Study Says Africa's 'Gray' Economy Helps Fight Poverty

from the Voice of America

By Peter Heinlein

The African Union has been presented with startling new statistics on the extent and importance of the informal, or gray, economy in alleviating poverty and boosting economic growth. From AU headquarters in Addis Ababa, VOA's Peter Heinlein reports the informal sector makes up the bulk of all economic activity in some African countries.

In much of Africa, the informal, or gray economy that escapes tax collectors and government regulators, is the hidden dynamic driving economic growth. That's the conclusion of a study presented at an African Union Labor and Social Affairs Commission session this week.

The gray economy is often talked about in whispers, partly because it is technically illegal, or at best semi-legal.

But statistics presented this week indicate that in countries such as Ethiopia and Cameroon, 90 percent of all non-farm jobs are in the gray sector. Figures suggest that most young people in African countries south of the Sahara initially enter the work force informally.

AU Social Affairs Commissioner Bience Gawanas says it is time to accept that the informal economy is a significant force in fighting poverty in countries where government overregulation forces economic activity underground.

"That part of the economy has always played second fiddle. It has always played the kind of stepdaughter of the formal economy. We must recognize that sector as having potential of poverty alleviation," Gawanas said.

A study concludes that the majority of informal sector workers remain poor, unprotected by labor laws, uncovered by social security schemes, and underserved by formal education systems.

Commissioner Gawanas noted that across Africa, women are much more likely to be engaged in informal sector work. More than four out of five women are informally employed, as compared to about two-thirds of men. She says bringing the gray economy out of the shadows is the modern day equivalent of the move a few decades ago to recognize the value of women's work.

"It's like formally many, many years ago, the work women did in the household wasn't ever regarded as work. There was no value attached to it, but today because of the battles that were fought and won, there is at least a value attached to women's work. And that is the same value we are fighting for in terms of the informal economy," she said.

Recent studies from seven African countries suggest the informal economy is a significant factor throughout the continent. South Africa's informal sector was the smallest, making up 30 percent of the Gross National Income, while in Benin, Cameroon, Senegal, Tanzania and Zimbabwe, the figure was above 60 percent.

Azad Jeetun, secretary-general of the Pan African Employers Confederation, says government overregulation is preventing the formation of small business that could create the formal sector jobs needed for economic growth.

"Many enterprises become informal because of the cost of doing business, the cost of obtaining a permit is very high. The time it requires to get a permit is very high, and there are so many administrative bottlenecks, and therefore it becomes quite difficult to operate in the formal sector, so they go to work in the informal economy. So what is important here is that we have to simplify the procedures for enterprises to obtain licenses and permits to operate. We have to simplify the procedures for taxation," she said.