INFORMAL ECONOMY SUPPORTS MORE LIVELIHOODS THAN FORMAL ECONOMY- ESEPARC

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  • An estimated E20.5 billion worth of transactions occur in the informal economy per annum
  • 60% of employed people in the country are employed in the informal sector compared to 39% in the formal economy. Simply put, the informal business is supporting many more livelihoods.
  • Micro and Small Medium Enterprises provide employment to 92, 643 people and generate a monthly turnover of E2.8 billion.
  • The formal economy cannot provide enough employment opportunities for the Eswatini population

“Government must provide assistance to all people and businesses, regardless of their level of participation in the formal economy” this is according to a paper published by the Eswatini Economic Policy Analysis and Research Centre (ESEPARC). This paper was published in the wake of the COVID-19 pandemic which forced government to institute a national lockdown.

The Insights publication titled; The Implications of Covid-19 on the Shadow Economy, argues that if the informal sector is abandoned by government during this economic crisis, the country stands to lose more as it will simply grow bigger now and after COVID-19, as people would have lost their jobs.  ESEPARC describes the shadow economy/informal economy as any unregulated part of economic activity that is not part of the official total production of goods and services known as gross domestic product (GDP). These activities do not include illegal activities such as growing and selling marijuana, among other banned activities. The economic research institution states that the informal economy plays a major role in employment growth. “Unemployment in 2014, was estimated at 28.1% with 38% of the formally employed population still dependent on the shadow economy for extra income.

According to the Integrated Labour Force Survey (ILFS) the working age population in the country consists of 738,799 people of which almost half (49.4% or 364,930 people) are out of the labour force. Adding to this problem is the fact that in 2016 only 288,044 people (77%) out of the 373,869 that made up the labour force were employed. That means 23% of the people actively looking for work were unemployed” the paper notes. The Insights additionally observe that the formal economy in Eswatini has a 60.3% employed persons in the informal sector compared to just 39.7% employed in the registered/formal economy. In essence, the informal economy is supporting many more livelihoods than the formal economy.

LINKAGES

ESEPARC says the power of the informal should not be underestimated as it plays a significant role in stimulating the growth of the micro small and medium enterprises (MSME) sector. “Informal economic activities have strong linkages with the MSME sector as a large number of these small businesses directly or indirectly depend on informal value chains for supply of skills and input raw materials. People in the MSME sector are also instrumental in the economy as they are actively involved in purchasing goods and services in retail outlets. Street vendors and hawkers for instance, play roles in sectors such as the micro-lending sector as they access loans from lending institutions such as FINCORP. “When people earn an income through informal trade, they still buy food in formal supermarkets, they buy some of their clothes and household goods from the formal retail shops, they too connect to the formal utilities such as water and electricity, and they use form financial services such as Mobile Money/eMali to receive, send, or save money. The money spent in the informal economy will, one way or the other, make it to the formal economy to circulate and create value” states ESERPARC.

INFORMAL SECTOR PROVIDES 90 000 PEOPLE WITH EMPLOYMENT

The Micro Small and Medium Enterprises (MSME) sector in the country provides employment to more than 92,643 people and also generates a monthly turnover well over E2.8 billion.

A FinScope Survey conducted in 2017 observed that out of 68,536 MSMEs in the Eswatini, only 25% are registered in the formal economy.  That means a majority (75%) of MSMEs in Eswatini operate in the informal economy. Nevertheless, it is therefore not surprising that an equivalent of more than a third of Eswatini’s economy circulates in the informal sector. ESEPARC as a result believes that government must find a way of assisting and bailing out the MSME sector in the COVID-19 pandemic. A breakdown of the people employed in the shadow economy shows that they are predominantly women, who are not entrepreneurs out of choice but mostly because of survival which means that this is their only source of income.

Critics of the informal sector do argue that if the sector continues to grow rapidly this will eventually present government with problems as they will not be able to drive development initiatives, through the loss of tax as informal business do not pay tax. ESEPARC believes government in that regard should come up with ways of promoting and enticing informal traders to register their business so that government can also benefit as it would widen the tax pool. “Eswatini has to formulate its own policy direction to channel shadow economic activities into the formal economy. However, the idea of a completely formal economy where all business activities/transactions are registered is a utopian and impractical dream. There simply isn’t enough government time and resources to monitor all economic activities. Nevertheless, the country has to invest resources to understand the dynamics of the shadow economy and its contribution to the formal economy” ESEPARC observes.


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