The informal sector in Africa is here to stay

Inclusive Economy04 Nov 2015Louise Fox

Are city governments ready for this challenge?

Productively employing Africa’s ‘youth bulge’ is an urgent urban development problem. Sub-Saharan Africa has the youngest population in the world. Currently over 200 million Africans are aged between 15 and 24 and the median person is 18 years old – 7 years younger than the median age in South Asia, the next youngest region.  While the majority of the population still live in rural areas, a combination of high fertility (even in urban areas) and rural-urban migration means that new workforce entrants – mostly youth – are looking to urban and peri-urban areas for employment. Are urban leaders ready for this?

Most of the discussion among urban leaders on this topic has focused on how to create more wage employment opportunities. While this is clearly important, today, most urban youth aged 25 and below are not able to get any kind of wage or salaried employment – either with a contract, an indication of formality or as casual labour. Even by age 33, only about a third of the urban labour force has any kind of wage job (see graph) and only 20% have a wage job with a contract. The segment occupying the largest category of the urban labour force is the household enterprise sector.

Household enterprises are unincorporated non-farm businesses owned and operated by households. Most are pure self-employment, with owners accounting for most of the employment in the sector. Very few household enterprises grow in employment – in Africa only 10% have hired someone outside of the family. Employment in the sector primarily grows through the creation of new enterprises.

Although the exceptionally high economic growth in Africa over the last decade has brought even faster growth in private-sector non-farm wage jobs in many countries, the rapidly growing labour force means that the wage sector does not generate enough new non-farm wage employment to absorb new workforce entrants. Around the world, high labour force growth has meant a growing urban informal economy. Africa will be no different in this respect.

Yet African cities are unprepared for the expected rapid growth. Planning does not allocate workspace or market space to these entrepreneurs. Bus depots do not include enough space for foot traffic and informal sector merchants. Clustering is not encouraged, even though in some business (such as repairs) clustering is beneficial. New ‘steel and glass’ central business districts forbid mobile traders, despite the high level of foot traffic in these areas. Police generally harass traders rather than protect them. All these actions lead to more urban poverty, not less.

Youth are fighting back by forming organizations to lobby urban governments for the right to work and make money. Motorcycle taxi and trader organizations are springing up in cities to resist police harassment and demand space for motorcycle taxis to gather. Waste pickers are organizing for their right to participate in urban recycling and solid waste management. In addition, mobile money platforms are reducing the cash risk that most household enterprises face.

Urban management and local economic development are huge challenges, but ignoring or fighting informality is not the way to address these issue. City governments need to accept that the urban informal economy is a critical part of local economic development. Household enterprises need to be included in planning processes, cities need to invest in infrastructure for the sector, and governments need to establish transparent zoning and regulations that support sector growth and stability. If this approach is not adopted, poverty will only grow as Africa’s cities expand and urban youth will remain excluded from development.


This article was originally published on the INCLUDE website on 19 October 2015.