KAMPALA: Considered one of Africa’s most vibrant developing countries, Uganda holds untapped potential for growth and transformation. As in many developing nations, our informal sector plays a crucial role in the economy. Valued at $58 billion, it accounts for 75% of total employment and contributes 34.4% to the GDP.
For these reasons, it’s worth treating our informal sector as an integral resource, rather than simply a shadow economy. While the state of the informal economy might be difficult to pin down, there is room to grow and nurture this critical sector – with the help of digital technologies and intelligent advancements.
Informal, but important
In developing countries where there is an unequal distribution of income, the bustling informal sector is often more pronounced. In these instances, the growth of informal operations is as a result of necessity and shouldn’t be viewed as negative. Uganda’s informal economy is characterised by undefined workspaces, lower levels of skills and productivity, low or irregular incomes, as well as a lack of access to finances, wider markets, and technology. However they remain a vital part of our economy.
Challenges faced in the informal sector include limited access to finance, as well as basic amenities such as water and electricity. There is also often a financial burden attached to formalising businesses and a reluctance to comply with taxation. In a country where the costs associated with education account for 6 out of 10 people leaving school, many working people struggle from a lack of education or access to formal training. Fortunately, however, there is a strong entrepreneurial spirit among informal workers and a drive to succeed despite the challenges.
The Directorate of Industrial Training is working to assist workers and small business owners in getting their skills and services certified – the first step to recognising players in the informal sector, while assuring the quality of their work. However, more needs to be done to support those contributing to this sector of the economy.
Tech to drive a stronger informal economy
Eastern Africa is by far the world’s most rapidly urbanising region. It is estimated that there will be 33 million urban dwellers in Uganda by 2050. However, with an Internet penetration of 29.1% at the beginning of 2022, much can still be done to bridge the digital divide and allow more informal labourers to participate in our growing digital economy.
The adoption of technology – even something as simple as an Internet connection on a mobile phone – can lead to new industries and countless jobs being produced. In urban and peri-urban areas, there’s potential for an increase in employment opportunities where people could work as shared-ride drivers, homestay hosts, or participate in e-commerce logistics.
In 2019, the United Nations Development Programme (UNDP) Uganda Accelerator Lab identified one such opportunity, establishing an ecommerce partnership between the UNDP and online retail platform Jumia Food. The partnership led to Jumia reaching 10 markets across the country, as well as over 4 000 market vendors being registered on the platform. Jumia is selling over 300 000 unique products a month, helping to fortify agricultural supply chains, connect rural farmers to urban markets, create jobs in the informal sector, and enhance digital literacy. The UNDP x Jumia partnership illustrates one example of how digitisation and access to technology can be used to create sustainable livelihood opportunities, especially for those operating in the informal sector.
Technology offers scale and acceleration by enabling small businesses to participate in regional and national trade. It expands the customer landscape and allows people to provide clients with a greater range of services and products. A technological solution such as mobile money could revolutionise the informal sector and significantly improve financial inclusion. Even in rural areas, these innovations present smart new employment opportunities.
What are the next steps?
The good news is that policy makers and government seem to agree that small businesses, and the informal sector as a whole, need their support. During the MSME Week event in July, talks and exhibitions were held to recognise the role small businesses play in the economy and showcase their products and services. Special mention was made of how technology and innovation could be used as a strategy to recover from COVID-19 losses and promote financial inclusion. Creating a regulatory framework that supports the informal sector and improves opportunities for the unemployed could enhance the capabilities of the Ugandan economy.
For economies struggling to make the most of their potential, new hope may lie in the rise of digital technologies. These solutions enable access to wider markets and customer networks, improve productivity and competitiveness through digital innovation, and could help blur the lines between the formal and informal economy with the rise of the gig economy. If Uganda were to invest in ICT infrastructure to better support the adoption of technological solutions, there’s no doubt that the informal sector – as well as our country’s broader economy – would benefit.
Patrick Ndegwa, SEACOM Business Sales Lead for SEACOM East Africa