The Place of the Informal Sector and Development

The 1972 ILO report of on the Kenya unemployment problem dichotomized the situation-formal vis-a-vis informal - in its findings. It was one of the most influential proponent of the dualist theory of formal/informal for it had a big sector in development. According to the ILO, informal activities are a way of doing things that are characterized by:

(i) ease of entry;
(ii) reliance on indigenous resources;
(iii) family ownership of enterprises;
(iv) small scale of operation;
(v) skills acquired outside the formal school system;
(vi) unregulated and competitive markets;
(vii) labour intensive and adopted technology (ILO 1972:23-6)

The ILO report on Kenya was published when the Nairobi City Council, was clashing with outdoor barbers as part of its campaign against people operating businesses in the city area without official licenses.

As it will be described later, the jua kali businessmen thrive in Kenya inspite of the fact that the government is always against them and that they are frequently harassed by the police. For instance, in 1970, the Nairobi City Council destroyed 7,000 unauthorized houses as part of its opposition to the informal business (Werlin 1974). The ILO report emphasized that informal business could be a basis for development, inspite of its dualism, breaking away from the earlier studies and contentions. Perhaps it was Hart (1973), who used the concepts of informal/formal in a way we know today. He emphasized that there are so many and different activities which the so called “informal” labour force can perform in relation to the socio-economic situation in which they find themselves.

Nevertheless criticisms have been raised against the concept of informal sector and how it can play a positive role in the struggle for development. It has also been criticised on the ground that it cannot be used for analytical purposes. Perhaps most critics of the terminology are the radical theorists. These are not represented by one single work or flow of ideas but a variety of them. Sinclair (1978) groups them into three categories aggregation, linkages and dynamics.

Those who want uniformity in the informal business, are disappointed with its nature because they can not categorize its various activities as discussed and illustrated in section one of this paper. They find it difficult to apply statistical analytical tools to understand this sector better. Writing about this problem Bienefeld and Godfrey (1975:8) say:

... the so called informal sector includes a large variety of people and activities situated very differently in relation to each of the issues (market power and degree of domination by larger units). It is therefore, essential that the sector under discussion be substantially significant and that each can be defined in a way which is statistically useful.

For them, the solution lies in grouping the business into three categories namely: activities which will produce tradeable commodities; activities which will produce services connected with distribution and finance and finally activities which are service oriented, (Bienefeld and Godfrey 1975:8).

As discussed later in this lecture, when we analyze different activities that women are engaged in, most of them would fall under category three above. Categories one and two are oriented towards the market economy which many of the women in Tanzania would not qualify to enter due to two main reasons: inadequate start-up capital for business and inherent socio-cultural factors which work against them.

Some scholars have questioned whether business conducted informally can be called a sector at all! (Elkan 1976:693). The ILO team (1976) studying the informal sector in Sudan concluded that:

... our understanding of the informal sector would be enhanced if we viewed it as a heterogeneous multidimensional or multilayered phenomenon.

The Sudan ILO study team found the informal sector to be “heterogenous” and “complex”. Some other researchers would have expected the ILO report on Sudan to use the terminology in plural form rather than singular (Sinclair 1987:84).

The complexity of informal business activities has led some scholars to suggest that it should be studied under “micro-economics. “That approach may be desirable since the business is part of the household economy. At the same time, however, emphasis on the economic dimension of informal activities may, in its extreme, lead to the neglect of its social character. This lecture, seeks to fill that gap.

In trying to solve the problem of the complexity and dualist nature of informal sector, Breman (1976:1875), says that this type of business is part of the Third World economic landscape. He further says:

... instead of applying the concepts of formal/informal, we should distinguish in terms of different articulated production relations which can be found within economic system of Third World countries.

Bromely (1978) also criticised the dualistic approach to the understanding of the informal sector. He saw some logical inconsistency in dichotomizing the two sectors as formal/informal, for in doing so certain variables which can be used to categorize the economic activities of these two sectors have to be determined. Yet there has been no multivariate analysis which has been adopted to classify them. Different studies use different criteria in their definitions of the formal and informal sectors.

Connolly (1985) also argues that many studies have associated this area of study with urban studies and unemployment problems among the poor. This kind of categorization, he suggests, distorts the meaning of the concept since there are people in the rural areas who participate in informal businesses as artisans, peasant farmers and petty traders. Connolly’s observation is apt for this categorization would have excluded many women who participate in informal business activities in the rural areas of Tanzania (Omari 1989).

Also relating the concept with “poor urban labour” alone is not realistic for there are people who participate in the informal business sector but are not poor at all according to the local standards of poverty. Many of the urban poor work in the government departments and institutions or parastatals and receive minimum wage. As it will be elaborated later in this lecture, some of the people in the informal business get more money than middle cadre employees of government departments. Thus to associate informal business with the poor alone does not give the appropriate meaning.

The dichotomization of the analysis of the informal/formal sectors has resulted into the development of so many terminologies, some of which have negative meanings. In Tanzania, two major studies have been carried out in relation to the dualistic nature of the sector. One is that done by Bienefeld (1974). In that survey conducted in Dar es Salaam, in which he related labour migration to informal business, one of his general conclusions is that the “sector” was not a last resort for those who moved into the city but was a gateway to the formal sector. Furthermore, Bienefeld suggested that the sector has to be split according to occupation if a thorough study is to be made.

This approach would be problematic especially if we consider the women who may not necessarily follow “one occupation” in their informal business.

The work by Maliyamkono and Bagachwa (1990) clearly shows this dichotomy. They borrowed the term “second economy” which Western theorists use to show that this sector is second and does not belong to the official or state regulated sector. The term “second economy” is regarded as synonymous with clandestine economy, underground economy, black market and so on. As we said earlier, these terminologies were developed by Western researchers and other theorists in their search for a better terminology which could express what they believe informal activities are.

Another criticisms against the study of the informal sector has been in the area of linkages. Infact, the criticisms are based on the ILO (1972) Kenya report which pointed out that the “informal” sector is part of the urban economy which must be linked to other parts of the “formal” economy (ILO 1972:225,259).

Leys (1974:19-20), however, raised his fears that there is a great possibility that the smaller units in the informal sector will be absorbed by bigger “units” in the formal sector - leading to exploitation and bankruptcy. In other words, if it could be done, the suggestion to link the “informal” sector to the “formal” sector is one way of killing the former. However, since there is no possibility that the formal sector in the Third World will be able to employ all the people or satisfy the needs of the people through monthly salaries and other income obtained through such employment, the linkage would not work as suggested by the ILO report. Instead it may work against those who are involved in the informal business.

In his study of the petty producers in Dakar West Africa, Gerry (1974) found that the informal labour had been subordinated to capital through unequal exchange in the market. Similarly, Obbo (1982:124), argues that if the government supports the informal sector, it would create more hardship to those who are involved because they would have already created working opportunities among themselves after failing to get jobs in the formal sector, which is controlled by the state. Finally, another criticism has been the assumption that there is a relationship between residential area and the type of sector people are involved in. This has, in turn, led to the erroneous conclusion that people who live in the squatter settlements are involved in the informal sector while those who live in low density areas are involved in the formal sector.

The above analysis is not correct especially if one takes into consideration Tanzanias expirience. In Tanzania, for example, there are so many poor people who work in the informal sector and live in the squatter and shanty-towns. Moreover, one does not have to visit distant areas to realize that people who live in low density areas of Dar es Salaam are also involved in the informal business sector. For example: who are the urban “diary farmers” or “the urban pastoralists” selling milk in Dar es Salaam? Who are the owners of big poultry farms in the big urban centres of Tanzania? Who are the owners of big kiosks and roadside businesses in urban areas? Most of them are civil servants who live in low density areas and are engaged in the formal economy. Therefore, in the specific context of Tanzania it is a mistake to link residence with formal or informal sector activities.

Bromely and Gerry (1979) have suggested that to get out of the confusion generated by dichotomizing the sectors, it is better to adopt the concept of “continuum” which embraces any kind of work which offers “income opportunities.” These include both working for others or for self; productive or unproductive, legal or illegal activities. However, any work that gives “income opportunities” must be either “stable wage work” or “true self employment.”

The conceptual confusion is more pronounced when it is looked at negatively or associated with unacceptable social or economic activities and behaviours. For example, when prostitution is classified as an informal business or when the whole operation of small business is associated with magendo, parallel market or ulanguzi as it was in the early 1980s, then the whole concept loses its meaning. As shown in the previous section, informal sector activities have acquired many negative names and meanings. For example, Green (1981) would call it a “dominant sub-mode of production” while others look at it as an alternative to state controlled economy or relate it to the breakdown of state machinery (Maliyamkono and Bagachwa 1990: Tripp 1986).

Although Tripp (1986) says that the literature on the informal sector is scanty, works such as those by Bienefield (1974) on “self-employed” in urban Tanzania, Stren’s (1975) study on squatting and housing policy in Tanzania and others on rural-urban migration, could serve as a starting point. Also various reports on women’s activities in Tanzania are available in numerous offices and development support agencies. Of course, most of these reports are evaluative in nature and thus may not contribute significantly to theory building in respect of the informal sector.

While serious studies on the informal sector in Tanzania began in 1986, the Maliyamkono/Bagachwa (1990) publication should be recognized as a significant contribution to understanding the important role the informal sector has played in the wake of the collapse of the state controlled economy. Using information from the period of the economic crisis in the 1980s, during which time the informal sector almost controlled the state, the book shows a close relationship between the state and the informal sector. When the people did not get their consumer goods from the state economic institutions, the informal sector took over and provided the service. It is during this same period that women began to play a greater role in the informal sector, especially in the boarder regions where they crossed the boarders to buy and bring in essential goods.

This was the time, in the history of Tanzania, when the informal sector had a bad image for it was negatively associated with the parallel market business activities (ulanguzi, magendo). The government had to fight against this development since it abhored corruption and nepotism. The late Prime Minister, Edward Moringe Sokoine, was incharge of this operation which saw many people being charged under the Economic Sabotage Act of 1983.

Now that international institutions have shown interest in assisting the informal sector, there is a need for systematic studies on the relation between international capital and the informal sector in Tanzania. Since the prime objective of international capital is to develop the market economy, especially the so called “free market economy,” which seeks to shrink to the minimum the role of the state in social and economic policy, we need to know more about this intervention and its impact on the masses. This is extremely important because the informal sector is known to be dynamic and capable of adapting to changes in the society.