According to the ILO, the informal economy absorbs about half of the workforce worldwide, in both wage and self-employment and manifests itself across all economic sectors. It accounts for:

  • 65% of the economies of Sub-Saharan Africa
  • 82% of non-agricultural employment in South Asia and
  • 47% in Latin America

Above all 91% of SMEs worldwide are informal. This state of affairs cannot go unaddressed and it was for this reason that the Employers’ group suggested that the 104th session of the International Labour Conference should adopt a recommendation to guide ILO Member States on key policy measures that would facilitate the transition from informal to the formal economy.

It is critically important to support the formalisation of informal SMEs. There is also the need to grow the size of the formal economy which, in some developing countries, has been shrinking at an alarming rate; and to above all promote and expand formal employment.

There is no doubt that the causes of informality are part of the policy reform agenda that IOE members throughout the world have always tried to address in their advocacy work with their Governments. In other words, making the business environment more conducive would go a long way in making it easier to start and register a business instead of confining oneself to informality. In countries where informality is high, it can take as many as nine months to register a business and acquire a licence. The work of Hernando de Soto on the need to facilitate the acquisition of title deeds for land and property owned by informal economy operators also illustrates how important it is to make government regulation easier and smarter.

In helping to implement the new ILO Recommendation No.204 on transition from the informal to the formal economy which received almost unanimous tripartite support during its adoption, Employers Organisations working closely with their governments need to push for the following practical measures:

  • The need to establish an inclusive growth strategy that would promote the expansion of the formal economy and promote the creation of decent and productive employment
  • The promotion of a conducive business and investment environment
  • The need to promote access to land and property rights
  • The need to harness and develop the entrepreneurial spirit of informal economy operators
  • The need to reduce barriers to the transition to the formal economy such as those related to registration, taxation and compliance with laws and regulations
  • The need to promote micro-, small- and medium-sized enterprises and provide them with incentives to grow
  • The need to promote access to education, life-long learning and skills development
  • The need to provide access to financial services
  • The need to provide access to business development services
  • The need to provide access to markets
  • The need to provide access to infrastructure and technology among others.

These issues are well addressed in Section 3 on Legal frameworks, section 4 on Employment Policies and section 6 on Incentives, Compliance and Enforcement in the new Recommendation.

It is however important to note that because of the regional and national differences in informality, the tripartite constituents have been given leeway at national level to determine the priority measures needed as per their national contexts and regional specificities.