should be addressed in small towns and secondary cities instead of big cities where industrialization and globalization have already demonstrated their impact. In addition, the government should pay more attention to the improvement of such fields as education, healthcare, and transportation in all regions and areas between cities and countries. Sometimes, a little portion of comfort and security is enough to neglect a lag in rural-urban development.
Lastly, the role of the government has to be discussed. There is a thought that if the African government shifts its administrative and bureaucratic functions to secondary cities in lagging regions, a chance to reduce urban bias can be achieved (Langdon et al., 2018). Decentralization of political and governmental decisions concerning economic relationships is a step to the improvement of regional balance where rural and urban areas can have access to similar services, opportunities, and goods. As soon as the leaders of African countries understand how crucial their impact on urban bias is, new results and elimination of integral economic problems can be achieved. Regarding the fact that African countries demonstrate fast and effective urbanization processes in comparison to other countries on a global arena, it is possible to admit that not much time can be required to reduce urban bias and improve rural-urban economic relationships.
Gender Equality in Economic Development: Colonial Experience of African Countries
Nowadays, the representatives of many African countries cherished a thought that the question of gender inequality in society, politics, and other spheres has already been successfully decided. People believe that considerable progress has been made to achieve this type of equality through numerous conventions and commitments (Manda & Mwakubo, 2014). Still, the analysis of recent economic reports, financial activities, and employment statistics proves that gender equality remains one of the major challenges in Africa because of the presence of the informal sector and urban bias.
The problem is that many women find it normal to have unequal rights because of existing social norms and attitudes. Modern gender considerations are closely connected to such aspects as industry and global institutions, ecological integrity, and incomes (Langdon et al., 2018). The reports of the United Nations inform that sub-Saharan Africa continues experiencing extreme poverty: about 120 million people live poorly, and women are over-represented such households (Langdon et al., 2018). Close attention is paid to the social dimensions of gender inequality in Africa. Health and education are the main determinants of equality rights. African women are limited in their intentions to ask for appropriate social services because of early age marriage, physical or emotional violence, and maternal mortality (United Nations Development Program, 2016). In some cases, women do not find it necessary to report officially, and sometimes, they just believe that everything can be changed one day.
In addition to social factors, the role of women in African economies is also characterized by considerable disparities and challenges. Despite the intentions to improve the current gender equality issue, many women face problems in the workplace and the inability to make independent economic decisions. For example, in comparison to $1 earned by a male worker, a woman can earn only 70 cents (United Nations Development Program, 2016). The government explains such solution by occupation type, education, marriage, or parenthood. Economic development in Africa depends on how well its citizens understand their roles and perform their duties. For example, one of the central ideas is that African women have to be engaged in domestic work, and men have to earn a living for their entire families. At the same time, if women are aware of the peculiarities of domestic work in their everyday life, the government believes that it is normal to provide women with an opportunity to have jobs connected to domestic affairs like cleaning, babysitting, cooking, or taking care of disabled people at home.
Such inequality and prejudice concerning what women can or have to do influence recent economic development of African countries. Women do not have a chance to try themselves in different spheres. However, the investigations of Manda and Mwakubo (2014) show that gender equality has to be regarded as a considerable implication to economic development and an instrument with the help of which economic efficiency may be enhanced. To understand the worth of female working power in African economy, the governments have to provide women with the same access to jobs as men have, remove barriers in education, health, and economic opportunities, and support female decisions to stay politically and socially active. Women are defined as significant part of African families. As soon as women are able to improve their economic status, the economic status of African families can also be improved, reducing poverty, supporting employment, and promoting human development (United Nations Development Program, 2016). Finally, Africa has to understand that it has a serious employment reserve, its women, and it is high time to use it to its full extent.
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There are many reasons and explanations of why women are deprived of numerous economic, social, and employment opportunities. Langdon et al. (2018) suggest observing colonialism as one of the causes of inequalities imposed on African women. Several examples taken from different parts of Africa were used to explain why modern women do not find it necessary to resist gender inequality. At the beginning of the 1900s, many African women were involved in the cotton industry supported by the Portuguese colonialists. Due to the necessity to earn money and keep common social order, sub-Saharan African men had to leave their families and work as miners in South Africa, and women took responsibilities for cotton production without even an opportunity to resist the colonial order. Without male protection, women were exposed to the colonial authorities. They did not get money for their work, believing that their husbands had to solve all financial questions. The main fact was that women did not find it necessary to resist inequalities.
At the end of the 1900s, French colonialism influenced the work of African women as well. Husbands controlled their women in a harsh form, and even if women wanted to resist, they could not do it because of their poor formal social status. Men were able to give orders, use their social and physical power, and eliminate all women’s opportunities in a short period of time. First, women did not want to change something in their lives. With time, it became impossible for them to change something because men had already gained the desired level of power.
Employment traits that were born during the colonial times are observed today. For example, when the question to earn good money rises, it goes without saying that men have to leave their families and migrate to the areas where high salaries can be earned. Women in their turn have to stay at home, cooking, taking care of children or other family members, and even working at local firms in order to buy food, drinks, and clothes. Colonialism penetrated all spheres of human life in Africa. Even if many years have already passed, human experience and attitudes cannot be changed. Gender equality cannot be achieved the way modern women want it to be, and the colonial experience of African countries in the 20th century is one of the reasons for why the government, political relationships, and local finances are under male control today.
In general, the current economic and human development proves that women are able to change something in case they take serious steps and prove the correctness of their decisions. Today, female representatives of South Africa and Tanzania have already demonstrated their abilities and promote political and social initiatives and received support from civil society organizations (Langdon et al., 2018). The result of these activities can be observed in the work of the World Bank and in statistical reports of African countries. The number of women who receive a good education, health, and labor opportunities has considerably increased. Gender-related questions are discussed at different levels, and women are free to share their opinions and attitudes. In their turn, many sub-Saharan African countries achieve positive results in employment and economic development. Rural and urban links undergo certain improvements, and family relationships are changed, reducing the number of maternal mortality and health problems. Being defined as a significant factor of economic development, gender equality turns out to be a solution to numerous social, political, environmental, and legal problems.
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