Tanzania: formalising the informal.
To eke out a living, more and more Tanzanians are running businesses by the roadside, on the streets, or even from the corridors of their own homes. "The informal sector is presently a key thread of the fabric of our society, and of our economy. That is the reality," affirms President Benjamin Mkapa.
"What would happen if the entire informal sector in Dar es Salaam were to go on strike?" the President asks. "The truth is that if that were to happen, God forbid, much would grind to a halt." He says his government can no longer ignore the rapidly growing informal sector--but he wants it formalised so that assets can be used as collateral for loans.
Tanzania has more than 2.3m jobseekers and according to the National Household and Budget Survey, close to 13% of Tanzania's labour force is unemployed. And the labour force is growing by 3% a year.
Many Tanzanians see their living standards slide inexorably downwards despite the claims of government, international creditors and donors that Tanzania's economy is growing by leaps and bounds. More than half of Tanzania's 35m people live on less than $1 a day
The Ministry of Labour, Youth Development and Sports says that around 600,000 Tanzanians complete schools, colleges and universities every year and stream onto the labour market, particularly in the more competitive urban areas. But only 8.5% of the labour force requires post-primary education. Therefore, finding any kind of meaningful employment is next to impossible, and many school-leavers simply opt to hawk wares or, more ominously, turn to street crime to make a living.
Agriculture is still Tanzania's largest employer, absorbing 80% of the workforce, and agriculture represents the country's largest informal sector. The Tanzania Investment Centre talks about an increasing inflow of foreign direct investment, with projects worth $265m approved between 1990 and 2002, creating around 42,000 jobs--but that's still too few to absorb the growing army of unemployed.
Although the Bank of Tanzania is encouraged by the country's improving macroeconomic performance, few Tanzanians see the benefits of the growing economy. Inflation declined from 30% in 1995 to 4.3% in June 2003. It was hoped that it might fall further, but famine pushed it up to 4.5% in November 2003. That's because the food basket accounts for 74.2% of the disposable income of Tanzanians.
Mkapa agrees that low inflation has meant few benefits to the majority of poor Tanzanians. The number of hawkers, commonly known as machinga, is growing. Their name is derived from English words "marching guys". The machinga, mainly young men, walk all day to peddle portable items such as second-hand clothes, toys, utensils and cosmetics. However, Tanzania's informal sector traverses all groupings of the economy. They include the more traditional smallholder agriculture that accounts for 50% of the country's GDP, to clothing, taxi hire, food services, blacksmithing, photography and car servicing.
But one of the major problems of the informal, and therefore unregulated business sector is that it operates haphazardly, unmindful of environmental or health hazards. In urban areas, cases of food-poisoning, originating from women, or mama n'tilie, vending foodstuffs at the roadside, are very common. Health officials complain that informal food vendors often fuel regular cholera outbreaks.
In urban areas, militiamen sporadically battle with street hawkers. In Dar es Salaam and other large towns, vendors have had their wares seized and kiosks destroyed. But some politicians stridently support the machinga and mama n'tilie. Argues Dar es Salaam Regional Commissioner Yusuf Makamba: "Harassing such potential voters is unacceptable. Next time they vote it will be against the ruling Chama Cha Mapinduzi party."
The exact number of Tanzanians engaged in the informal sector is hard to assess. The first comprehensive National Informal Sector Survey was conducted on mainland Tanzania in 1991 by the Tanzania government, the United Nations Development Programme, the International Labour Organisation and the Swedish International Development Agency.
They discovered that an informal enterprise usually employed between one and five people. The survey showed that 60% of the 1.8m enterprises they researched operated in rural areas. Practically all of them suffered from under-capitalisation, with 72% of the enterprises having an initial capital of less than $5 and 41% with less than $1. The average age of the workers was 32 years for those in the urban areas, and 36 years for their colleagues in the rural areas. More than a half of the operators had completed primary schools, but only 4% had attended secondary school or higher.
PERUVIAN MIRACLE WORKER
"The time has come for the government, both central and local, and for the people in the public and formal sector as a whole, to accept the informal sector for what it is: a reality of life, an important provider of goods and services, and a market for goods and services provided by the formal sector," says Mkapa. "But owners, managers and speculators need the help of every one of us in this room to give this role a better and legal legitimacy."
In September 2003, Mkapa invited Peruvian economist Hernando de Soto, the founder of the Institute for Liberty and Democracy to pay a visit. Professor de Soto, formerly an economic adviser to the former Peruvian President Albert Fujimori, is also a member of the World Commission on the Social Dimension of Globalisation, co-chaired by Mkapa and Finnish President Tarja Halonen. Mkapa is much impressed by De Soto's 'magic wand' for alleviating poverty through formalising the informal sector.
Mkapa summoned all his technocrats and administrators for studies on formalising property rights in Tanzania. De Soto explained how assets in the informal sector should be formalised to provide owners with collateral for obtaining bank loans. At the workshop, cabinet ministers, technocrats, scholars, and regional and district commissioners, all brainstormed.
Foreign Minister Jakaya Kikwete pondered how poor Tanzanians would raise funds to have their plots of land surveyed. "It costs around $50 to have one acre surveyed," he said. "A villager may have up to 10 acres. The amount of money needed to have the whole area surveyed would be too much since he is a poor man. He would be unable to pay that much. It's a colossal sum for a villager."
Another hurdle is the shortage of land surveyors. When the government was surveying 20,000 acres on the outskirts of Dar es Salaam, it had to engage all surveyors in the country. And Attorney-General Andrew Chenge said that although De Soto's concept was attractive, it would be foolish to accept it at face value. "We have to ask ourselves: where are we going to get such huge sums of money to formalise property? Are we going to get it from loans? And if so how are we going to pay those loans?" he asked.
However, Mkapa believes De Sotos theories are relevant and workable, although he has no answer to this particular problem. That was why he called a workshop to debate the matter.
"There is indeed an immense potential within the informal sector. This potential has been condemned to function outside the existing legal regime, constraining its ingenuity and productivity, and thereby denying the poor and the economy as a whole the benefits of the entrepreneurship that is vital to their self-determined well-being and the prosperity of their country," he insists.
From this month (January) the government intends starting a pilot project of formalising assets owned informally. It hopes that by carrying out the formalisation on a broad scale they can enable many Tanzanians who own their own properties to use them as collateral to borrow from banks.
"The government," Mkapa says, "pretends those people in the informal economy do not have assets so they do not have property rights, and those people pretend they do not have assets so they do not have to pay taxes on them or follow rules and regulations.
He cites that much of the real estate in Tanzania's urban areas is outside the formal, legal, sector. "Yet, if we could bring in all these assets and properties into legality, that legality would unleash a lot of investment capital."
But Kikwete, an economist, thinks micro-credit provision is the immediate solution to alleviate poverty in Tanzania. Others technocrats simply believe in the poverty reduction programmes and economic reforms promoted by the World Bank and the International Monetary Fund.