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The informal economy requires attention in Africa. Governance and regulations need to improve, and the new CFTA can support efforts to formalize activities.

By Ashvin Ramasamy

What Does the Informal Economy Really Mean?

The emerging definition of the “informal economy” from a general African understanding consists of all employment not protected by labour laws nor supported by social protection, within or outside of unregulated enterprises. The combined effect on unregulated sectors is arguably quite extensive, notably on vulnerable self-employed workers — catering to several employers at any given time without stability– as well as employees without social protection. For this reason, governance and regulatory environment need to expand in Africa.

Why Should We Formalize the Informal Economy?

The African economy is growing and the marketplace is poised for growth: the African Union places economic output at $2.5 trillion per annum. Projected population estimates for 2050 show a doubling of 1.2 billion to 2.4 billion. If left to “business as usual”, current statecraft will not foster job creation and the corresponding public services to engender private sector development — let alone encroachment of corruption on socioeconomic progress. The goal here is not to solve the problem but to show that formalizing the informal economy has strong promise. Dialogue is buzzing in Ghana to create an “informal economy ministry.” After all, informal trade accounts in Africa amount to an estimated $40 to $60 billion per annum, estimates the head of the African Export-Import Bank.

Let’s take a moment to reflect on the state of the informal activity: it is healthy and here to stay. Also, it is tied to the modern capitalist development, owing its roots not just to traditional economies but in merits of economic growth and global integration. Let’s also ponder the cause for so many entrepreneurs to opt out of registration. It is not necessarily the want to operate in an unregulated market as a means to avoid taxation. Rather, many face extremely high charges (punitive, in other words) to obtain and operate rights to operate legally; navigating the sinuous regulatory waters becomes a time-wasting bureaucratic nightmare; or, the state in which they operate lacks the legal structure to regulate business.

It is clear that many African states have much to gain economically and socioeconomically by formalizing their. As the argument in Ghana goes, the wealth of the informal economy speaks for itself in driving the economy. Moreover, revenue generated from the formalized sector can be recycled for even greater regulatory oversight and formalization processes of at-risk workers. In turn, this would strengthen the informal ministry thereby enabling simplified regulation for commerce. South Africa and Nigeria must overcome their tiffs with the CFTA first. Second, the economic prowess of both nations can help solidify the trade deal. Should all countries enforce the CFTA, Intra-African trade is expected to grow by 50%, that is $170 billion currently to $340 billion, in nominal terms. Surely, the informal economy will take up a lion’s share of the trade and domestic activity but who will act as the sector’s caretaker during the implementation and ensure a smooth post-implementation period? Much needs to be discussed, Africa.

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