In spite of all the measures taken by the Government to bring about economic and social development, this development was not percolating down to the masses fast enough. Due to the pervasive effects of the globalizing economy, population growth and urban migration, the active labor force was growing at a much faster rate than the availability of jobs in the organized (formal) sector.
This state of affairs, according to ILO (1996), has driven people to undertake alternative income-generating activities enabling them to survive. Therefore informal sector serves to absorb the shocks of the economic crisis and has become a sort of refuge for the “excluded”. As stressed out by Toomel (2001) the informal sector plays a significant role in the economies of developing countries and holds great potential for poverty reduction. This is because the growing of poverty in developing countries is linked to the lack of productive, employment opportunities and the underdeveloped formal sector. In general the formal sector in developing countries employs a high proportion of the urban force.
The Informal Sector in Mozambique
The informal sector is a growing part of local and national economies. Although incomes are frequently low, collectively they are valuable. Informal economies can contribute directly to poverty reduction. It secures the livelihoods of a large proportion of the population. Mozambique Government sees the Informal Sector as one of the strategies to ease or alleviate poverty.
One of the most visible and important activities undertaken by Mozambican informal sector is street vending. Men and Women have sprung up on street corners everywhere in order to sell goods and services, and for commercial transactions. They sell fruits and vegetables, cigarettes, soft drinks, alcohol, common consumables, books, second hand clothing, electrical equipment, second hand goods and hardware. These informal activities have proved to increase the family income and in many cases it constitutes the only source of family income. 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. Special efforts and attention is given to small scale entrepreneurs and one of the main objectives of this strategy is to encourage income-generating activities amongst vulnerable groups.
The Mozambican experience shows that the informal sector has had a positive effect on economic growth. But to what extent is the question asked by many. It is clear that there is a lot of controversy associated with the rising of the informal sector. As Hansenne in Dhemba (1999) succinctly points out; “there are many different point of views from which one can observe the informal sector. It can be viewed in a positive way as a provider of employment and incomes to millions of people who would otherwise lack the means of survival. It can be viewed more negatively as a whole segment of society that escaped regulation and protection. It can be romanticized as a breeding ground of entrepreneurship, which could flourish, if only it was not encumbered with a network of unnecessary regulation and bureaucracy. It can be condemned as a vast sea of backwardness, poverty and unsanitary conditions. Or it can simply be ignored,”
Main Problems Faced by those in the Informal Sector
Those in the informal sector are faced with many problems. Here are some of the main ones, as they affect local government.
Infrastructure Issues
- Poor infrastructure affects street vendors and home-based workers differently. For street vendors, needed infrastructure includes formal markets and other street furniture such as benches and storage space. For home-based workers, poor infrastructure pertains to hard infrastructure services provided within the home such as water and electricity.
-
Crime and violence. This particularly affects street traders.
-
Lack of access to transport. Cost of urban transport has a negative affect on access to markets as well as access to product inputs. Both affect profit margins.
Resource Issues
-
Access to finance and banking. Micro-credit availability is crucial to the development of those in the informal economy. However, banking facilities that cater to small actors are often absent.
- Lack of training. Basic math and accounting skills, as well as business management skills, are key to all successful businesses, including those located in the informal economy.
Economic Issues
-
Lack of access to economies of scale. Many informal actors cannot afford to buy in bulk. They are thus forced to pay retail prices for their goods.
-
Demand factors. Structural issues such as low cash flow in many of the communities, small size of the community market and shortage of customer’s leads to low and irregular business cash flow.
- Poor productivity due to regulations, transport issues, etc.
- Thin profit margins relative to time invested and high running costs relative to turnover lead to difficulties with paying for supplies.
- Households engaged in informal activities often have difficulties in retaining working capital against urgent household demands for cash.
Conclusion
Despite all the controversy and constraints placed in the informal sector such as lack of capital, lack of tools and machinery, lack of premises to operate from, poor marketing facilities, inadequate skills, etc, the sector has developed. And the Mozambican Government helped by stimulating it and removing some of the barriers. Thus, one may conclude that the informal sector has a crucial influence on politics and economy of the country. 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.
BIBLIOGRAPHY
Dhemba, J (1999) “Informal Sector Development: A Strategy for Alleviating Urban Poverty in Zimbabwe” in the Journal of Social development in Africa, Vol. 14, n° 2
Economic and Social Commission for Asia and Pacific (1996) “The Role of the Informal Service Sector in Urban Poverty alleviation”, UN Publication
Gerxhani, K (1999) “Politico-Economic Institutions and the Informal Sector: A Spontaneous Free Market in Albania
Government of Mozambique (2001) “Action Plan for the Reduction of Absolute Poverty and the Promotion of Economic Growth (2001-2005)
Toomel, k (2000) “Empowering the Informal Sector”
DCM (2000) "Direct—Rio Commercial de Mozambique", DCM, Maputo.
FAO (1998) "Regional Market Integration and Cross-Border Trade for Improved Food Marketing and Food Security", AFMESA/FAO Workshop, Harare.
IFPRI (2000) "Achieving Urban Food and Nutrition Security in the Developing World", International Food Policy Research Institute, Washington.
UNDP a) (2000) "Mozambique: National Human Development Report 1999", UNDP, Maputo.
UNDP b) (2000) "Poverty Report 2000", United Nations Development Programme, New York.
