Week 26: Expanding social protection to the uncovered informal sector workers in Africa

Unlocking the multiplier effect for expanding social protection to the uncovered informal sector workers in Africa through identity, organization and aggregation

What does it take for a street vendor to enroll in a formal social protection system?

A young man vending yams in Nigeria image source https://guardian.ng/opinion/youth-as-change-agents-in-transforming-food-systems/

Street vending across Africa is largely informal and is often characterized by running battles between city law enforcers and those trying to etch a living on the urban side walks and undesignated market places. Street vending is pervasive in the global south, almost like a culturalized phenomenom of southern urbanism. Yet it is still considered as a “spontaneous” “unorganized” “temporary” activity for which the administration should clamp down.

It is often a forgone assumption that the informal workers are willing and should rightfully have access to social protection but, being poor and earning low wages[1], are therefore not able to pay for social protection. 
This assumption is however refutable. 

Nairobi hawkers fleeing from city council source: https://canduh.wordpress.com/2015/07/07/790/

Firstly, informal enterprises are not necessarily peripheral. In many cases they are demand driven and are at the heart of market needs. They are also embedded in the formally recognized business market systems. In some cases street vending, which accounts for 15 – 25% of informal employment African cities[1], is critical in the value chain in delivering products to the customer as is the case of the Gala Sausage Roll in Nigeria[2] which is formally produced but sold exclusively through street vendors. The case is also true for multinational conglomerates such as tobacco companies where small groceries and street vendors constitute a larger percentage of their end market node for cigarette sticks. Simply put, informal workers are integral to the to the formal economies and contribute to the lines and dots that aggregate to the formal economic measures such as GDP. They are just “not formally registered”.

There are colonial histories around which economic activity was considered important and therefore ‘formal’ for the colonial economies. These legacies lingered on  (path of least resistance aka easiest path to measure and grow) to the newly politically independent states that remained economically bound and simply replicated the boundaries of recognition with minimal critical reflection of what works and is of need to the people who are now politically governing themselves. 

Secondly, included in the informal workers are the employers and owners of the informal enterprises who are not necessarily poor[3].

Thirdly, there is growing insights that the poor, who are often (but not all), informally engaged, have multiple sources of income. Up to 10 sources of income[4] recorded through the financial diaries project that critiques the snapshot method of short lived surveys in understanding the lives of the poor.

These insights point to a possibility of a critical mass of those tagged as informal having the ability to pay for formal social protection. This then elevates the question of willingness to pay. Focusing the lens to street vendors case study: What does it take for a street vendor to enrol in a formal social protection system? 

Law enforcer beating fruit hawkers in Kampala Uganda to enforce COVID – 19 lockdown rules in April 2020 https://www.wsj.com/articles/in-africa-fierce-enforcement-of-coronavirus-lockdowns-is-stirring-resentment-11585825403

Formal social protection seeks to institutionalize the human adage of “being your brothers keeper”. It brings to life the society’s desire to see every other human being live in dignity. It is a wide net encompassing all efforts of humanity to extend dignity to a fellow human by guaranteeing, protecting and/or smoothing incomes and opportunities in light of challenges in the human life cycle including maternity, increasing dependencies from children, sickness, disability, unemployment, old age or death of a breadwinner.

Increasingly the world is recognizing that social protection is not just a feel good, justice and fairness banter, but nascent in enabling the human society transform and become more resilient.

“We must recognize that effective and comprehensive social protection is not just essential for social justice and decent work but for creating a sustainable and resilient future too." Guy Ryder, ILO Director-General

The elephant in the room is who gets to pay for this! To allow all of humanity have access to basic needs of food, shelter and clothing (in the traditional list); as well as access to the additional basic needs in the modern list of safe drinking water, sanitation facilities, health, education and information[1], someone has to pay for it. The way modern society has gone about it is based on the mathematics law of large numbers – many people come together and make small affordable contributions which when put together can respond to a covered situation that puts another human persons' dignity at risk. In its very essence, the law large numbers simultaneously needs a large number of contributors and a snowball (multiplier) effect (that 1+1 = 3). Snowball effects occur in multiple ways just to name a few: a) When the amount spent out is less than that contributed regularly and the balance gains the time value of money; b) When for instance the future generation of contributors, having better nutrition through school feeding programme join the system but are more resilient and therefore claim less; c) When the labour interventions expand skills and job opportunities so that new entrants are more likely to be contributors rather than dependents.

When the law of large numbers is violated in a social protection system such that the minority are contributing, the system is inevitably exposed to lack of / under funding. And that is often the situation most African governments find themselves. 85.8% of employment on the continent is tagged as informal[2] (which often implies incomes are not captured in the formal tax and social protection systems). To finance the formal social protection systems therefore, African governments overburden its 14.2% of its working force in direct deductions as well as additional taxation and eventually government borrowings and donor funding.  

Extending social protection to 82.6% uncovered in Africa[3], majority of whom are informal workers (including the street vendor) in the current policy thinking often takes the form of a “subsidy” “aid” programme. It does not take a genius to figure out the instability of such a flipped contributory model where 17.4% are tasked to cater bridge the gap for 82.6%.

An alternative way of looking for a way out of this quagmire is presented in the growing clarion call by street vendors demanding for dedicated work spaces.  Initially this was a justice call for right to the city, but increasingly it the economic logic and by extension social protection system sustainability is visible. 

At the very basic of business thinking is the risk management. Because risk reduces the certainty of realizing the business objectives and incomes. Thinking of street vending as a business we can argue it has to manage the classic business risks:

- Strategic Risk: which in loose terms is the risk of becoming redundant in the market and loosing the competitive edge. This is often managed by the low capital investment and subsequent flexibly switching to evolving demands. For instance, the case of fruit vendors they simply vend what is in season.

- Compliance Risk: Non existent they largely operate in a wild west vacuum

- Financial Risk: High as they are often not able to access formal financial systems. However they compensate with high sales margins (sometimes double the price) as well as informal lending systems and increasing microfinance innovations

- Operational Risk –The risk that the business is not able to operate or even open. Now this is high manifested in the running battles with city authorities.

The arguments presented by street vendors through associations such as the StreetNet International[1] is that by de-risking their business, the opportunity for consistent income increases. This certainty then allows a street vendor not to be an aid case but a contributor to the tax and social security system.  

This is the epiphany to the puzzle of how to migrate a significant mass of uncovered persons to be covered without burdening the financial base of social security or collapsing it all together. It is a paradigm shift and a continental awakening of the place and value of street vending and crystallizes why a dedicated business space / business address contributes to risk management, consistent incomes and identity in the formal economic and tax systems in the country. It can help African societies move the needle in their identity crisis especially on economic identities.

This small adjustment that is gaining ground calls for street vendors to have dedicated work spaces. It has the potential of providing identity to the hitherto “unseen” vendors, de-risking their business and therefore improving the certainty of income, and eventually unlocking the much desired multiplier effect of migrating a critical mass from informal non – contributory cluster to the formal contributory cluster thereby moving the needle in realizing a sufficient and sustainable social protection system in Africa.

[1] http://streetnet.org.za/

[1] https://www.un.org/development/desa/dspd/world-summit-for-social-development-1995/wssd-1995-agreements/pawssd-chapter-2.html [2] https://www.un.org/development/desa/dspd/world-summit-for-social-development-1995/wssd-1995-agreements/pawssd-chapter-2.html [3] International Labor Organization (ILO) World Social Protection Report 2020–22 https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/wcms_817572.pdf [1] Anetor, F. (2015). An investigation into the value of street vending in Nigeria: A case of Lagos State. Journal of Marketing and Consumer Research, 11. [2] https://www.pressreader.com/nigeria/thisday/20190509/281844350073164 [3] https://www.wiego.org/informal-economy/poverty-growth-linkages/links-poverty [4] https://www.fsdkenya.org/blogs-publications/publications/kenya-financial-diaries-shilingi-kwa-shilingi-the-financial-lives-of-the-poor/

[1] https://www.imf.org/en/News/Articles/2021/07/28/na-072821-five-things-to-know-about-the-informal-economy