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The Role of the Informal Sector in the National Economy.

Extracts from this essay...

Introduction

UNIVERSITY OF SOUTH AFRICA The Role of the Informal Sector in the National Economy MOZAMBIQUE Submitted by: Augusto Rogério Paulo Ferro Maputo, November 28, 2003 Table of Contents The Role of the Informal Sector in the National Economy 3 Introduction 3 Mozambique Social Economic Situation 4 Main Problems Faced by those in the Informal Sector 6 Conclusion 7 BIBLIOGRAPHY 9 The Role of the Informal Sector in the National Economy Introduction In an attempt to respond to the topic this essay will discuss the role of the informal sector in the Mozambican economy. For a better understanding of the topic some important definitions shall be given. For the purpose of this essay, the concept of economy can be defined as the science that deals with production and consumption of goods and services, the circulation of wealth and the redistribution of income. On the other hand, the concept of the informal sector was introduced into international usage in 1972 by the International Labor Organization (ILO) in its Kenya Mission Report. Though there is no consensus on the definition of the informal sector, coupled with the fact that in Mozambique the concept varies with the different periods of history, the following are the common characteristics of this sector as defined by ILO: (a) ease of entry; (b) reliance on indigenous resources; (c)

Middle

It ensures the survival of the family and curbs the effects of poverty generated by the inability of the formal sector to create jobs. Brand in Dhemba (1999) goes on to say that informal operators have the flexibility to supply goods and services for low-income groups at affordable prices. Maliyamkomo and Bagachwa in Dhemba (1999) defend that informal sector is relatively more labor-intensive, more efficient and more profitable as it realizes savings on skilled labor and foreign exchange. This has the effect of reducing vulnerability to external shocks unlike the formal sector, which is very susceptible to such influences. Many authors agree that governments need an integrated approach to the informal sector as a component of economic growth with enormous potential for poverty reduction. It was in this line while being aware of the potential of this sector that the Mozambican Government adopted an Action Plan for the Reduction of Absolute Poverty (2001-2005). This strategy to reduce poverty and fostering economic growth is based on the assumption that private initiative by citizens, family firms and other institutions are the engine of development. Here, the concept of private initiative is used in its broadest sense to include individual producers of goods and services, micro-economic units of great importance in the areas of agriculture, forestry and animal husbandry, artisans and urban informal activities.

Conclusion

It provides families with employment, as well as supplementary income, in the absence of other possibilities. According to Gerxhani (1999) people have learned how to create more jobs and more wealth in some areas than was offered them by the state. The social problems are enormous, but it's a common thought that the economic situation would be infinitely worse without the informal sector. The increasing urbanization of developing African countries has not been accompanied by growth of employment (IFPRI 2000). Most people, particularly women, are job insecure or work in the informal sector. Survival strategies of the urban poor are not being conveniently addressed by international development agencies, so in the Mozambican capital, as in many other cities of the continent, there is a fringe of very vulnerable populations who have to rely on international food aid systems. Yet, labor is poor people's greatest asset. Examples of organizations capable of creating sustainable opportunities for business and reliable income generation schemes are rare but worth to be mentioned. That's the case with the cooperatives in Maputo. Peri-urban agriculture practiced by them involves the production of crops and animals around the city. In a country with a very weak industrial sector and ruined or inexistent transportation systems, the development of the agricultural use of the urban and peri-urban land can be a solution not only to enhance food security of the urban poor, but also to ameliorate their self-esteem and hence give them dignity.

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