Social Protection for Workers in the Informal Sector

Abstract

The need to extend social protection coverage for workers in the informal sector is increasingly receiving attention in many African countries. In Africa, anywhere from twenty per cent to forty per cent of the labour force may be engaged in the informal economy on a full time basis. This is so while ten to twenty per cent of the labour force may be employed in the formal economy which is more dynamic and provides for relatively higher income. This paper demonstrates that the informal sector has grown significantly since the last informal sector survey of 2007 in Botswana. The paper highlights how COVID-19 has compounded risks and vulnerabilities of the informal sector.

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Ntseane, D. and Solo, K. (2023) Social Protection for Workers in the Informal Sector. Beijing Law Review, 14, 546-555. doi: 10.4236/blr.2023.142028.

1. Introduction

The need to extend social protection coverage for workers in the informal sector1 is increasingly receiving attention in many African countries (Guven, 2019; Xaba et al., 2002) . According to a recent study by OECD/ILO (OECD/ILO, 2019) , informality represents 70% of all employment in developing and emerging countries compared with about 18% in developed countries. The report indicates that there are variations across regions, from 86% in Africa to around 68% in the Arab States and Asia and the Pacific, 40% in the Americas and 25% in Europe and Central Asia. Globally the report states, 81% of all enterprises is informal. This paper provides an analysis of how comprehensive social protection coverage can be extended to workers in the informal sector in Botswana. The paper begins by examining the concept of the informal sector and informal employment. Data is then presented on the size and characteristics of the informal sector workers in Botswana. Risks and vulnerabilities facing workers in the informal sector are then discussed. The paper further explores the response by Botswana government concerning existing social protection provisions for workers in the informal sector. An analysis is then provided on the current social protection coverage for workers in the informal sector. The paper concludes by presenting recommendations adopted by the ILO (2015) on various measures that can be adopted to facilitate the extension of social protection coverage for workers in the informal sector. Best practices and lessons learnt from other countries are also examined.

2. Defining the Informal Sector, Magnitude and Characteristics

There is no universally accepted definition of the concept of “the informal sector” (Schlyter, 2003; Charmes, 2017) . Literature reveals that the concept of “informal sector” was first coined during the ILO Kenya mission in 1972. The Kenya ILO report “Employment, incomes and equality” defined informal activities as the way of doing things characterized by the following: (Bangasser, 2000)

(a) Ease of entry;

(b) Reliance on indigenous resources;

(c) Family ownership of enterprises;

(d) Small scale of operation;

(e) Labour-intensive and adapted technology;

(f) Skilled acquired outside the formal school system;

(g) Unregulated and competitive markets.

Recognizing the need to improve statistical systems of countries where informal sector activities accounted for a significant proportion of total employment, a more comprehensive concept of the informal sector was adopted by ILO at the 15th International Conference of Labour Statisticians in 1993 (ILO, 1993) . The informal sector was “broadly characterized as consisting of units engaged in the production of goods and services with the primary objective of generating employment and incomes to the persons concerned. These units typically operate at a low level of organization, with little or no divisions between labour and capital as factors of production are on a small scale. Labour relations where they exist are based mostly on casual employment, kinship or personal and social relationships rather than contractual arrangements with formal guarantees” (ILO, 1993) 2.

In light of the high incidence of the informal economy across nations, on 1st June 2015, the governing body of the ILO came up with recommendations to guide Member States to facilitate the transition of workers and economic units to move from the informal to the formal economy (ILO, 2015: p. 1) 3. During this meeting of the 104th session, Recommendations R204 “Transition from the Informal to the Formal Economy” was launched. For the purpose ILO Recommendation R204, the term informal economy refers to:

(a) “All economic activities by workers by workers and economic units that are in law and practice not covered or insufficiently covered by the formal arrangements.

(b) The informal economy does not cover illicit activities, in particular the provision of services or the production, sale, possession or use of goods forbidden by law, including the illicit production and trafficking of drugs, the illicit manufacturing of and trafficking in firearms, trafficking in persons and money laundering, as defined in the relevant international treaties.” (ILO, 2015: p. 2)

For Botswana context, the National Informal Sector Recovery Plan (Republic of Botswana, 2020a: p. vii) proposes a definition of the informal sector based on the ILO R204. Secondly, the Recovery Plan emphasizes the need for a definition of the informal sector that is broad, inclusive, heterogeneous (Guven, 2019: p. 11) , and accommodative of current and future dynamic changes occurring within the microenvironment (Guven, 2019: p. 19) . In terms of operational definition, the Recovery Plan adopts the definition by Statistics Botswana (2020) which defines informal business as those characterized by the following: (Statistics Botswana, 2020: p. 78)

(a) Not registered as a company;

(b) Not registered with professional association;

(c) Less than 5 employees;

(d) Informal accounts or none;

(e) Expenditure is not easily distinguishable from household expenditure;

(f) Employees casually hired;

(g) Often temporary or mobile or in owner’s home/plot.

“Very small scale units producing and distributing goods and services, consisting largely of independent, self-employed producers in urban areas of developing countries., some of whom also employ family labour and/or a few hired workers or apprentices; which operate with very little capital, or none at all; which utilize a low level of technology and skills; which therefore operate at a low level of productivity; and which generally provide very low irregular incomes and highly unstable employment for those who work in it4.

3. The Magnitude of the Informal Sector in Botswana

Data from 2015/16 Multi-Topic Household Survey estimate that there are 105,455 informal businesses, of which 55% were in households headed by males and 44.5% in households headed by females (Statistics of Botswana, 2018: p. 63) . In terms of employment, the survey showed that there were 179,483 persons employed in the informal sector, of which 50% were females. The industries which employed majority of the people was wholesale and trade (45.3%) followed by manufacturing (15%) and construction of buildings at 12% respectively (Statistics of Botswana, 2018: p. 63) . The survey report indicates that this sector grew by more than 100% as compared to businesses estimated by the 2007 Informal Sector Survey (Central Statistics, 2007; Ministry of Finance, 2015) . Typical informal sector businesses include street vendors, food sellers, baked goods sellers, mechanics, hairdressers, airtime vendors, second hand clothing sellers, informal carpenters, taxi/bus operators, cleaning services and those involved in the wholesale and retail trade, reproduction of CDs and tapes, construction to mention but a few (Republic of Botswana, 2020a: p. 9) . In terms of demographic profile, available information presents the following picture: (Republic of Botswana, 2020a: p. 10)

- Most informal sector business promoters are between the age of 24 and 40.

- Over 50% of the businesses are owned by women.

- Nearly 70% of informal sector promoters are single.

- 35.2% of informal sector businesses earn less than P12000.00 per year.

- 29% of informal businesses earn between P12000.00 and P36000.00 per year.

- 22% of informal sector promoters previously worked in the formal sector.

4. Characteristics of the Informal Sector Workers in Botswana

The informal sector is a vibrant, heterogeneous and dynamic sector. The National Informal Sector Recovery Plan classifies informal sector workers into three (3) categories namely: informal, poor; informal, non-poor, vulnerable, and finally, informal non-poor, non-vulnerable. Table 1 illustrates the nature of heterogeneity within this sector:

5. Risks and Vulnerabilities Facing Workers in the Informal Sector

Workers in the informal sector face various risks and vulnerabilities such as high risk of poverty, irregular incomes, occupational illnesses injuries and illnesses, unsafe and unhealthy working conditions, gender disparities, loss of income due to natural disasters such as COVID-19 and lack of access to appropriate risk-management instruments (OECD/ILO, 2019: pp. 19-20; Guven, 2019: pp. 15-16) . Women are more vulnerable as they encounter challenges such as lack of business management skills, including record keeping skills; and limited access to markets (UN, 2020: p. 6) .

Several studies show that COVID-19 had a devastating impact on the informal economy world-wide leaving many people poor and without access to social protection (World Bank, 2021; United Nations, 2020) . A recent study investigating the effects of COVID-19 on the informal sector in Botswana reported that 68% of respondents indicated that their businesses were running at minimum or

Table 1. Characteristics of informal sector workers by household type.

Source: National Informal Sector Recovery Plan (Republic of Botswana, 2020a) page 20.

no profit at all. Further, 73% of the respondents indicated that their businesses were at the verge of collapsing (Richard, 2021: p. 50) . The findings of this study also revealed that 87% of the respondents did not have crisis management plan for sustainability of the businesses. The findings from the National Informal Sector Recovery Plan also confirm that informal sector workers experienced severe hardship particularly during April 2020 lockdowns. The report indicates that over 80% of workers indicated a loss of revenue of up to P5000.00 comparing their April 2020 performance with that of April 2019 (Republic of Botswana, 2020a: p. 15) .

6. Response by Government of Botswana to Address Risks & Vulnerabilities

There is evidence of high political commitment by the government of Botswana to address risks and vulnerabilities encountered by workers in the informal sector. With the advent of COVID-19, government formulated policies and strategic plans aimed at mitigating the impact of the pandemic on this sector and other vulnerable populations (Republic of Botswana, 2021b) . Table 2 provides a summary of response by government in the form of policy instrument and plans.

7. Analysis of Social Protection Coverage for Workers in the Informal Sector

Workers in the informal sector in Botswana enjoy limited coverage of social

Table 2. Government’s commitments and priorities for workers in the informal sector.

protection compared to their counterparts in the formal employment. For example, when it comes to social insurance (particularly pensions) majority of workers do not have coverage as these schemes are designed for formal employees who make monthly contributions towards their pensions (Guven, 2019) . Nevertheless, since most of these workers are poor and vulnerable, they qualify to be considered for social assistance and social allowance programmes when they meet eligibility criteria. Table 3 illustrates existing social protection coverage for workers in the informal sector.

Table 3. Risks & vulnerabilities and existing social protection programmes.

8. Way Forward: Extending Social Protection to Workers in the Informal Sector

The informal sector in Botswana is growing at an alarming rate and it is the source of employment for the youth and young adults. As shown in Table 3, workers in this sector have limited access to social protection. The aftermath of COVID-19 compounded the situation as many workers lost their jobs and became vulnerable to covariate and idiosyncratic shocks. The response by government in the form of COVID-19 Relief fund to mitigate the impact of the pandemic is commendable. However, more needs to be done in future to fast track the implementation of the National Informal Sector Recovery Plan (Republic of Botswana, 2020a) ; the Social Protection Recovery Plan (Republic of Botswana, 2020c) and the Economic Recovery and Transformation Plan (2020) .

As a way forward to extend social protection to workers in the informal sector, government must commission an extensive needs assessment study to determine the needs of workers in the informal economy. This assessment should determine the type of risks and vulnerability across the lifecycle; design relevant social protection schemes; determine eligibility criteria, coverage; identify source of financing; design monitoring and evaluation framework; and finally design legal and policy framework. In carrying out this exercise, the study must be guided by ILO Recommendation No. 204 “Transition from the Informal to Formal Economy”. With respect to social protection, the Recommendation provides that countries should adopt the following measures (ILO, 2021: p. 21) .

• “Ensure that an integrated policy framework to facilitate the transition to the formal economy is included in the national development strategies or plans as well as in poverty reduction strategies and budgets, taking into budgets, taking into account the role of different levels of government, and ensuring close coordination between the relevant bodies and authorities. This integrated policy framework should address the establishment of social protection floors, where they do not exist, and the extension of social security coverage (paras. 10, 11 and 12);

• Progressively extend in law and practice, through the transition to the formal economy, to all workers in the informal economy, social security, maternity protection, decent working conditions and minimum wage that takes into account the needs of workers and considers relevant factors, including but not limited to the cost of living and the general levels of wages in their country (para. 18);

• Pay particular attention to the needs and circumstances of the those in the informal economy and their families in building and maintaining national social protection floors within their social security systems and facilitating the transition to the formal economy (para.19);

• Progressively extend, through the transition to the formal economy, the coverage of social insurance to those in the informal economy and, if necessary, adapt administrative procedures, benefits and contributions, taking into account their contributory capacity (para. 20);

• Encourage the provision of access to affordable quality childcare and other care services in order to promote gender equality in entrepreneurship and employment opportunities and to enable the transition to the formal economy (para. 21);

• Reduce compliance costs by introducing simplified tax and contribution assessment and payment regimes and improve access to social security coverage with respect to the formalization of micro and small economic units (para. 25).

In addition, the need assessment study may also benefit from the work published by the Guven, Jain and Joubert of the World Bank Group on extending social protection to workers in the informal sector and other similar studies in the African region (World Bank, 2021) 5. In terms of best practices, Botswana may draw lessons from countries such as the Gambia, Ghana, Kenya, Liberia, Malawi, Mauritius, Namibia, Nigeria, Rwanda, Seychelles, Sierra Leone, South Sudan, Uganda and Zambia. These countries are implementing successful social insurance schemes for workers in the informal sector (WIEGO, 2022) . Finally, there is need for government to partner with key stakeholders such as civil society organizations, trade Unions, academics, development partners as well as Botswana Informal Sector Association (Metsing, 2020) to come up with strategies to improve working conditions of workers in the informal sector.

Globalization has also affected the development of the informal sector in Botswana. The informal sector has expanded and lines blurred between businesses and small scale units. It is no longer possible to make a clear distinction between the informal and formal sectors except in very clear cases. The characteristics have increasingly become blurred because of globalization.

9. Conclusion

This paper has demonstrated that the informal sector in Botswana has grown significantly since the last Informal Sector Survey of 2007. Data from Statistics Botswana (2018) shows that there are currently 105,455 informal sector businesses employing about 179,483. The paper examined the nature and characteristics of informal sector workers demonstrating that this is a diverse and heterogeneous economy. Risks and vulnerabilities facing workers in the informal sector were explored such as poverty, unemployment and underemployment, lack of maternity benefits, illness, disability, employment injuries, old age and natural disasters. The paper highlighted how COVID-19 compounded these risks and vulnerabilities. An analysis was made on the response by government of Botswana through social protection programming and social policy formulation. In conclusion, recommendations were presented on measure that could be adopted to extend social protection coverage for workers in the informal sector.

NOTES

1In this paper the concepts of informal sector and informal economy are used interchangeably.

2See paragraphs 5,6,8,9 and 10.

3These recommendations are presented in this chapter as a way forward for extending social protection to workers in the informal sector.

4ILO, Dilemma of the Informal Sector, 1991.

The ILO (1991) defines and summarizes the term informal sector/economy as referring to:

5This report recommends that social insurance scheme for informal economy must 1) have institutional arrangement 2) contributions must be invested 3) the scheme must have viability assessment tool and 4) behavioral nudges must be addressed.

Conflicts of Interest

The authors declare no conflicts of interest regarding the publication of this paper.

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