The invisible economy

Tsepiso S. Mothibi

There is a clearly visible gap in the economy of Lesotho and in the economies of other small or low income countries on the African continent. Reliant on the public service sector for the employment of the majority of university, technical and vocational studies graduates, the economy experiences the presence of an unanswered gap in its statistics when it comes to the calculation of the economy’s GDP per capita (the total market values of goods and services produced by workers and capital within a nation’s borders during a given period (usually one year)).

The main factor causing the miscalculation of this salient economic aspect is the exclusion of some sectors of the country’s economy in the planning infrastructures. One of the reasons could be the simple fact that the output from the informal sector of the economy is considered negligible, and therefore not worthy of the expenses associated with the planning and implementation of regulatory structures. The main question one can pose is: What if the output is exactly what grants the economy some level of stability? What if the simple livelihood practices of the informal sector street vendor are what offer some form of economic relief?

That the individual service providers in the informal sector are forced into finding some form of self-employment because their lack of education or resources means they are not employable in the public service sector or the private sector of the economy, does not mean that their contribution to the economy of the state should be ignored by the relevant economic strategic planning and implementation bodies. Their low income businesses do put some money into the taxman’s coffers, and the ignorance of this fact shows a stark lack of mutual understanding on the part of the economic planning bodies. A simple layman’s economic analysis reveals that any economy is a symbiotic affair whose components run in reciprocal patterns. In brief, if I am contributing to your progress, you should also give a hand in my struggle to gain economic freedom for the benefit of the country’s overall economy: the process runs in tandem and not otherwise.

A report titled An Assessment Of The Enabling Environment For Women’s Enterprises In Lesotho published in May 2011 by CILO Consulting reveals:

The small business sector plays a crucial role in Lesotho’s development and is identified as a key tool for economic growth, job creation and poverty alleviation. (National Strategic Development Plan, 2012-2017) The current global recession holds significant challenges and opportunities for small entrepreneurs in general and even more so when viewed from a gender perspective. Women generally lack the necessary resources for starting and developing their own businesses due to gender based barriers and in particular Basotho women entrepreneurs often still remain in the periphery of the economy.

It is true that women are the majority of the informal sector and many of them are involved in the running of SMME’s (Small, Micro, and Medium Enterprises). The small businesses the women run do not seem to be the core of the plans presented by the planning bodies, and this leaves one with the question as to why they seem largely ignored despite the tremendous contribution they have in the stimulation of the economy as a whole.

It can be argued that efforts have been made by relevant bodies in government to see to the improvement of these small businesses, but one can also put the argument forward that more can be done to improve on the current level of aid in the improvement of the informal sector of the economy that is largely made of women entrepreneurs. Such improvement should however not exclude their male counterparts who sit by side with the women selling fruits and other wares.

The main problem is that strategies tend to include only one gender and exclude the other despite the fact that women and men (and sometimes minors) work together in the small spaces on the pavements because in truth, there is a lack of adequate markets where these vendors and entrepreneurs in the informal sector can sell their wares across the ten districts of the kingdom. Flea market economies like those Kenya, Rwanda and other African states have could be used as models because their success rate in garnering the full potential of the informal sector is truly commendable.

Economic planning strategies should include factors which include the informal sector because a developing country such as Lesotho with high unemployment rates, low levels of formal and higher education, the migration of individuals from rural areas to cities, corporate restructuring and government policies, regulations that include all sectors of the economy and their structures are vital in the determination of total economic output of the state.

Lesotho has an urgent need for entrepreneurs in the small, micro and medium enterprises (SMME’s) who can act as a tool to combat unemployment and crime and to stimulate the economy as a whole. That the entrepreneurs in the informal sector lack funding to see their business thrive is the result of many factors that could be corrected. In a business research paper by an MBA graduate it is shown that many of the vendors involved in SMME’s lack the knowledge on how to map out their business plans, how to get loans from creditors, many  lack collateral, and the biggest factor is that they lack adequate education and guidance in the core aspects of running small businesses.

There are far too many lacks, and I believe that it is the responsibility of economic planning bodies to see to the education of the members of the informal sector in the basic aspects of entrepreneurship. Just assuming that they will not learn from the lessons given is a misconception, because close contact with some of them soon reveals that a majority are possessive of a high business principle and acumen. The only factor preventing their progress is the fact that they feel ignored and excluded when it comes to national economic planning strategies and budgets.

Lesotho ranks at 112, 8 points higher than South Africa (at 120) when it comes to the assessment of the ease of starting a business presented by the World Bank (2016). The only difference is that many businesses do not last long due lack of support in terms of fiscal or knowledge base and soon collapse. This is a trend which can be reversed if more focus is put on implementing policies that govern, support, and regulate the running of the informal industrial sector of the economy.

Many economies fall into what is called the middle-income trap which is a situation where an economy seems to grow rapidly and then collapses due to certain internal and external factors (take Lesotho in the pre-1998 era for example), that affect this initial growth and productivity. Lesotho has relied on imported goods, services, technologies, and knowledge for too long, and the ‘bright light’ effect (where people from the rural areas come to the cities) has seen to the death of the agricultural sector of the economy, due to the simple reason that many of those that leave the rural areas come to the city to find employment in the informal sector.

Upon entering the sector, they thrive for some time before competition largely caused by the lack of variety in terms of the goods and services demanded by the market soon wears them out, and they are left stagnated in a low-income trap, leaving many to settle for low-income jobs. If they could just find innovative means to improve their business or entrepreneurial acumen, they could prevent this situation but lack the knowledge and support to change their situation.

Instead of copying strategies from other countries, economic planning could rather resort to finding alternatives that will diversify the economy, so that those engaged in production activities could have some form of escape as soon as they realise that the market they are engaged in is saturated. A report presented by the World Bank’s Poverty Reduction and Economic Management Network (PREM-November 2012) states that:

The common view is that imitating available (imported) techniques is an easier task than true innovation.

The report further states that as soon as those techniques are understood, the need for new technologies arises, leaving the adopter stuck. I have seen how economic policies put focus on science and technology, large-scale industry, and other modern forms of production at the exclusion of indigenous knowledge techniques used in the informal sector. But they are not serving the country’s economy well because they take too long for one to fully understand them. I just believe more focus should be on the informal sector because that is where the majority of economic activity takes place. If we carry on pretending they are invisible even though we engage with them on a daily basis, it will take long before the economy grows significantly for all citizens to reap of its fruits.