Resilience in Informality: Lessons from zimbabwe’s hidden economy

Africa's informal sector is a vibrant and bustling space, filled with street vendors and food stalls that exude a unique energy. However, beneath the surface of this everyday hustle lies a remarkable tale of resilience that is deeply ingrained in the fabric of African history.

In Africa, 85% of the population is engaged in informal labour, making it the region with the largest share of workforce in the informal sector. In Sub-Saharan Africa alone, the informal sector employs 90% of the labour force and accounts for roughly 40% of GDP. Beyond its role as a provider of goods and services, the informal sector serves as the backbone of numerous African communities, offering livelihood opportunities to millions and serving as a crucial safety net during challenging times. Though they may not be able to lift individuals out of poverty, policy-oriented research has shown the important role that informal sector activities play in helping the impoverished by increasing their income and meeting other fundamental requirements such as shelter, nutrition, and other family necessities. 

The informal sector in Africa is often overlooked and undervalued, seen as a mere side note to the formal economy. However, a change in perspective is necessary to truly understand and appreciate the impact of this sector. Fantu Cheru argues that by closely examining the informal sector in Africa, we can catch a glimpse of the potential that could be unlocked if Africa's economies and financial policies were better aligned with the realities of the continent. Unlike their formal counterparts, informal markets in Africa have faced numerous economic challenges, including limited access to credit, lack of legal recognition, and exclusion from formal financial systems. And yet, despite these obstacles, the informal sector has managed to adapt and thrive in the face of adversity, surpassing rigid structures and defying conventional wisdom. The journey of the informal sector goes beyond a simple historical analysis or beyond nostalgia for a bygone era. It recognizes the creativity and resourcefulness of African entrepreneurs who have found innovative ways to navigate a complex economic landscape.

From Pre-Colonial Trading to Globalization

The informal economy in Africa has its roots in the trading practices of local communities dating back to pre-colonial times. During colonial rule, the inability of formal systems to meet the needs of the local population led to the growth of informal markets. In the 1970s, African nations began to recognize and address the informal economy as they sought to develop their economies.  The breakdown of state structures in many countries further contributed to the informalization of the economy, which was part of the larger crisis of state capitalism after the Cold War. 

African nations that obtained independence from colonial rule each had their own unique paths and tactics to secure their freedom. Despite their individual approaches, they all encountered a common event that greatly impacted their economies and societies: the introduction of Structural Adjustment Programs (SAP) in the 1980s. The global economic crisis of the 1980s had severe socio-economic consequences for Africa, particularly south of the Sahara, leading to increased vulnerability among various groups. The crisis resulted in reduced incomes, unemployment, and undermined progress towards the Millennium Development Goals (MDGs). The MDGs included decreasing the rate of severe poverty, stopping the spread of HIV/AIDS, and achieving universal primary education by the target year of 2015. SAPs programs aimed to address the countries' economic imbalances and promote growth by implementing measures such as reducing government spending, liberalizing trade, and encouraging foreign investment. 

Several African countries reluctantly adopted the policy and program directions to benefit from adjustment loans and escape the economic slowdown of the sub-region. The impact of SAPs was especially evident during the 2000s, as African economies grappled with the aftermath of social and economic turmoil from previous decades. One of the most significant struggles was the contraction of the formal sector, leading to a decline in job opportunities and exacerbating social and economic inequality.  While formal sector contraction pushed many towards unemployment, it inadvertently fuelled the growth of the informal economy. In Zimbabwe, for instance, employment increased per business, and 29% more people worked in the informal sector overall. Mhone found that the urban informal sector saw the post-SAP environment as a chance to demonstrate their creativity and problem-solving abilities, viewing it as a way to create jobs and opportunities for self-employment and income.

The ever-evolving global landscape added a new dimension, serving as a double-edged sword: while it has created opportunities for the informal sector by opening up new markets, it has also led to challenges such as increased competition and loss of income. One of the key aspects of globalization that has had detrimental effects on African economies is the emphasis on market liberalization and deregulation. Policies often encouraged African countries to open up their markets to foreign competition and to dismantle protective measures for domestic industries. Lee discusses the impact of globalization on the informal economy, particularly in the context of Africa–China trade, emphasizing the challenges faced by African traders due to the influx of Chinese goods and the resulting negative consequences: unfair competition, deindustrialization, and economic hardships stemming from the influx of Chinese goods into African markets. In undermining both formal and informal traders in Africa, this dynamic has led to unemployment, loss of income, and the erosion of African trading networks.

Toward Multidimensional Development

Despite the clear benefits of the informal sector in driving economic activity and providing livelihoods, many African governments have historically been resistant to recognizing its significance. This resistance often stems from a desire to conform to Western development models and prioritize formal economic structures. A prime example of this disapproval can be seen in the examination Operation Murambatsvina in Zimbabwe, launched in 2005, which aimed to bring order to urban areas but resulted in forced evictions and demolition of informal housing and market stalls. This campaign faced criticism for its negative impact which included widespread displacement, loss of livelihoods, and the disruption of an economy that made up approximately 40% of the country's GDP. Such actions reflect a broader reluctance to acknowledge and support the informal sector, despite its resilience and capacity to provide employment and economic opportunities, particularly for marginalized communities. African governments often prioritize formalization and regulation, viewing the informal sector as chaotic or illegitimate, rather than recognizing its role as a vital component of the economy. Despite setbacks, the sector has acted as a buffer during recession times, providing income for retrenched labourers and a stop-over for employees seeking new jobs. The adaptability and resilience of informal markets in Africa can be attributed to several factors. 

First, the informal sector is deeply embedded in local communities and operates based on social networks and personal relationships. An example can be seen in the use of community based informal financing mechanisms, such as rotating savings and credit associations (ROSCAs) in countries such as Nigeria, Ghana, Ethiopia, Tanzania, and many other parts of East Africa. These are associations of individuals that meet at regular intervals, such as once a month, and distribute a lump sum of money to one of its members to access capital when formal financial institutions tighten lending criteria.  In the informal economy, where access to formal banking services may be limited, ROSCAs allow members to pool their resources and provide financial support to one another. This is particularly important in the absence of formal financial institutions, as ROSCAs enable individuals to save and borrow money within their social networks, providing a safety net for economic shocks and emergencies.

Informal markets frequently utilize local resources and production techniques, diminishing their reliance on external resources and imports. This trend is particularly noticeable in South Africa, where informal businesses often obtain their materials from medium to large formal enterprises and small local traders. A small percentage of informal enterprises source goods from foreign-linked supply chains, resulting in minimal involvement of foreign suppliers in the sourcing process. This reduced reliance on foreign sources not only enhances the resilience of informal markets against global economic changes but also reinforces their self-sufficiency. Additionally, when compare to formal businesses that encounter obstacles like strikes, natural calamities, or economic downturns, informal markets demonstrate the ability to adapt swiftly, procure materials locally, and depend on informal networks and relationships to sustain their operations effectively.

Moreover, the informal sector has a long history of innovation and entrepreneurship, driven by the need to adapt to evolving market dynamics and consumer preferences. Technological advancements play a crucial role in fostering innovation within this sector, empowering merchants to tap into new markets and broaden their customer base. Online platforms, like e-commerce websites, offer informal sellers a platform to showcase their goods to a larger audience and streamline online transactions. The integration of mobile technology has brought about positive transformations in various informal industries, including artisanal fishing, small and medium enterprises (SMEs), and rural agriculture, by enhancing financial inclusion, competition, communication, and unlocking growth opportunities. 

Redefining development in Africa requires a two-pronged approach: dismantling colonial structures and dismantling the legacies of colonial ideology embedded within current economic models. While the formal era of colonialism may have ended, its impact continues to influence Africa's development path. It is crucial to go beyond mere recognition of these issues and actively work towards dismantling colonial ideologies that prioritize narrow economic measures and externally-driven projects that lack local relevance. Economically, colonial rule had a profound impact as European nations exploited Africa's resources, prioritizing their own interests.  Figures like Cecil Rhodes explicitly articulated the goal of colonialism as exploiting raw materials and cheap labour for Western gain, highlighting the continuity between colonial practices and modern development paradigms. 

By acknowledging the historical parallels between development and colonialism, particularly in their shared exploitation of resources and labour, we gain deeper insight into the motivations behind both processes. Embracing a comprehensive approach that encompasses social equity, environmental sustainability, cultural preservation, and effective governance is crucial. African nations must recognize the pivotal role of the informal sector in driving economic growth and reevaluate their economic frameworks independently of Western influences, considering the enduring impacts of colonization. Consequently, redefining development within the African context demands a critical examination of these historical legacies and a commitment to restructuring economic policies and practices accordingly. Instead of perpetuating a model rooted in resource extraction and exploitation, it is imperative that we prioritize approaches that empower local communities, nurture sustainable livelihoods, and facilitate equitable economic participation.

Investing in human capital, promoting entrepreneurship, and nurturing inclusive economic ecosystems are essential for enabling the informal economy to thrive without relying on raw materials. This involves providing access to education, training, and financial resources, which unlock the potential of individuals and communities to innovate and create value from within. It is crucial to embrace alternative models of economic development that prioritize social and environmental sustainability instead of relentless resource extraction. By doing so, we can build resilient and inclusive economies that go beyond the legacies of colonialism. In envisioning such a future, we should consider the transformative power of digital services. The increasing penetration of mobile phones and internet access offers unprecedented opportunities for informal businesses to operate online. E-commerce platforms, freelance work, and digital marketing services provide avenues for growth and sustainability that bypass traditional resource-intensive models. This enables informal businesses to access global markets, directly connect with customers, and reduce their reliance on physical resources. This shift not only empowers individuals and promotes autonomy but also fosters innovation and resilience in the face of external disruptions.

Breaking Away from Tradition

Moving forward in African economics necessitates a departure from the insistence on formalizing the informal sector towards recognizing and leveraging its inherent strengths. Formalization often entails imposing regulations, taxes, and bureaucratic requirements, which can stifle the flexibility, adaptability, and informal networks that characterize the informal sector. Instead of trying to fit informal activities into rigid formal structures, alternative approaches should be explored to build upon or refine existing informal practices. Scholars have begun challenging the overemphasis on formalization, noting that imposing narrow formal economic institutions on the diverse array of informal economic activities may not be desirable or feasible. 

Instead of focusing solely on formalization, policymakers can prioritize integrating informal activities into the formal economy while still respecting their autonomy and distinct characteristics. Chen advocates for this approach, noting that many current formal economic structures are outdated for today's diverse informal sector. This new strategy involves recognizing and legitimizing informal businesses, providing them with access to essential services like training, financing, and infrastructure, and creating pathways for gradual formalization tailored to the abilities and needs of informal workers. The main goal of this system would be to promote inclusivity, sustainability, and resilience, ensuring that all individuals have opportunities to participate in and benefit from economic activities. Key elements of this approach include supporting micro and small enterprises, bolstering local markets and informal networks, and implementing policies that address the unique challenges faced by informal workers. An approach to consider is Africapitalism, a concept pioneered by Nigerian entrepreneur and philanthropist Tony Elumelu. Africapitalism advocates for prioritizing long-term social wealth over short-term economic gains, emphasizing the interconnectedness between private economic success and community well-being. It seeks to deploy capital and economic relations to improve the lives of people in sub-Saharan Africa, with a focus on creating both economic and social prosperity. Central to Africapitalism is the integration of ubuntu ideology, which underscores community well-being and interconnectedness, aiming to promote community welfare and revive local identity eroded by global free trade. This approach, tailored to African contexts, offers alternatives to historically disadvantageous policies. 

Overall, the informal sector in Africa has shown remarkable resilience throughout history, adapting to economic downturns and shocks. While it often faces challenges and limitations, the informal sector remains a critical source of livelihoods for many people in African urban areas. Deregulation alone has proven to be insufficient for promoting the growth of the informal sector, as its principal role is often supplementing incomes from the formal sector rather than capital accumulation. By combining elements of various economic systems and embracing a pragmatic approach like Africapitalism, African countries can create a more inclusive and resilient economy. By prioritizing long-term social wealth and integrating the ubuntu ideology, Africapitalism offers an alternative framework that promotes community well-being and sustainable economic growth, while also reviving local identities that may have been eroded by global free trade.