Draft – Strictly Not for Quotation
19th ANNUAL RESEARCH WORKSHOP
Between Resilience and Vulnerability:
Understanding Africa’s Informal Economy in
the Positive
By
Kate Meagher
Draft Working Paper
S1J
Presented at REPOA’s 19th Annual Research Workshop
held at the Ledger Plaza Bahari Beach Hotel, Dar es Salaam, Tanzania;
April 09-10, 2013
This preliminary material / interim, or draft research report is being disseminated to encourage discussion and critical comment
amongst the participants of REPOA’s Annual Research Workshop. It is not for general distribution.
This paper has not undergone REPOA’s formal review and editing process. Any views expressed are of the author(s) and do
not necessarily represent the views of REPOA or any other organisation.
1
Table of Contents
INTRODUCTION ........................................................................................................ 1
WHY SIZE MATTERS .................................................................................................. 2
WHY HISTORY MATTERS ............................................................................................ 4
PUSH AND PULL FACTORS OF CONTEMPORARY INFORMALITY ....................................... 5
COMPOSITION AND INSTITUTIONAL STRUCTURE IN THE 21ST CENTURY ........................... 8
IMPLICATIONS FOR THE FORMAL SECTOR AND THE STATE ........................................... 11
CONCLUSION .......................................................................................................... 12
REFERENCES ......................................................................................................... 14
i
Between Resilience and Vulnerability: Understanding Africa’s
Informal Economy in the Positive - Kate Meagher, London School
of Economics
INTRODUCTION
In their 2002 report, Decent Work and the Informal Economy, the ILO declared that
the informal economy is here to stay. Contradicting the basic assumptions of
development theory, the informal economy has flourished rather than declined with
the process of economic development. The ILO report argues that, ‘Contrary to
earlier predictions, the informal economy has been growing rapidly in almost every
corner of the globe, including industrialized countries – it can no longer be
considered a temporary or residual phenomenon’ (ILO 2002:1). Along with the
recognition of the growing importance of the informal economy in contemporary
processes of economic development, has come a stark awareness of its size,
particularly in developing countries. Sub-saharan Africa currently stands out as the
most informalized region of the world, with an informal economy that accounts for
nearly 80% of the non-agricultural labour force, and for nearly half of its GNP. But
what does this high level of informality mean for the operation and development of
African economies? Is it a sign of too much regulation or too little formal sector
growth? Does it enhance or undermine formal sector activity and state capacity?
Does Africa’s large informal economy offer a source of resilience in the face of global
economic pressures, or is it a reflection of the continent’s vulnerability to the ravages
of global forces? Equally importantly, is Africa’s huge informal economy creating
new sources of vulnerability within the globalizing economic system, generating
unregulated flows of goods and resources under the radar of the global trade and
security systems?
Answering these questions demands a gestalt shift in the way we look at the informal
economy in Africa. The prevailing tendency, particularly among economists, is to
explore the informal economy as a reaction to conditions in the formal economy. As
the very term ‘informal economy’ indicates, economic informality tends to be
analysed in terms of what it is not, rather than in terms of what it is (Elyachar 2005;
Hart 2006; Meagher 2010a). Particularly in the case of Africa, where the informal
economy is larger than the formal economy in many countries, understanding how
the informal economy operates and its implications for economic development
requires a focus on the internal organization of the informal economy. At 80% of the
labour force working outside of agriculture, it strains the bounds of probability that
African informal economies represent atomized actors that simply react to conditions
in the formal economy. Analysing the implications of Africa’s large informal economy
for governance and development demands an awareness of the informal institutional
1
landscape and the processes of restructuring operating within the informal economic
realm as it draws on indigenous institutions and develops systems of its own to fill
gaps in markets and state provision for a growing share of the population.
This is not to suggest that the informal economy should be treated as a separate
economic sphere, in the manner of conventional dualist analyses. On the contrary,
investigating the informal economy in terms of its internal organizational realities
offers new avenues for exploring the intertwining of the formal and informal
economies without losing sight of the distinctive regulatory and developmental
implications of high levels of informality. It also offers a means of recognizing how
African informal economies differ from those in other regions with regard to factors
other than size and composition. In short, investigating Africa’s informal economy in
terms of what it is offers the prospect of more effective policy making, geared to the
distinctive needs and realities of the African context. In the face of growing worries
about the explosive potential of Africa’s large and growing informal economy,
understanding the informal economy in the positive holds out the best hope of
positive policy outcomes.
In this short paper, I will outline the key features for an analysis of Africa’s informal
economy in the positive. I will begin with a brief focus on the implications of its size
relative to other regions, and move on to an analysis of its history, focusing on how
differences in pre-colonial, colonial and post-colonial history have shaped distinctive
trends in informal economic development in various parts of Africa. This will set the
scene for a consideration of the push and pull factors influencing the expansion of
contemporary African informal economies. Subsequent sections will focus on the
current composition of the informal economy in Africa, and the informal as well as
formal institutional processes that shape contemporary informal activity.
Throughout, distinctions will be made between different informal trajectories in
various parts of Africa, justifying the use of the term ‘informal economies’ when
talking about African informality beyond the level of statistical aggregates. Finally, I
will focus on the implications of African informality for the formal sector and the state.
This sections will focus on the prospects of informality for development, but also on
the serious tensions of poverty and neglect that risk tipping these dynamic informal
economies from a trajectory of resilience into one of local as well as global
vulnerability.
Why Size Matters
Widespread recognition that the informal economy is expanding rather than declining
across the developing world has drawn growing attention to measuring its size.
Owing to myriad measurement problems and divergences in definitions and
methodologies, efforts to measure the size of national informal economies and to
2
derive regional averages should be treated as orders of magnitude rather than as
hard numbers (Harding & Jenkins 1989; Schneider 2002). Despite their limitations,
the value of these measurement efforts is that they highlight the contemporary
significance of informality, and have played a key role in putting the informal
economy back on the development agenda after over a decade of relative neglect.
In the case of Sub-saharan Africa, recent efforts to measure and compare the size of
informal economies has had a particularly dramatic effect on development policy
debates.
As Table 1 shows, recent statistical measures from the ILO and by the World Bank
reveal that across the developing world, the informal economy now accounts for over
half of the labour force working outside of agriculture, and for over one third of GNP.
In Africa, these figures rise to over three-quarters of the non-agricultural labour force,
and more than half of GNP. In short, the informal economy is now larger than the
formal economy in labour as well as financial terms, putting statistical emphasis
behind assertions that in Africa, the informal economy now constitutes the ‘real
economy’ (Hansen & Vaa 2004; MacGaffey 1991).
Table 1. The Size of Informal Economies in Various Regions
% of Non-Agricultural
Region
% of GNP
Employment
Africa
72
42
Asia
65
26
Latin America
51
41
OECD
-17
Source: Schneider 2002; ILO 2002.
Recognizing the huge size of Africa’s informal economy is important for more than
just dramatic effect. It draws attention to the importance of the internal dynamics of
informal economic organization. An informal economy that caters for such a vast
share of African populations must develop networks and institutionalized patterns of
organization to prevent society from grinding to a halt. However chaotic African
informal organization may seems, these huge informal economies could not operate
at all without some form of internal organization. In addition, the fact that African
informal economies are so large relative to the formal economy raises questions
about where the real regulatory power lies on the continent. When the informal
economies becomes larger than the formal economy, does it become the dominant
regulatory force in the economy? Does the size of the informal economy alter the
relationship between the informal economy and the state? Does it make informal
regulation the norm, and formality the aberration? If ‘informal is normal’ in Africa,
what exactly does this mean in terms of the authority of the state to dictate the terms
of new forms of engagement between the informal and formal economies?
Answering these questions requires a consideration of the historical factors that have
3
shaped the emergence of the informal economy in Africa, and the regulatory
interface between the informal economy and the state.
Why History Matters
Understanding African informality in the positive requires an awareness of how the
size and organization of informal economies on the continent have been shaped by
historical factors. A closer look at African informal economies reveals important
differences between different parts of the continent with regard to the size,
composition and complexity of the informal economy. These differences have been
shaped not only by contemporary variations in the regulatory context, but by
distinctive historical experienced during the pre-colonial, colonial and postindependence periods. The interplay of these differentiating forces go a long way to
explaining divergences in levels of informality across African countries.
A key influence emanating from the pre-colonial period relates to the presence of
centralized states or large-scale religious systems, both of this served as frameworks
for the organization of long-distance trading networks and indigenous commercial
institutions capable of operating across communal and ethnic boundaries (Austen
1987; Hopkins 1973; Northrup 1978). Economic historians of Africa have detailed
the existence of well-developed centralized states in West Africa, including the
Asante and Hausa states, and to a more limited extent in East Africa, in the centuries
before colonialism. These states provided both the resources and institutional
support for the development of markets, commercial institutions and long distance
trading networks. Large-scale religious systems, including Islam and a range of
indigenous oracular religious also played a central role in the development of
indigenous economic networks and large-scale commercial institutions in precolonial West as well as East Africa. In stateless societies such as the Igbo of West
Africa, and the Somali of East Africa, oracular religions were key to the emergence
of regional trading systems in the former, while Islam underpinned the development
of long-distance trading networks in the latter (Dike & Ekejiuba 1990; Harneit-Sievers
2006; Little 2003).
Colonialism generated a new set of influences on the development of informal
economic organization, which reinforced the greater scale and complexity of informal
economic networks in West Africa, while suppressing such development in much of
Central, East and Southern Africa. In a forthcoming paper on tax efforts in Africa,
the economist Thandika Mkandawire (2010) points out that cash crop economies,1
concentrated largely in West Africa, tended to be more permissive of indigenous
economic activity, while the labour reserve economies of Southern Africa and parts
1
Benin, Burkina Faso, Cameroon, Côte d’Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau,
Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Tanzania, Togo, Uganda
4
of East Africa, and to a lesser extent, the concession economies of Central Africa,
took extensive measures to suppress indigenous economic activity that might
compete with wage labour. In colonial labour reserve economies in particular,2
Mkandawire explains,‘measures were taken to block alternative sources of income
that might compete with the wage economy. These measures included disruption of
peasant agriculture, job discrimination, criminalization of informal activities by
Africans in the urban areas, political regimentation of Africans, migration control,
etc.’. Concession economies,3 in such places as the Belgian Congo, and Gabon,
relied on more brutal methods such as forced labour and plunder until late in the
colonial period, the institutional traces of which are still visible in the pronounced
violence of informal economic organization in these areas.
In the post-colonial period, regulatory attitudes set during the colonial period tended
to persist, although subsequent events, such as long civil wars in Mozambique and
Angola, or particularly severe economic collapse in Zambia and more recently in
Zimbabwe, have sometimes shifted former labour reserve economies toward higher
levels of informal activity than were characteristic of other economies with similar
histories. Overall, the combination of historical influences have led to marked
regional patterns in the levels of informal economic activity across Africa. Drawing
on ILO figures largely from the 1990s for informal activity as a share of the nonagricultural labour forces, Mkandawire shows that levels of informal activity average
58% in West Africa, 49% in Central Africa, and only 19% in Southern Africa. Despite
the expansion of informality across the continent, more recent figures bear out a
higher level of informality in West Africa than in East and Southern Africa. With
appropriate caveats about the precision of these figures, and the large number of
countries for data on levels of informality is not available, recent measures of
informality as a share of the non-agricultural labour force average over 65% in
former cash crop economies concentrated in West Africa, and fall to 35% in the
former labour reserve economies concentrated in Southern and East Africa
(Charmes 2009; Heintz & Valodia 2008).
Push and Pull Factors of Contemporary Informality
The contemporary era of globalization and economic reform have exerted more
uniform influences among African countries, precipitating rising levels of informality
across the continent. While historical differences in patterns of informality persist,
contemporary push and pull factors shaping the expansion of informality have
become more similar across countries and sub-regions. Henrik Huitfeldt and Jutting
2
Labour reserve economies included Angola, Kenya, South Africa, Namibia, Zambia,
Zimbabwe, Botswana, Lesotho, Swaziland, and Mozambique.
3
The Democratic Republic of the Congo (DRC), Congo-Brazzaville, Gabon, Central African
Republic, Rwanda, Burundi
5
(2009:100) identify four key drivers behind the contemporary expansion of
informality. These are: slow employment growth in the formal economy, the
restructuring of labour markets under liberalization and globalization, inappropriate
formal sector regulations, and competitive pressures to reduce costs.
In the African context, the first and second drivers could be collapsed into one, since
it is the restructuring of labour markets under liberalization and globalization that are
the main force behind inadequate levels of formal employment. The third driver,
inappropriate regulation, has been shown to be relatively unimportant to the
expansion of informality, in Africa and across much of the developing world. The
excessive regulation argument has been weakened by the fact that greater
deregulation of African economies over the past two decades has been
accompanied by the expansion of informality. This paradox was observed by
Maloney (2004:1159), who argued that the key push factor was related to unwanted
social benefits rather than rigidities in enterprise and labour regulations. The fourth
driver, cost-cutting in response to competition, is also relevant, although liberalization
and globalization are driving the bulk of the competitive pressures (Henrik Huitfeldt
and Jutting 2000).
The resulting picture of push and pull factors militates against the notion of informal
sector expansion as a ‘voluntary’ rejection of formal sector conditions. The image of
voluntarism and choice presented by Maloney and others is not borne out by
evidence from African countries (Maloney 2004; Perry et al. 2007). In particular, the
widespread phenomenon of ‘straddling’ – which refers to holding a formal sector job
and carrying out one or more informal activities on the side – tends to undermine the
notion of a preference for evading costly social benefits (Vandemoortele 1991;
Mustapha 1992). Similarly, the idea that the desire to evade taxes pushes people
into the informal economy is weakened by the fact that most informal actors pay a
range of formal as well as informal taxes. Local government taxes are often
collected through officials in the markets where informal actors operate or by sending
revenue officers physically entrepreneur to entrepreneur, making evasion difficult. In
some countries, decentralization has also led to the delegation of collection of higher
levels of taxes to local government authorities. Moreover, many informal actors pay
a range of informal taxes, such as association fees, security levies to vigilante
groups, and extra-legal levies for other forms of service provision (road repair,
access to electricity, etc.) (Boone 1994; Meagher 2010a; Tokman 1992).
In the African context, the major push factors have more to do with compulsion than
with voluntary exit, triggered by the restructuring of labour markets by liberalization
and globalization. Key among these push factors is the lack of formal sector
employment, induced by global competition and the active downsizing of formal
employment in the context of drastic economic restructuring. Across Africa, this has
6
involved massive public and private sector retrenchment, as well as the
deindustrialization and enterprise collapse in the context of liberalization, devaluation
and high inflation (Vandemoortele 1991; Mkandawire 2001).
The resulting
escalation of unemployment has led to a mass influx into informal activities,
necessitated by the lack of any form of unemployment insurance across most of
Africa (Heintz & Valodia 2008).
A further restructuring-induced push factor involves the collapse of real wages even
among those who remained in formal employment. This has resulted in the
intensification of ‘multiple modes of livelihood’. On the one hand, multiple modes
involves hanging onto formal jobs where possible while starting up an activity in the
informal sector, such as informal taxi driving, trading, or selling their services after
hours. On the other, it includes the entry of previously non-employed household
members, such as wives and dependents, into the informal labour market to make
ends meet. (Bangura 1994; Meagher & Yunusa 1996).
The pressures of economic restructuring have created two further push factors,
including the weakening of markets in the formal sector, and consequent pressures
to cut costs. Owing in part to weak export shares, markets for formal sector firms
across Africa, have contracted owing to the collapse in wages and employment, and
the intensification of import competition (Meagher 1995; Mkandawire 2001). The
weakened purchasing power of structurally adjusted consumers and mounting import
competition has put many formal sector firms out of business, or forced them to cut
costs by resorting to informal labour or going underground themselves.
Finally, the instability and unpredictability of formal institutions in the context of
economic reforms has operated as a push factor. In the face of incessant reforms in
the formal economy over a period of two decades, many African economic agents
have withdrawn into the informal economy where institutions are less subject to
drastic and unanticipated changes. Banking sector reforms and attendant bank
failures in Nigeria have frightened many successful informal operators out of the
formal banking sector, and rapid changes in regulations and tax regimes over the
past two decades have either forced or frightened formal operators into the informal
sector (Meagher 2003). Commenting on the impact of economic reforms on African
business development, Poul Ove Pedersen and Dorothy McCormick (1999:130)
explain that ‘The continuous changes in rules and regulations and their inconsistent
enforcement create an instability in the economic system which is not supportive of
long-term investment’. While the informal economy has increased risk and instability
for African consumers owing to the lack of legal protection and quality control, it
currently represents a sphere of greater predictability for many African in formal
actors.
7
Just as the push factors are more about compulsion than choice, the pull factors of
African informal employment are more about default options than attractions. The
fabled ‘ease of entry’ of the informal sector is certainly a pull factor in that sense,
since ease of entry only applies to the low-cost, low-income segments of the informal
economy. More lucrative activities tend to have higher capital and skill requirements,
and also involve more extensive informal arrangements that limit entry, such as
associations or access to credit networks (Sethuraman 1998). This is evident in the
fact that the women and the poor tend to be concentrated in already saturated
activities at the low-income end of the informal economy, rather than moving into
activities with higher income potential.
A further pull factor involves the creation of new opportunities by the crisis in the
formal sector. Both the limited expansion in industrial subcontracting, and the shift of
middle-class demand down to the informal economy as imports and formal sector
goods and services become unaffordable, have created a more skilled and lucrative
niche within the informal economy. In addition, the collapse of public services has
opened up informal opportunities for informal service providers, including tutors,
water sellers, vigilante and private security services, etc. However, these are
transient opportunities created by economic crisis, which will disappear with
economic growth. The expansion of informal jobs via Global Commodity Chains
(GCCs) remains very limited in Africa, given that Africa’s share of global FDI flows
stands at barely 2%.
A final pull factor involves greater access to business support services and economic
institutions in the informal economy. The social embeddedness of informal
economic institutions makes them more predictable and accessible to African
business actors, particularly those that lack the levels of literacy and the contacts to
access formal skill training and business services. This does not, however, mean
that the quality of informal services is better, only that it is more accessible. Levels
of credit available through informal mechanisms are often too low for significant
enterprise investment, particularly in the case of rotating credit groups, and the
technical quality of training has become inadequate even for the needs of informal
actors (Adam 1999). In the larger informal business networks, access is limited by
ethnic and religious membership, age and usually by gender.
Composition and Institutional Structure in the 21st Century
The composition and institutional organization of African informal economies reflects
the historical and contemporary factors outlined above. Current statistical data
indicates that African informal economies have the highest level of informal selfemployment, accounting for 70% of informal employment (Table 2). Conversely,
levels of informal wage labour are comparatively low. While informal wage labour
8
accounts for over 40% of informal employment in other regions, it constitutes less
than 30% of informal employment in Africa.
These statistics mask significant
variation between West and Southern Africa. In West Africa, where informal
entrepreneurship and large-scale trading networks have had more room to develop,
informal wage labour tends to be below 20%, while in Southern Africa and Kenya,
levels of informal wage employment average over 50% (Charmes 2009: 36). Table
2 also reveals that women account for 52% of informal employment, a much higher
share than in other regions. This indicates that women are over-represented in the
informal economy, and research shows that this is associated with female poverty
rather than with increased income opportunities (Charmes 2009; Meagher 2010;
Heintz and Valodia 2008). Statistics also show that Africa has the highest share of
child labour in the world, with an incidence as high as 41% of children between 5 and
14 years of age (Harsch 2001; Xaba et al. 2002). Child labour is particularly
pronounced in West and Central Africa, where apprenticeship institutions are
stronger, informal employment of children in mines is widespread, and domestic
labour often involves younger girls than is common in Southern and East Africa.
Table 2. Composition of Informal Employment in Developing Countries
% of children
% Self% wage
% of
Region
engaged in child
employment
labour
women
labour
Sub-Saharan
70.9
29.1
52.3
41
Africa
Latin America
57.5
42.6
46.5
17
Asia
53.4
46.6
28.6
21
Source: Charmes 2009:36; Harsch 2001
Understanding the contemporary dynamics of informal employment in Africa requires
moving beyond the statistics to an understanding of the institutional organization of
informal employment. The institutional factors fall into three broad categories:
institutions governing informal self-employment, those governing informal wage
employment, and new forms of informal employment arising from globalization. With
regard to informal self-employment, the key factor to note is that informal enterprises
do not constitute a mass of atomized operators. They are embedded in informal
social and business networks through which they organize training, credit and
business activities. These include ethnic and religious networks, rotating credit
societies, informal trade associations, and friendship or ‘old-boy’ school networks.
These are more highly developed in West Africa than in other parts of the continent,
but are emerging and strengthening in other parts of Africa as informal selfemployment expands. Informal service provision in the face of collapsing public
services represents a growing area of informal self-employment. This informalization
of public services constitutes a kind of ‘poor man’s privatization’. While there is
comparatively little productive subcontracting between the formal and informal
sectors in Africa (except for South Africa), there is a low but growing incidence of
9
distributive subcontracting to street traders, and outsourcing of ancilliary services
(canteen services, uniforms, repairs) to informal enterprises (Meagher 1995;
Meagher and Yunusa 1996; Meagher 2010; Rogerson 1999).
With regard to informal wage employment, the key institutional arrangements include
employment in informal firms (apprenticeship, journeymen, informal temporary or
permanent employees). Informal employment in informal firms appears to be most
prevalent in West Africa, where informal firms are more able to grow large enough to
employ significant amounts of labour, and where institutions of informal labour are
more highly developed. Informal employment in formal sector firms is more common
in Central, East and Southern Africa, particularly involving the use of homeworkers in
the South African garment industry, and in mining firms in Central and East Africa.
Domestic labour also represents an important source of informal wage employment
across the continent.
Finally, new forms of informal employment arising from globalization include the
transnationalization of informal livelihoods, and informal employment in global
commodity chains. The transnationalization of informal livelihoods refers to the
internationalization of informal economic networks. The cross-border trading
networks of the 1970s have been increasingly globalized. Ethnic and religious
trading networks of West, East (especially Somali) and even Central Africa have
penetrated deep into Europe, North America, and Asia since the 1990s (Babou
2002; MacGaffey & Bazenguissa-Ganga 2000; Meagher 2003). The activities
involved are largely restricted to legal goods and services, linking structurally
adjusted African consumers into global markets, and linking informal enterprise
clusters into parallel commodity chains that operate under the radar of the global
trading system (Meagher 2007). There has also been an emergence of new drug
trading and human trafficking networks as pressures for viable livelihoods intensify
amid extremely narrow global opportunities, especially for African women (Meagher
2010).
Global commodity chains have been a much more limited source of new informal
employment over all, owing to low levels of FDI, though they have played a more
significant role in Southern Africa, Central Africa and Kenya. Key sources of informal
wage employment from GCCs include the garment industry in Southern Africa and
Kenya (often involving Asian investment); new agricultural exports in South Africa,
Zambia and Kenya, which involves some informal non-agricultural labour for packing
and labelling; and informal mining labour in Central and Southern Africa (Human
Rights Watch 2005; Barrientos 2000; Hart 2002; Charmes 2009). Unlike the
situation in Asia and Latin America, where GCCs bring more skilled and better
remunerated informal jobs in data entry, electronics manufacturing and other forms
of manufacturing, Africa’s GCCs involve low skill, low-income activities in garment
10
production and primary commodity export, and draw on the most vulnerable forms of
labour, primarily women, children and migrants.
Implications for the Formal Sector and the State
Compared to other regions, informal employment in Africa is dominated by low
skilled, low income activities with very limited connections to formal sector firms.
This would tend to suggest that African informal employment offers little to the formal
economy except unfair competition and a drag on productivity. While these
problems do exist, the increasing intertwining between the formal and informal
economies even in Africa suggests that the informal economy offers some benefits
to the formal economy as well. These benefits appear to relate largely to a search for
cheap and flexible labour.
The increase in distributive subcontracting and
outsourcing between formal and informal firms is driven almost entirely by a costcutting logic. From this perspective, informality acts as a boost to formal sector
productivity rather than a drag. The existence of dynamic informal manufacturing
clusters producing crafts, garments, shoes, cosmetics and even computers,
particularly in West but also in East and Southern Africa, is an indication of
significant potential for productive interaction with the formal sector, although
productivity in these clusters is often below the standard for global export
(McCormick 1999; Oyelaran-Oyeyinka & McCormick 2007; Meagher 2010b). In
these cases, it is not informality that is a drag on productivity, but poor infrastructure,
lack of technical upgrading, and inadequate access to credit, quality inputs and
marketing services. This situation calls for public or private sector investment in
upgrading of informal sector capacity, and a reconsideration of the decline in
investment in public services that has contributed to the decline in skills and
productive capacity.
Jutting and Laiglesia (2009) and others argue that expanding informality represents
a ‘broken social contract’ between society and the state, but more questions need to
be asked about how the social contract was broken, and what kind of measures are
appropriate to reintegrating society and the state in the political and economic
conditions of contemporary Africa. Two different forms of state-informal sector
relations are evident in Africa, which have important implications for the future of the
social contract. The first can be characterized as ‘instrumental’, involving a mutual
evasion of responsibilities, as the state attempts to shift the costs of reforms onto the
informal economy and informal actors attempt to use public goods without paying
taxes. This form has become dominant in most African countries. While
contemporary literature is very clear about the negative effect of this instrumental
relationship on state fiscal and regulatory capacity, there is less attention to its
negative effect on the organizational and absorptive capacity of the informal
economy. Declining incomes, social fragmentation and conflict are all indications of
11
the unravelling of informal economic institutions
under the strain of their
instrumentalization by African states and international policy advisers, who have left
the informal economy essentially to fill the yawning gaps in employment and public
provision left by downsizing states (Amselle 2002; Grey-Johnson 1992; Meagher
2010a). Moving down this path is leading to the destruction of the legendary
resilience of African informal economies, increasing the vulnerability of societies to
conflict, criminality and social collapse.
A second form of state-informal sector engagement can be characterized as
‘synergistic’. This involves the informal sector filling gaps in employment, social
welfare and service provision in return for state investment in improving popular
welfare and informal productive capacity. Properly synergistic relationships between
the informal economy and the state can be found in many parts of East Asia – where
informal sector productivity is supported by significant state investment in
infrastructure and social services – but are rare in Africa (Hart 2002). However,
there are a number of African countries in which the informal economy contributes to
social integration and public investment in ways that have stabilized societies that
would otherwise have disintegrated in the face of extreme economic pressure.
Important examples include Senegal, a highly informalized but relatively stable
democracy, and Somaliland, where the informal economy has contributed to
reconstituting a state where even international efforts have failed (Bradbury 2008;
Villalon 1995). These two examples offer potential African models for rebuilding the
social contract, however tentatively, that differ in important ways from the current
models being developed by international institutions (Jutting & de Laiglesia 2009;
Perry et al. 2007). These locally adapted strategies of social integration of informal
actors and maintaining or re-establishing state legitimacy merit further research.
Conclusion
Addressing the expansion of informality in Sub-Saharan Africa requires attention to
the specific nature of African informality. This includes a more highly informalized
labour force than any other region, a predominance of self-employment over informal
wage labour, extremely limited generation of new economic opportunities through
globalization, and the highest incidence among all regions of especially vulnerable
sources of labour, including women, child labour and migrants. A situation of very
low wages, few global opportunities, extremely vulnerable labour, and growing
problems of conflict and criminality suggests an informal economy that is strained to
the limit. African informal economies are reaching the tipping point from resilience
into a source of vulnerability and volatility unless urgent efforts are made to raise
productivity and opportunities through investment in infrastructure and public
services.
12
Attention to locally appropriate models for rebuilding the social contract is vital to any
measure to reduce informality. Current suggestions for rebuilding state-society
relations through taxation and social protection is a model more appropriate to
societies with a high share of informal wage labour (Perry et al. 2007). In Africa,
where the bulk of the informal economy involves self-employment rather than
informal wage labour, an offer of pensions and unemployment benefits will do little to
improve productivity or state legitimacy. Where high levels of informal selfemployment coincide with weak state capacity, as in West Africa, the organizational
demands of paying these benefits are daunting. Moreover, the needs of the informal
self-employed involve investment in infrastructure and business services which
would improve their productive and income generating capacity, not social
protection, which addresses instability of employment rather than productivity.
Understanding the realities of African informal economies in the positive is vital to
coming up with viable solutions to mounting poverty and informality.
13
REFERENCES
Adam, S., (1999). Competences and other factors affecting the small enterprise
sector in Ibadan, Nigeria, in Enterprises in Africa. Between Poverty and
Growth, eds. K. King & S. McGrath London: Intermediate Technology
Publications, 179-90.
Amselle, J.-L., 2002. Globalization and the Future of Anthropology. African Affairs,
101, 213-29.
Austen, R. A., 1987. African economic history : internal development and external
dependency, London, Portsmouth, N.H.: James Currey ; Heinemann.
Babou, C. A., 2002. Brotherhood solidarity, education and migration: The role of the
Dahiras among the Murid community of New York. African Affairs, 101, 15170.
Bangura, Y., (1994). Economic Restructuring, Coping Strategies and Social Change:
Implications for Institutional Development in Africa, in DP52 Geneva:
UNRISD.
Barrientos, S., 2000. Globalization and Ethical Trade: Assessing the Implications for
Development. Journal of International Development, 12, 559-70.
Boone, C., 1994. Trade, Taxes, and Tribute - Market Liberalizations and the New
Importers in West-Africa. World Development, 22(3), 453-67.
Bradbury, M., 2008. Becoming Somaliland, Oxford: James Currey.
Charmes, J., (2009). Concepts, Measurements and Trends, in Is Informal Normal,
eds. J. Jutting & J. R. de Laiglesia OECD.
Dike, K. O. & F. I. Ekejiuba, 1990. The Aro of south-eastern Nigeria, 1650-1980: a
study of socio-economic formation and transformation in Nigeria, Ibadan:
University Press.
Elyachar, J., 2005. Markets of Dispossession: NGOs, Economic Development, and
the State in Cairo, Durham & London: Duke University Press.
Grey-Johnson, C., 1992. The African Informal Sector at the Crossroads: Emerging
Policy Options. Africa Development, 17(1), 65-91.
Hansen, K. T. & M. Vaa (eds.), (2004). Reconsidering Informality. Perspectives from
Urban Africa: Nordiska Afrikainstitutet.
Harding, P. & R. Jenkins, 1989. The Myth of the Hidden Economy, Milton Keynes;
Philedelphia: Open University Press.
Harneit-Sievers, A., 2006. Constructions of Belonging. Igbo Communities and the
Nigerian State in the Twentieth Century, Rochester NY: University of
Rochester Press.
Harsch, E., 2001. Child Labour Rooted in Africa's Poverty. Africa Recovery, 15(3).
Hart, G., 2002. Disabling Globalization: Places of Power in Post-Apartheid South
Africa, Berkeley, CA: University of California Press.
14
Hart, K., (2006). Bureaucratic Form and the Informal Economy, in Linking the Formal
and Informal Economy. Concepts and Policies, eds. B. Guha-Khasanobis, R.
Kanbur & E. Ostrom Oxford: Oxford University Press.
Heintz, J. & I. Valodia, (2008). Informality in Africa: A Review, paper prepared for
SIDA by WIEGO Network
Hopkins, A. G., 1973. An economic history of West Africa, [London]: Longman.
Human Rights Watch, (2005). The Curse of Gold: Democratic Republic of Congo,
New York.
ILO, (2002). Decent Work and the Informal Economy, Geneva: International Labour
Organization.
International Development Research Centre, (2008). Women and Men in the
Informal Economy, Ottawa, Canada: IDRC.
Jutting, J. & J. R. de Laiglesia, (2009). Is Informal Normal? Towards More and Better
Jobs in Developing Countries, OECD.
Little, P., 2003. Somalia: Economy Without State, Oxford: International African
Institute and James Currey.
MacGaffey, J. (ed.) (1991). The real economy of Zaire : the contribution of smuggling
& other unofficial activities to national wealth, London, Philadelphia: James
Currey ; University of Pennsylvania Press.
MacGaffey, J. & R. Bazenguissa-Ganga, 2000. Congo-Paris : transnational traders
on the margins of the law, Oxford: James Currey.
Maloney, W., 2004. Informality Revisited. World Development, 32(7), 1159-78.
McCormick, D., 1999. African Enterprise Clusters and Industrialization: Theory and
Reality. World Development, 27(9), 1531-51.
Meagher, K., 1995. Crisis, Informalization and the Urban Informal Sector in SubSaharan Africa. Development and Change, 26(2), 259-84.
Meagher, K., 2003. A Back Door to Globalisation?
Structural Adjustment,
Globalisation and Transborder Trade in West Africa. Review of African
Political Economy, 39(95).
Meagher, K., 2007. Manufacturing Disorder: Liberalization, Informal Enterprise and
Economic `Ungovernance' in African Small Firm Clusters. Development and
Change, 38(3), 473-503.
Meagher, K., 2010a. Identity Economics: Social Networks and the Informal
Economy in Africa, Oxford: James Currey.
Meagher, K., (2010b). The Politics of Vulnerability: Exit, Voice and Capture in the
Three Nigerian Informal Manufacturing Clusters, in Africa's Informal Workers:
Collective Agency, Alliances and Transnational Organizing, ed. I. Lindell
London & Uppsala: Zed Books and the Nordic Africa Institute.
Meagher, K. & M.-B. Yunusa, (1996). Passing the Buck: Structural Adjustment and
the Nigerian Urban Informal Sector, in UNRISD Discussion Paper UNRISD:
Geneva.
15
Mkandawire, T., 2001. Thinking about developmental states in Africa. Cambridge
Journal of Economics, 25, 289-313.
Mkandawire, T., 2010. On Tax Effort and Colonial Heritage in Africa.
Mustapha, A. R., (1992). Structural Adjustment and Multiple Modes of Livelihood in
Nigeria, in Authoritarianism, Democracy and Adjustment: The Politics of
Economic Reform in Africa, eds. P. Gibbon, Y. Bangura & A. Ofstad Uppsala:
SIAS.
Northrup, D., 1978. Trade Without Rulers: Pre-Colonial Economic Development in
South-Eastern Nigeria, Oxford: Clarendon Press.
Oyelaran-Oyeyinka, B. & D. McCormick, 2007. Industrial Clusters and Innovation
Systems in Africa, Tokyo, New York, Paris: United Nations University Press.
Pedersen, P. O. & D. McCormick, 1999. African business systems in a globalising
world. Journal of Modern African Studies, 37(1), 109-35.
Perry, G., W. Maloney, O. S. Arias, P. Fajnzylber, A. D. Mason & J. Saavedra-.
Chanduvi, 2007. Informality: Exit and Exclusion, Washington, D.C.
Schneider, F., (2002). Size and Measurement of the Informal Economy in 110
Countries Around the World, in Paper presented at Workshop of Australian
National Tax Centre Canberra, Australia.
Sethuraman, S. V., (1998). Gender, Informality and Poverty: A Global Review,
Washington, D.C.: The World Bank.
Tokman, V. (ed.) (1992). Beyond Regulation. The Informal Economy in Latin
America, Boulder and London: Lynne Rienner.
Vandemoortele, J., (1991). Labour market informalization in Sub-Saharan Africa, in
Toward Social Adjustment: Labour Market Issues in Structural Adjustment,
eds. G. Standing & V. Tokman Geneva: ILO.
Villalon, L., 1995. Islamic Society and State Power in Senegal: Disciples and
Citizens in Fatick, Cambridge: Cambridge University Press.
Xaba, J., P. Horn & S. Motala, (2002). The Informal Sector in Sub-Saharan Africa, in
Working Paper on the Informal Economy Geneva: ILO.
16