This paper examines the characteristics and socioeconomic importance of the informal sector in Africa with particular emphasis on Guinea Republic. Specifically, it aims at identifying the main economic activities and how these create a positive financial force for local development. To attain this goal, we carried out a comprehensive review of published literature obtained through Research gate, Web of science, Google scholar and Mendeley. It was observed that though the informal sector drags behind developmental processes, it subsidizes unemployment for many urban poor and rural communities. The sector is also very prominent and constitutes a major source of financial returns for the state through taxes. The contribution to the developmental process through this sector can be achieved if appropriate management strategies are adequately implemented. This will also boost and increase government’s level of tax collections and enhance poverty alleviation in poor urban and rural communities.
In South Asia, sub-Saharan Africa, Latin America and Small Island States (emerging economies), the rise in income inequality during the past three decades has been unprecedented [
In African countries, this poverty trap has seen the rise of a new sector known as the informal sector. The informal sector refers to privately owned small- and medium-scale enterprises that are officially registered to undertake business activities [
In sub-Saharan Africa the informal sector includes a wide and diverse range of professions working in diverse economic activities (trade, crafts, services, agriculture, and livestock). Several studies [
In recent years, many African countries have experienced a growth revival, but this has not necessarily generated decent jobs hence unemployment still remains high especially among youths. Many African governments pay little attention to the role of the informal sector in fostering growth and job creation.
Our study seeks to add to the existing knowledge by examining the socioeconomic importance of the informal sector in Africa particularly in the Republic of Guinea. This will help create the possibility of building a broad knowledge on the informal sector levels of development and related socioeconomic dimensions in Guinea. It could further provide a basis for the sustainable management, adequate planning, poverty alleviation, and economic growth of the sector elsewhere in Africa.
The study is divided into two sections with the first looking at the characteristics and socioeconomic importance of the informal sector in Africa. In the second section, we identify the main economic activities and how these create a positive financial force for local development in the Republic of Guinea.
In Africa, this sector was first described in 1970s and in 1990s the International Labour Organization (ILO) expanded the description to include private unincorporated enterprises. These enterprises produced at least some of their goods and services for sale or barter, had less than 5 paid employees, are not registered, engaged in non-agricultural, professional and technical services [
According to [
The informal sector contributes about 55% of Sub-Saharan Africa’s Gross Domestic Product (GDP) and 80% of the labour force [
This informal economy is often associated with increasing poverty and weak employment conditions and where, middle-income countries have smaller informal sectors but higher unemployment rates than the poorest countries. Therefore, by investing through informal channels, African entrepreneurs strive to reduce costs related to wages, retirement pensions and other social benefits [
That notwithstanding, the informal sector plays an important role as it facilitates the successful adjustment to globalization and structural reforms. It is also thought to be a survival mechanism for a vast majority of rural and urban poor as well as a means to unlock individual entrepreneurial skills [
Several studies [
The informal sector represents the dominant share of many sectors across the continent, especially in manufacturing, commerce, finance and mining. Trade- related activities such as street vending, is the most common form of activity in Africa’s informal sector. This informal sector provides between 50% - 75% of employment and 72% of non-agricultural employment with the exclusion of about 78% of the South Africa population [
The informal economy is considered as the real driving force behind the Angolan economy and it offered a large majority of poor families during the post conflict period essential outlets for their local products, such as fish, and agricultural products. An analysis of income and expenditure in Angola further revealed that, 72% of households have at least one member working in the informal economy (including 78% in Luanda, the capital), and that there are twice as many women as men in this type of activity. The self-employed accounts for over 82% of the sector’s workers compared to 18% for micro small enterprises owner/managers. Most of the women worked in food processing, clothe-making, and trading sectors in order to meet the basic needs of their families [
According to [
The origins of the informal sector in Guinea are unknown but it is important to clarify that the sector has taken advantage of the socioeconomic context and policy. This contextual political framework has prevailed for almost half a century during successive socialist regimes of the post-independence era. It is estimated that at least two-thirds of the economically active population are employed in the informal sector [
Country | Proportion of Informal Sector employment | Proportion of employment in companies | Proportion of employment in administration |
---|---|---|---|
South Africa | 31% (all sector) | 69% | - |
Angola | 66% (urban sector) | 24% | 10% |
Benin | 95% | 5% (administration included) | |
Cameroon | 90.4% (all sectors) | 4.7% | 4.9% |
Ethiopia | 90% (all sectors) | 6.2% | 2.6% |
Senegal (Dakar) | 77.5% (urban sector) | 16.8% | 5.7% |
In Guinea, the informal sector has four main characteristics which include a significant weight on the economy, a presence in the modern (formal) sector, a link with the public sector, and an internal dynamism in a difficult economic environment. Hence, with the absence of a non-permanent salary, lack of access to credit and formal wage labour market, the informal sector provides practical employment solutions. The real challenge to the government in Guinea is to provide employment for the majority of its citizens particularly the poor, who have very limited kills to operate in the formal wage labour market. In this respect, the informal sector potentially holds a key to the solution of this problem. This is especially important in the context of prevailing public sector retrenchment imposed by the necessities of policy reforms and structural adjustment programs.
The Guinean economy has large informal sectors and where over 20% of informal self-employed persons receive very high incomes than formal sector workers. About 96% of Guinea’s workforce is employed in the informal sector such as agriculture, livestock, fishing, handicrafts, trade, and local industry. Poor households are therefore able to derive a higher share of their revenue from independent micro-enterprises, located in the informal sector than from other activities [
There are both individual and environmental constraints to informal sector development in Guinea. People operating in the informal sector, regardless of gender, are limited by their lower level of education as compared to the general population, particularly those operating in the formal sector. At the environmental level, such development is constrained by poor infrastructure in transportation and communication. This, in turn, restricts the expansion of enterprises that may prove locally profitable. Furthermore, as a result of a limited access to formal financial services, these enterprises cannot borrow for medium to long-term projects.
Similarly, small enterprises in the form of small industries which are more capital-intensive and headed by men also constitute part of the informal sector in Guinea. Therefore, women may be facing some discrimination in the credit market. Such discriminations in combination with the low level of education
Number | Fiscal years | Number of taxpayers | Emissions (GNF) | Recoveries (GNF) | Recovery rate (%) |
---|---|---|---|---|---|
1 | 2008 | 440 | 85,250,000 | 41,249,200 | 48.38 |
2 | 2009 | 305 | 61,520,000 | 40,991,000 | 66.63 |
3 | 2010 | 150 | 43,800,000 | 33,850,000 | 77.28 |
Total | - | 190,570,000 | 116,090,200 | 60.91 |
make it hard for womenfolk in Guinea to start-off small businesses in the non- commercial sector [
Given the important role that the informal sector plays in providing livelihoods for the poorer segments of the population, it is crucial that any poverty alleviation strategy address these constraints to the sector’s development. In particular, consideration must be given to the establishment of a proper regulatory framework that encourages the development of this sector. As Guinea strives to maintain a profitable informal sector for the state and business owners, the identified sources of constraints must be improved and adequately overhauled. Hence, identifying the sources of constraints and factors that affect it may provide useful information for the formulation of economic policies likely to improve on the socioeconomic roles of the informal sector. More so, identifying the factors that may improve profitability to both the state and enterprise owners is of major significance because by using information derived from such studies, small- scale businesses may become more sustainable and productive.
Bringing forth several good questions that can be answered is difficult due to the absence of scientific literatures about the study area. Areas for further research could examine how the informal sector contributes to the impoverishment of the state by the non-payment of taxes and disinvestment in the modern sector because of the unfair competition from informal firms. Similarly, field work could be used to evaluate the informal sector and how its quantitative aspects in employment, income distribution, value creation and production of accessible goods and services mainstream the Guinean economy.
In this study, we tried to examine the characteristics and socioeconomic importance of the informal sector in Africa with particular emphasis on Guinea Republic. We observed that the informal sector offers significant opportunities for poverty alleviation and sustainable development if the necessary infrastructure and support are provided and facilitated. The individual and environmental constraints to the informal sector development in Guinea are a continuous process requiring constant monitoring and evaluation. The role of socioeconomic causes such as lack of access to credit, lower level of education as compared to those in the formal sector and government policies require more attention. At the environmental level, development is constrained by poor infrastructure in transportation and communication which restricts the expansion of enterprises that may prove locally profitable. Thus understanding their functioning and state will help define, develop and implement adequate government policies.
Diallo, A., Yin, Z.H. and Beckline, M. (2017) Assessing the Socioeconomic Impacts of the Informal Sector in Guinea, West Africa. Open Access Library Journal, 4: e3290. http://dx.doi.org/10.4236/oalib.1103290