Informal business requires re-tooling to reduce poverty

The number of people in informal employment has been rising over the past decade, a phenomenon that is increasingly prevalent in developing and Third World.

A deeper delve into this issue reveals an intricate relationship between the level of informality in various regions of the world and the link to social inequality.

It is interesting to note that regions with large informal economies also have a big percentage of the population living in poverty.

This is not to say that all of those that are engaged in informal businesses are poor, but that poverty is a cardinal driver that accentuates informality.

Given the diminishing opportunities of formal employment, populations have been forced to look for alternative creative means to fend for themselves.

This scenario has largely led to the growth of informality whereby businesses are haphazardly set up without prior planning or experience.

Often, the jobs in this sector are of poor quality, meaning that they do not offer any social protection or terminal benefits.

Businesses that are established this way often have internal operational systems that hinder growth in the long-term.

It is this sort of enterprises that have difficulty accessing potential financial investors due to the perceived high-risk nature of their operations.

The World Employment and Social Outlook 2018, a report by the International Labour Organisation (ILO) says in 2018 and 2019, unemployment in developing countries is expected to rise by half a million people per year.

As alluded to earlier, the report points out the fact that the main challenges that developing countries continue to face include persistent poor-quality employment and working poverty.

Two demographic groups that continue to be adversely affected by labour market inequalities are women and the youth.

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According to the report, the outlook is particularly challenging for women as they are more likely to be in vulnerable employment and over-represented in informal non-agricultural employment.

Further, this demographic group is often less eligible for social protection coverage due to their lower rates of labour force participation, higher levels of unemployment and greater likelihood of being in vulnerable forms of employment.

An interesting statistic that came across concerning youth aged 25 years and under is that their global unemployment rate of 13 per cent is three times higher than the adult unemployment rate.

The Northern Africa region recorded the highest rate with close to 30 per cent of young people in the labour market being jobless.

The downside to having a large informal economy is that those that are involved in micro businesses are excluded from the benefits that come from gainful employment.

It would be prudent for policy makers to implement strategies that grow the capacity of informal businesses to profitability. This will reduce high levels of poverty.

Alex Litu, Informal economy analyst.