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Leveraging Africa’s informal economy for youth

By 2050, Africa will be home to 25% of the world’s workforce. However, nothing guarantees that these workers – especially the growing group of young people among them – will have jobs, let alone decent jobs.

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Of the nearly 420 million young Africans (15-35 years of age), a third are currently unemployed and another third are vulnerable in employment. One in six of them has a salaried job. With few options and even less hope, some are likely to turn to activities like prostitution to survive, or to distractions like illegal drugs.

We run the risk of losing the greatest African generation, a failure that would have far-reaching consequences. If Africa’s human capital is idle, we will lose its innovative capacity and squander its growth potential. Demand for government assistance will increase, intensifying pressure on public budgets, and popular frustration will grow, which can fuel social unrest and political instability.

Africa is not without resources, but they are often poorly managed and unevenly distributed. The dominance of the informal economy is, in a way, testimony to these failures.

According to the International Labor Organization, the informal economy represents 41% of the GDP of sub-Saharan Africa

After all, governance failures, such as rampant corruption and inadequate incentives for investment, have limited the opportunities available, especially for young people who lack high-level connections. This leaves workers with little choice but to bring their efforts, skills and entrepreneurship to the informal sector to find ways to generate income with little or no start-up capital. According to the International Labor Organization, the informal economy accounts for 41% of sub-Saharan Africa’s GDP and its participation reaches 60% in some countries (Nigeria, Tanzania and Zimbabwe). Furthermore, it constitutes about three-quarters of non-agricultural employment, and 72% of total employment in sub-Saharan Africa.

In the informal economy, workers create their own opportunities, but they lack all kinds of protection and security, let alone job benefits. Those who have their own companies face difficulties in expanding their operations, mainly due to the lack of access to capital. And, of course, informal businesses and their workers don’t pay taxes.

To create quality employment opportunities for the growing young African population, the continent’s governments must both nurture the informal sector and encourage informal businesses to formalize their operations. To that end, they could employ many of the tactics that have proven effective in fostering the development of small and medium-sized enterprises in countries such as Mozambique and Zambia.

First, governments could create incentives for informal sector firms to invest to expand, create jobs, and ultimately formalize their operations. One way to achieve this is through the promotion of health insurance schemes linked to employment. Another is to encourage financial inclusion. If informal operators can open bank accounts and receive credit, they will be much better equipped — and more motivated — to expand and formalize their operations.

Better access to startup and venture capital would also help. Like preferential procurement, an approach that the Zambian Citizens’ Economic Empowerment Commission is already using to increase the economic participation of marginalized groups, including women, youth and people with disabilities.

Tax reform is also essential, if informal operators foresee that taxes will be an excessively heavy burden, they are unlikely to formalize their operations. Therefore, it is necessary to simplify tax returns and introduce options for online payment. Also, tax rates should not be too high.

On the other hand, the African authorities, together with non-governmental organizations, could promote the development of human capital through the provision of training and by supporting mentoring programs for workers in the informal sector. At the same time, they should take advantage of the young people’s own abilities to develop networks of contacts, including the use of social networks.

Despite the high barriers they face, young Africans are already social actors, influential activists, and engines of economic progress

Despite the high barriers they face, young Africans are already social actors, influential activists, and engines of economic progress, primarily because of their ability to use modern connectivity. To take full advantage of this power, government leaders should involve young people in the process of formalizing the informal economy, ensuring that they have the tools and platforms they need to create effective support networks, allowing them to access mentoring, exchange information and show your skills.

Young people could find ways to take full advantage of new technologies, they can design electronic manuals, participate in remote trainings and mentoring sessions, and create applications that facilitate business development. And they could propose policies that ensure the economy meets their needs.

For this to work, governments must be willing to listen. To this end, national and regional discussion forums could play an important role.

Although the goal is the formalization of more economic activity, African leaders must recognize that the informal economy will not disappear in the near future and it does not have to happen either: a dynamic informal sector with the right support can be a powerful boost. for inclusive growth. Support should therefore not depend on formalization.

At the beginning of the 19th century, the American First Lady Rachel Jackson affirmed: “It is not our young people who fail the system, it is the system that fails them.” He could have been referring to the Africa of 2020. It is time to change the system and put young people at the forefront of progress. In fact, as Jackson put it, “the young people themselves, whom we treat the worst, are the ones who will get us out of this nightmare.”

Alice saisha, an African Century member, is a monitoring and evaluation officer for the Campaign for Women’s Education (CAMFED) in Zambia.

Copyright: Project Syndicate, 2020. Spanish translation by

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