EMPLOYER PERSPECTIVES ON THE INFORMAL ECONOMY Frederick Muia Senior Adviser IOE

Definition Many facets, multitude of activities Influenced by specific national problems Individuals or organizations Operating fully or partly outside applicable laws on a sustained basis-outside the rules Characterised by failure to observe or comply with comercial laws governing trade, commerce, taxation, business registration, hygiene and product standards, weight and measures, occupational licencing, qualification requirements, employment laws Not equated with criminality

Scope of informality Informal enterprises-firms doing their business off the books by avoiding paying of taxes, under reporting revenues, producing informally by ignoring labour regulations, not declaring jobs, illegal immigrants Informal self employment: own account workers who do not declare income for taxation

Why we need to reduce the level of informality in the economy? With huge informality, we fail to maximise the productive contribution of the population Deficit in tax revenues Marginalisation of huge segments of society Source of internal conflicts Exclusion from the fundamental protective purpose of government regulation(food safety standards, wages, safety and health standards

Why Reduce informality Child labour, early exit from school Low productivity

Impact of Informality on business Threat to order Low incomes mean no consumers or investors Huge tax burden on minority of formal enterprises Pressures on employers to fund infrastructure Distorted markets with prices of goods and services lowly priced below those of compliant operations

Impact on business Fear of building supply chain linkages because brands are at risk of spoiling their reputation

Strategies to help transition from informal to formal Reducing barriers to formality Legal, economic and institutional reforms Macro-economic policies Investment in education, skills development World Bank Doing Business Reports – Make it easier to do business – Smart regulation-overegulation leads to informality – Es

Business Development Services – Marketing, access to loans (microfinance?) – Insurance, technology, basic management skills – Productivity, innovation, diversification, value addition – Property rights- Hernando de Soto work – Requisite environment to create SMEs – Labour market policies – Infrastructure development

Good Governance – Political instability, armed conflicts in Africa, Latin America and Asia have pushed people to informality

Role of Employers’ Organizations Advocacy Lobbying Influencing policy Information Productivity improvement training