Cape Town — Bringing basic skills training programmes to workers in the informal sector can help to bring down poverty and unemployment levels, while improving economic growth.
This emerged at the World Bank's Annual Bank Conference on Development Economics (ABCDE) which ends today in Cape Town, South Africa. The theme is "People, Politics, and Globalisation".
The informal sector -- or second economy -- refers to labour activities that fall outside the formal economy and which are mostly not regulated by government. Examples of informal employment are hawking, domestic work and small-scale farming. In South Africa and elsewhere, industries such as clothing also have a large informal component.
"In many African countries, a considerable part of the labour force works in the informal sector," says Richard Walther from the French Development Agency (AFD). "In South Africa, the informal sector accounts for 31 percent of all jobs. In Benin, 95 percent of the labour force works in the informal sector."
The second economy is therefore an important contributor to countries' gross domestic product (GDP). "In South Africa, activities within this sector generate 30 percent of the GDP," Walther reveals.
"In countries such as Benin, Cameroon and Senegal this percentage varies from 50 to 60 percent. In other words, the informal sector, despite being unregulated, plays an important role in the economies of these countries. Last but not least, they provide people with an income."
However, a large informal sector is not an African phenomenon, Walther points out. "In countries in Latin America between 47 and 84 percent of the labour force work in the informal sector. In India this figure is almost 90 percent."
One of the characteristics of an informal economy is that the majority of people working in it have had no skills training or education. These workers "are mostly self-taught or were taught the skills they have by, for instance, their parents," Walther explains.
Despite the existence of informal skills, lack of formal education hampers people from entering the first or formal economy.
"To improve these people's employability and chances on the formal job market, skills training is crucial," he says. Skills training refers to vocational education, which is non-academic and takes place outside the formal education system -- for instance, on the shop floor.
It is important that the training is adapted to local needs and focuses on scarce or strategic skills. "Entrepreneurial skills are important because they enable people to run a sustainable business and to improvise when necessary," Walther emphasises. "These skills are also applicable in more than one scenario."
This does not mean that informally acquired skills are worthless, Walther acknowledges. "These skills should be recognised and validated. We should also acknowledge the informal sector as a source of skills development."
According to Werner Heitmann of the Gesellschaft Für Technische Zusammenarbeit (GTZ), a corporation focusing on development work which is aligned with the German government, skills training is crucial to empower those active in the second economy as well as to stimulate economic growth.
Over the past years, GTZ has conducted extensive research on South Africa's informal sector and the impact vocation skills training has on the lives of those working in the second economy.
According to the organization's findings, 3.5 million South Africans are informally employed. About 9.6 million people work in the first economy.
"According to our data, skills training programmes in South Africa have had a positive impact on the people active within in South Africa's second economy," says Heitmann.
In South Africa, various skills training initiatives exist. The Joint Initiative on Priority Skills Acquisition (JIPSA) is one of them. The project was launched by the South African government in 2006, and focuses on developing scarce skills in areas such as engineering, education and health.
"Over half of the informal entrepreneurs that received some form of training, have seen an increase in their profit, turnover and the size of their customer base," according to Heitmann.
"We have seen an increase in the number of entrepreneurs that opened a separate bank account for their business. This is a good sign and a step in the direction of entering the first economy," he said.
Walther also pointed out that, "the number of informal enterprises registered with the South African Revenue Service over the past year has increased too. This means that these enterprises are now regulated and pay tax. This is obviously beneficial for the economy."