Policy pathways for addressing informality

By Juan R. de Laiglesia, Senior Economist, OECD Development Centre

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Vendor selling fresh vegetables in Galle, Sri Lanka

The prevailing international discourse on informality has shifted. The conceptual “discovery” of the informal sector by the ILO’s Kenya mission in 1972 noted not only its scale but also that it was “…economically efficient and profit-making…” Today, the view that informality is a drag on productivity growth and progress has gained ground in the international community and is consistent with the recommendation that the informal economy should be formalised.

One contention is that balanced development and policy action that lifts the financial, technological, institutional and human capital constraints to productivity will also enable higher productivity in informal firms and thereby formalisation. A growth-inducing productivity agenda is a necessity, but growth alone is not enough to reduce informality.
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La promesse du « made in Africa » ne sera tenue qu’en misant sur les entrepreneurs locaux

Par Victor Harison, commissaire aux affaires économiques de la Commission de l’UA. et Mario Pezzini est directeur du Centre de développement de l’OCDE et conseiller spécial auprès du secrétaire général de l’OCDE chargé du développement.


The topic discussed here builds on the success of the 2017 Africa Forum


Les politiques et stratégies industrielles joueront certes un rôle essentiel, mais elles doivent être repensées profondément. D’abord parce que les efforts d’industrialisation après les indépendances n’ont remporté qu’un succès limité, mais aussi parce que les technologies de production ont subi une révolution, qui n’est pas seulement numérique. L’économie mondiale a radicalement changé, et l’Afrique aussi.
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Biases in entrepreneurship and industrial policy in Africa

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By Wim Naudé, Professor in Business and Entrepreneurship in Emerging Markets, Maastricht University, Dean of the Maastricht School of Management, The Netherlands, and Research Fellow at the IZA Institute for Labor Economics, Bonn, Germany


Learn more about this timely topic at the upcoming
17th International Economic Forum on Africa
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shutterstock_415121221.jpgAfrica has failed to industrialise. At the same time, millions of young people are seeking jobs. Put one-and-one together and the answer seems to be that if these labour market entrants become entrepreneurs in industry then they can in one stroke create jobs and help Africa industrialise. Yet, optimising the nexus between entrepreneurship and industrialisation requires overcoming some vexing policy biases. These can be categorised as biases of over-estimation and biases of under-estimation.

First, industrialisation’s job-creation potential is often over-estimated. The world is in a Fourth Industrial Revolution (4IR) driven by technologies such as the Internet of Things, automation, additive manufacturing and big data analytics (see Naudé, 2017). These technologies are causing the loss of low-skilled routine jobs, of which Africa has a disproportionate share. It’s estimated that up to 66% of all jobs in developing countries are at risk. Relatively poor African countries such as Ethiopia are at a particular risk of having around 44% of current jobs susceptible to automation. The 4IR is furthermore leading to a ‘re-shoring’ of manufacturing back to advanced economies. This is to the detriment of low-wage labor in African and other developing countries. As Culey (2012) points out: How important is low-cost labor when you don’t actually need labor?
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Youth Employment and Inclusive Growth: Part of the same coin in Cambodia

By Emmanuel Asomba, Development Policy Researcher, and Ji-Yeun Rim, Youth Inclusion Project Co-ordinator, OECD Development Centre

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Courtesy ©UNV Cambodia May 31, 2016

Some countries in the South Asia and Pacific region are experiencing a rapid increase in the number of working-age people. This will create some opportunities as it will contribute to reducing the dependency ratio and increasing the possibilities for social cohesion policies. But if these people fail to find decent jobs, then per capita income may slow down. With less income, people face lower living standards and difficulties accumulating capital and assets. For young people, these changes potentially bring significant challenges. Take, for example, youth in Cambodia.

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The Informal Economy in African Cities: Key to Inclusive and Sustainable Urban Development

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By Martha Alter Chen, Harvard University and WIEGO Network


Learn more about this timely topic at the upcoming
Global Forum on Development on 5 April 2017


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Market porters in Accra, Ghana
Photo Credit: Jonathan Torgovnik/Getty Images Reportage

The informal economy consists of economic activities and units that are not registered with the state and workers who do not receive social protection through their work, both wage-employed and self-employed. The reality of the informal economy in Africa cannot be denied. In fact, informal employment accounts for two-thirds (66%) of non-agricultural employment in Sub-Saharan Africa. But, variation within the region is significant. Informal employment accounts for a smaller share of non-agricultural employment in southern Africa (33% in South Africa and 44% in Namibia) relative to countries in other sub-regions (82% in Mali and 76% in Tanzania) (Vanek et al 2014). Informal employment is a greater source of non-agricultural employment for women (74%) than for men (61%) in the region overall. In seven cities in West Africa with data, informal employment comprises between 76% (Niamey) and 83% (Lomé) of employment. In all seven cities, proportionally more women than men are in informal employment (Herrera et al 2012).
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Informal is normal in Latin America: taxes matter

By Juan Carlos Benítez, Economist at the Latin American and Caribbean Unit, and Angel Melguizo, Head of the Latin American and Caribbean Unit, at the Organisation for Economic Co-operation and Development (OECD)

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Informality equals vulnerability. In emerging economies and particularly in Latin America, informal is normal. On average, 55% of workers in the region did not contribute to pension or healthcare programmes in 2013. Although informality rates vary significantly across countries (Figure 1), a common feature of informality is its large prevalence amongst the poor and low-middle income workers (e.g. Jutting and De Laiglesia, 2009). On average, 85% and 73% of households in the lowest earning quintiles do not have any member contributing to social security schemes. Furthermore, informality is “one of the most striking differences, within the middle sectors, between the vulnerable population and the consolidated middle class” (Lustig and Melguizo, 2015).

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Habitat III decisions crucial for the future of Africa’s cities

By Greg Foster, Area Vice-President, Habitat for Humanity, Europe, Middle East and Africa

habitat-3Africa will have some of the fastest growing cities in the world over the next 50 years. Unless something is done, and done soon, millions more will flood into unplanned cities and live in already overcrowded informal settlements and slums. It would appear as if the United Nation’s Habitat III conference, which happens every 20 years, and New Urban Agenda couldn’t come at a better time.

Habitat III’s goals sound simple — develop well-planned and sustainable cities, eradicate poverty and reach full employment, and respect human rights. Being able to leverage the key role of cities and human settlements as drivers of sustainable development in an increasingly urbanised world, the meeting will seek political commitment to promote and realise sustainable urban development. This could be a watershed moment for Africa’s cities. But critical challenges stand in the way of making Africa’s cities economic powerhouses, centres for exchanging ideas, and places that meld cultures and peoples. Three actions are needed. Continue reading