Data from Kampala shed new light on informal workers
KAMPALA, Uganda — A report set for release later this year shines a spotlight on this city’s vast informal workforce, and offers recommendations that may resonate in many rapidly growing cities of the developing world.
The study by the World Bank looks at how local governments that make up Greater Kampala, an area of 4 million people, can better enable economic development and job growth. The findings have been reported in local media and were discussed last month at a high-level forum on economic growth. (A presentation related to the report is available here.)
As part of the study, the Bank partnered with the Uganda Bureau of Statistics to carry out a detailed survey of informal business owners in the city. The data paint a picture of an employment sector that is crucial to the local economy yet poorly understood by policy makers.
The region’s informal sector consists mostly of street vendors and shopkeepers, who make up more than half of the city’s employment base. The report says this group is not primarily motivated by a desire to dodge taxes or regulations. Nor are they best looked at as entrepreneurs ready and able to grow businesses. Rather, most turn to street trading because they have no other choice.
“Greater Kampala’s informal sector is largely a by-product of poverty and a lack of accessible formal employment,” it says.
Among the study’s other findings about people and businesses in Kampala’s informal sector:
- They’re young: 43 percent of business owners in the informal sector and more than half of their employees are under the age of 29.
- Many are women: 66 percent of business owners and most of the people they employ are women.
- Location matters: 84 percent of informal businesses sell to customers located within a 30-minute walk.
- They’re not big job creators: Only 3 percent of firms employ more than five people, and only 18 percent of firms have potential to expand. By and large, the sector is dominated by people who are self-employed.
- They’re not a good target for taxation: Most businesses are too small to owe business income tax and are unlikely to grow to that level.
The Kampala data track with other macro-level assessments of informal work.
The International Labour Organization (ILO) estimates informal work makes up 72 percent of total employment in sub-Saharan Africa.
In June, Ghada Abdel Tawab, a programme officer of the Ford Foundation, wrote on the foundation’s blog that “informal is the new normal”. Across the Global South, she said, between 40 and 60 percent of gross domestic product is generated by the informal economy. This calls for economic policies that include the voices of these workers in the planning process, she said. (Disclosure: The Ford Foundation is a funder of Citiscope.)
Emma Wadie Hobson, an urban specialist at the World Bank, told Citiscope that having more detailed data to work with can help cities make better decisions. “Increased data on the informal sector in African cities leads to a more nuanced understanding of the sector,” she said, “which in turn leads to a more sophisticated policy response from cities”.
For the Kampala area, the report offers a few suggestions. For example, it discourages trying to “formalize” informal workers as a way to raise local tax revenues. Rather, it suggests a need to create more work in high-productivity sectors such as manufacturing, and to offer training to move informal workers into these jobs.
“Given most informal firms’ low revenue, formalization is unlikely to contribute to local government revenue,” the report says. “Rather, policies aimed at encouraging growth and formalization or worker mobility to formal productive sectors will be the most successful.”
The report also cautions against forced relocations of informal workers. “Location is critical for informal firms,” the report says. Moving informal workers away from their normal places of business “may have little effect other than contributing to increased poverty.”
The report is called “Enhancing Economic Development and Job Creation in Greater Kampala”. In addition to informal labour, the study looks at other ways Uganda’s capital region can enable business growth, including improving transport, clarifying land tenure rules, upgrading reliability of the electricity network and boosting affordable housing.
The Kampala study is a follow up to a World Bank report released in February, “Africa Cities: Opening Doors to the World”, That study said that African cities were “crowded, disconnected and thus costly”.
“This means that despite their impressive population growth, African cities are yet to reap the economic benefits of urbanization,” Wadie Hobson said.
“However, sharing similar challenges also means there is a great deal of benefits from cities across the continent working together and learning for each other’s experience.”