JS
ECA/PHSD/HRP/95/l/WP.5
UNITED NATIONS
ECONOMIC COMMISSION FOR AFRICA
Public Administration, Human Resources and Social Development Division
MINISTRY OF TRADE AND INDUSTRY DEPARTMENT OF INDUSTRY
NATIONAL WORKSHOP ON TECHNICAL INNOVATION AND ENTREPRENEURIAL DEVELOPMENT IN THE
INFORMAL SECTOR IN ERITREA 12-14 JUNE 1995
Paper on
THE INFORMAL SECTOR IN ERITREA: ROLE OPPORTUNITIES AND IMPEDIMENTS
Prepared by BERHANE MESFIN
MAY 1995
MINISTRY OF TRADE AND INDUSTRY DEPARTMENT OF INDUSTRY
NATIONAL WORKSHOP ON TECHNICAL INNOVATION AND ENTREPRENEURUL DEVELOPMENT IN THE
INFORMAL SECTOR IN ERITREA 12-14 JUNE 1995
PAPER ON
The Informal Sector in Eritrea: Role Opportunities and Impediments
Prepared by BERHANE MESFIN
MAY , 1995
CONTENT
1. INTRODUCTION
2. DEFINITION AND SCOPE OF THE INFORMAL SECTOR IN ERITREA
3. STRUCTURE, DIVERSITY AND PRESENT SITUATION OF THE INFORMAL SECTOR IN ERITREA
4. CONSTRAINTS AFFECTING THE GROWTH AND DEVELOPMENT OF THE INFORMAL SECTOR
5. GENERATING OF EMPLOYMENT, INCOME AND LINKAGES OF THE
INFORMAL SECTOR WITH THE FORMAL SECTOR 6. EXPERIENCE OF THE PAST AND PRESENT
7. EFFECTIVE POLICES, STRATEGIES AND MEASURES FOR DEVELOPING AND
PROMOTING THE INFORMAL SECTOR8. CONCLUSION AND RECOMMENDATION
nwtinLdco
1. Introduction
The importance of the Informal sector in any country is obvious. There is no any shadow of doubt about the contribution of the sector in alleviating poverty, distributing of income; accelerating economic development and entrepreneurship in a wider scope and coverage within a nation. In Africa in general until the year 1973 the IS was not even recognized as an economic sector. It is with the initiation and recommendation of the ILO that the sector was started to be given some kind of consideration in some countries.
The IS is the vast reservoir of entrepreneurial initiatives which in many cases provide a livelihood or economic survival for more than half of the population of the developing countries. It generate employment, is seed-bed for entrepreneurial talent operates in less populated rural areas with limited infrastructure and market, start-up with limited resources, provides "hands on" training facilities and caters low cost items for the poor by the poor or high cost quality product for the rich and export. But it has not been given the necessary attention to support it at macro or micro level because in the 1960s, there was a strong belief among the leadership of the developing nations that imported
"formula" by the foreign entrepreneurs and investors and the notion of central planning which allows the state ownership acting as an entrepreneur can bring lasting solution for the economic and social problems, but all failed.
The Sub-Saharan African countries experience shows that in 1991 out of the total working force of 95 million about 25% of the population and 63% of the total urban working force was absorbed in the IS. On the other hand the number of young working force in aggregate is naturally increasing by 2% along the population growth execulding the entrance of new force of the women population due to change of social structure, retrenched government servants due to the structural adjustment and high school leavers particularly in the urban areas. Under this condition it would be easy to analyze and understand the role of the sector in creating new jobs, solving social problems atleast by sharing the static income among the poors.
There is the same phenomenon in Eritrea as a new state with too much problems and as part of the Sub-Saharan countries. Until now the IS is the forgotten sector without any knowledge and necessary consideration, but it is playing the greater role in generating income and employment, supplying goods and services all over the country participating in manufacturing, construction, commerce, transport, handicrafts and other minor and inferior jobs.
In this short paper the scope and nature, constraints the IS is facing, the contribution will be discussed based on the experience of the writer and some secondary information. In addition policy issues of the past and the present will be assessed briefly as a transition to the conclusion.
2. DEFINITIONS AND SCOPE OF THE INFORMAL SECTOR IN ERITREA.
The definition of the IS is different from one country to another. It is the most debatable
term among the academicians and sectoral level within a government structure. Because of its inherited difficulties, most of the time the discretion is given for the user of the word to define in relation to the context wanted to write or deliver. Accordingly, beforeproceeding further, to avoid any confusion it is better to benchmark the definition of the
term.
The IS is defined differently in different offices in Eritrea using different parameters.
Most of the time the definition is circulating around the idea of scale of operation, ownership, labour relation, licensing and legal status, capital size and source, numbers
of workers employed, intensity of capital utilization ,sales, and revenue or location.Labour Administration Office sees interms of the employee-employer relation. If there
is no any hired worker in the business it is defined as an informal sector. The Inland
Revenue classify according to the scale of operation and income. The Asmara Municipality any activities outside its jurisdiction which does not contribute any revenue for are considered informal and recognized as " illegal activities \It is clear from the short discussion above that upto now there is no clear definition of the term, economically or legally or socially. Until a common understanding and definition is reached among the concerned, the Department of Industry, DOI, prefers to define; as any business activity that operate and earn income without the license of the
office, DOI. License is given by the DOI for any type of manufacturing industry thathave specific location, working with automated or/and electrically operating
machineries. This definition has been chosen for the sake of simplicity and because the license of the DOI is the last stage for any further formalization. Others are giving later.The relation can be defined using mathematical symbols ie: the number of licenses in the
DOI are less than the Department of Trade and municipality licenses.DOI j<_ DOT < MUNICIPALITY LICENSES.
According to the definition, then , all the small scale industries and the public enterprises formally registered under the DOI are excluded. They are about 1300 small scale and 42 public enterprises holding a total number of 18000 workers established and operate
with a capital of 450 million birr. They are classified into groups known as Textile,
Beverage, Metal , Wood, Chemical, Paper and Printing, Leather and Shoe, non-metal, Tobacco & Match and food, see table 2.1 and 2.2.mvtied.doc
Asmara, Chamber of commerce and the Municipality of Asmara were having 9222 members and 8600 licensed business units respectively. At the end of 1993 actually there were 18108 trade license for domestic. By projection, the number estimated to reach to 25000 for the domestic and 4000 for the foreign trade. Majority of the informal sector operations are in the commerce next consecutively general services manufacturing and handicrafts, construction and others. There is also a large population of informal operators in the non-farming activities mainly in the rural areas working in the different
trades such as blacksmith for the production of agricultural tools, tannery, pottery,construction etc.
Except some transportation services provided in the cities Asmara and Massawa, all the transport service is (catered) supplied by the IS. Schedule are made centrally for the
purpose of efficient services for the public.The other most interesting and vast area that attract the IS operators is the construction sector. Starting from the simplest construction of a hut in the rural areas to the biggest building are done by the IS. It is a "informal center" for on job training of different skills such as mason, carpenter, electrician, plastering brick laying, plumbering etc.
Roughly more than 20,000 people are engaged in the sector in the sub-urban and urban areas and yet there is a high shortage of skilled manpower covered through import from
Ethiopia.
The IS is diverse in the country. It includes from the least job such as vendors of candies, cigarettes, shoe shinning local drinks brewing repairing - - - etc to the modern commercial activities. Through out the nation over 29000 in trade over 7500 in least activities in modern cities over 134000 in the non-farming activities, all in all estimated around 247000 of people and significant number in the traditional activities are participating and earning for their living in and from the IS activities. Roughly more than 45% of the population are engaged in the sector, excluding the traditional
handicrafts and fishermen found along the coast of the Red Sea.nwiied-dnc
STATUS OF PRIVATE ENTERPRISES AS OF DECEMBER 30, 1994
Sub Sectors
FOOD
BEVERAGE
TEXTILES
CHEMICALS
LEATHER & SHOE
METAL & WOOD
PAPER & PRINTING NON METAL
TOTAL
No. of Enterprises
656
8
89
39
30
333
17
95
1267
% 51.78
.63 7.01 3.08
2.37
26.28
1.34
7.51
100
No. of Workers
1887
185
1484
499
567
1173
129
990
6,914
Capital
37,017,723
2,131,436 12,633,489
13,685,630
15,945,658
35,646,880 2,956,294
17,283,256
139,269,044
Table 2.1
source - DEPARTMENT OF INDUSTRY
nwticd.doc
DISTRIBUTION OF SMALL SCALE INDUSTRIES BY ADM. REGION
AS OF DEC. 31. 1994
Table 2.1.1 ADMINSTRATIVE
REGION
ASMARA
HAMASIEN
SERAYE
AKELEGUZAI
SEMHAR
SENHTT
SAHIL
BARKA
GASH & SETIT
DENKEL TOTALS
No. OF
ENTERPRISE
593 91
145
140
43
114
25
18
98
=
1267
%
46.8
7.1
11.44
11.04
3.39 8.99
1.18
1.42
8.64
=
100
No. of EMPLO YEES 5154
184
439
436 166
248
39 33
215
=
6914
CAPITAL
FIXED + WORKING
98,192,307
2,755,616
12,796,505
8,361,088
3,344,084
5,344,534
595,255
465,068
7,414,587
=
139,269,044
Source - DEPARTMENT OF INDUSTRY
■wtiMUoc
EMPLOYEES IN THE PUBLIC ENTERPRISES 1993 & 1995 FEB.
Table 2.2
Sub-Sectors
FOOD BEVERAGE
TOBACCO & MATCH TEXTILE
LEATHER & SHOE METAL
PRINTING & PAPER NON- METAL CHEMICAL
TOTAL
1993 No.
Enterprises
6 3
2 5 5 10
3
4
4
42
Employ.
960
640
337
4397
1569 934 341
631 746
10855
No.
Enterp.
6
3
2
5
5
9 2
4
5
41
199f.FEB.
Employees Perm.
949 738
351
4204
1426 917
360 615 555
10115
Temp.
753
70
10 66 86 30 17
80 439
1551
Total 1702
808
361 4270
1512
947
377
695
994
11666
SOURCE - DEPARTMENT OF INDUSTRY
rnvtieddoc
3. STRUCTURE DIVERSITY AND THE PRESENT SITUATION OF THE INFORMAL SECTOR IN ERITREA
The informal sector is very diverse and heterogeneous which manifest itself,mostly,as a "by - product" of any economic system at any level of economic development.
Depending on the levelof the economy ups and downs in their number and activities may
be seen but it is something which can not be avoided. Handling the sector systematically and wisely can be exploited for the benefit of the country as a whole and as fertile
ground for the poor to start any initiative for self - employment , awaring , and stimulating potential entrepreneurs and for gradual learning and training.In Eritn;a only in the domestic trade there are about 25700 registered and recognized informal operators hiring (including themselves) upto 102000. Roughly there are about 4000 import - exporters and commission agents, over 7500 informal operations in major cities working with temporary licenses, over 134000 people in the non-farming activities in the rural and sub-urban areas and a large number of handicrafts, majority women, particularly in the lower western and eastern part of the country working and earning for their livelihood in the country. Totally , excluding the unestimated handicrafts in the urban and rural areas, construction and transport, people engaged in the IS as self- employed and employees are estimated to reach upto 247000. They support over than
1.1 million lives.The IS consists different activities-manufacturing trade, construction, transport, service, and traditional handicrafts . According to the ILO survey over 95 percent of the urban
and rural informal activities are concentrated in commerce, service and manufacturing.EMPLOYMENT BREAK-DOWN BY SUB SECTOR IN PERCENT
Table 3.1 SUB SECTOR
Commerce (Trading) General Services
Manufacturing & Handcrafts Construction & Agro based Others
TOTAL
PERCENT 61
22
14
2
1 100
- 1LU SURVEY DATE 1994
The trading sub-sector includes activities such as retailing shops, selling different industrial and agricultural products, brewing and selling local drinks, selling grains etc; services such as repairing and maintenances, bars and restaurants etc ; transport service taxis and coaches, hand driven carts etc ; inferior jobs such as polishing shoe, selling journals, cigarettes, vegetables etc and others.
The economic organization of the majority of the enterprises in the IS are sole proprietorship. According to the survey data made by ILO about 90% of the small undertaking are individually owned and 6% under partnership. This type of ownership has hindered the development of entrepreneurship of the potential people.
Instead imitation expanded just to get rich quick. The sense of partnership and share holdings are spreading their root in the country the last 2 years after people started to discover that amalgamation is power and insurance for fund raising and exploiting of hidden potential. Most of the enterprises are young run by young people.
The distribution of the informal sector in the country relatively seems fair and proportion. Some kind of concentration in major cities, particularly in Asmara is seen. Twenty nine percent of the trading activities and over 80 % of the manufacturing are located in Asmara. It is natural to happen like that because of the past polices, established market outlets, infrastructiral facilities and locational factors. Generally the trend is changing. It is very surprising to have more than 1118 trading licenses in 1993 in the remote area of Sahil administrative region. As the infrastructure improves, interaction of people increase and close attention is given for the forgotten areas, trade is liberalized and competition intensified the growth rate will be high.
Female participation in the non-farming activities and some rare handicrafts is very high. Women of the Gash and Setit Senhit and Barka are taking doum leaves weaving as a monopole activity because male are not doing it because it is seen as an inferior activity culturally. Over 80% of the women in these regions are earning some money to support the life of the family. Pottery is also common among the highlanders eventhough they do not commercialize the product because of the weak market and poor perception of the products by the local people.
Around the manufacturing IS and formal sector as well, the participation of women is very rare. Over 90% of the manufacturing and trading are owned and run by young and potential male entrepreneurs. There are some nominal female ownership.
Exceptional development among the women seen at present is that whether they own the license or not they are becoming active participant in the affair of the enterprise acting as; a right hand of their husband or father.
The employment structure of the IS in Eritrea is also very interesting. Especially after 1980s almost all private owners introduced a family hood running business either to reduce cost by the implicit labour, to transfer the knowledge so that to create the guarantee for the conitinunity, or to run away from the national conscription. At present it is very rare to see a hired permanent workers among the informal sector operators. Offcourse the trend will be changed as the economy improves, entrepreneurial skills and, different regulations developed and interference increases from the; side of the government in relation to the income tax of the hired workers.
The payment structure is also needs some attention. According to the ILO survey
over 30% of the hired wage earners fall between 100 and 200 birr per month.
Twenty eight percent between 200 and 300 birr. Relatively in a poor economy like Eritrea the payment is attractive comparing with the minimum wage scale of the country which is 150 birr , always entrepreneurs are alert on any changes of the minimum wage or the wage structure of the government. See table 3.2
MONTHLY WAGES ENGAGED IN THE INFORMAL SECTOR
Table 3.2 Wages in Bin-
less than 100
100 to 200 200 to 300 300 to 500 500 to 1000 more than 1000
TOTAL
Percent 14
30
28
14
8
6 100 Source - Survey data (1994)
Educational background of the majority self-employed and employees in the IS is very poor and low. More than 80% of them are below the primary education level which does not have any relation with the job they are performing. Training also.
Except few who graduate from technical school, almost all acquired the skill through apparanticiship, self taught or transferred in a traditional way within the family. The
last is very true for all the handicrafts exercised.The municipality authorities, respective ministries and the inland revenue knowingly
or unknowingly are taking some coercive actions to control and regulate the activitiesof the urban informal sectors. As a result most of them have been exposed to the tax net: of the internal revenue office or obliged to pay fees and rents for the local administration they are found. For instance every shoe polisher is paying for two square meter area as rent and street tax for the municipality on the revenue estimated
by the inspector.
In general the difficult economic situation and the introduction of structural adjustment programme which squeezes the probability to be hired as a government
employee have inculcated in the mined of individuals to think about creating job for self. As the educational policy improves and vocational school with apparenticiship expanded the attitude towards self-employment will increase which may help to revive the 1960s culture of self-sustaining tendency among the people. All the entrants as self-employed or entrepreneur are going to be entertain in the big sea-the informal sector-atleast at the beginning until they transform themselves to the formal
sector.
10
4. CONSTRAINTS AFFECTING THE GROWTH AND DEVELOPMENT OF
THE INFORMAL SECTOR.
The IS in any country has been given little attention. Most of the time its growth and development is depending on its own effort, but it does not mean that it is also a problem of itself. The constraints that affect the growth and development of the IS is originated from two sources - itself internal, and external.
Informal economic activities are exercised in every economic sector of a country - manufacturing, construction, trading and other services. The characteristics makes the sector vast, disarrayed diverse and heterogeneous that causes to be difficult to manage, control, and assist. The nature of the informal sector by itself makes it difficult to make any development or training or financing or assisting programme for its growth and development.
The second point is almost all the informal operation are reluctant to any formalization because of incapacity to understand in relation to their education and experience or afraid of any traps such as taxation planned by government. At the same time in relation to the short sightedness to be rich and shortage of finance they are facing, any process that incurs additional cost is automatically rejected, because any formalization process increases costs.
The third point is related with the life span of the business. Most of them haVe only short time to survive. This very short time is the most critical momentum for the survival of the business and to save sufficient fund for the next step of action.
Therefore any survival depends on the amount of sacrifice paid during the transitional period.
The IS is an economic sector serves and is suitable for the poor. The participants in the sector are young mobile and risk takers. This versatile character and achievement motive makes very difficult for the concerns to think any development programmes to assist them. Sometimes new changes make take place before any adjustment is made.
These, the least, inherited constraints are always exploited as ground for justification for not stretching assistance hands even not to think about the informal sector. But that is not only the case. There are other controversial issues always raised whenever positive thinking about the sector is initiated. These are :-
1. Macro issue, economic social and philosophical approach of any government positively or negatively has an impact on the general growth and development of the IS. In the case of Eritrea where a free market economic system is the philosophy, it would be very difficult to think positively about the micro- business because every thing is dictated by the market forces. Competition prevails in any economic activities with free entrance. Social expenditure
and subsidy are cut down. It would not be easy for any government to think
about the micro things. In a situation where informal sector operators are dying and cropping every night, formulation of constant policy would bedifficult. Therefore any positive macro issue should originate from the
system itself because the macro policy is the reflection of the system.11
2. Conflict of objectives of different government organs and local administration are harming the progress of the IS. The typical example in Eritrea is any economic activity in the cities is seen interms of cleaness, revenue collection and specific location reserved by the operator. Any activity that does not fullfill the criterion afore mentioned points would be automatically labled
"illegal" and every necessary action would be taken to get rid-off. Beyond that the activity is associated with stability, security etc because the informal sector is considered as the source or " incubation center " of the social evils, crimes etc. Then it is going to be a matter of choice or balancing the
outcome of the two trends and objectives.3. Zoning laws and master plans are driving out the IS operation from the suitable areas for them. In relation to city development and other social and pollution issues separating and isolating for specific activities is becoming common philosophy of city management. Unless critically seen this type of plan is almost against the development of the IS. For instance in Eritrea particularly shoe shinning people are not allowed to move round. In Senhit administration region more than 1000 women who support their lifes by selling handicraft products have been deprived to sell their product in the central city because it is considered "illegal" shopping without a license.
Isolated and specific area as a market place outside the city is planned for them but it would not be convenient because it is very far from the market.
It would also take time to organize them under cooperative to create an
economic power to produce more and qualitative product, manage and market the product, and their affairs. The same thing is happening all over the
major cities in the country.4. Regulations and procedural problems. The IS operators by their nature want
to move free and are ignorant about any paper works and regulations
prevailed in the system they are existing. They want quick service and
decision because time is valuable resource. The government on the other
hand to control every movements, to collect more revenue, or to be
transparent and fair in the eyes of the clients always issues different
proclamation, decree, direction or procedures to be followed by any citizen
which sometimes difficult to be understood by the target groups orpopulation. There arises a conflict of interest and objectives. The
misunderstanding leads to confusion. Always it is better to keep the balanceand to give "one stop" service for the informal operations. More regulations
and procedures that pushes for formalization can cause for the nourishment
of informal sector. Those regulations lose the confidence of the operators and distort the real objective wanted to be achieved, unless stated clearly.12
The internal and external constraints of the IS for its growth has been mentioned briefly in a general way. There are also some problems which hinder the development of the IS. These are :
a. Market - Most of the products of the IS especially handcraft products are facing a problem of marketing. The typical example that can be mantioned is the doum leave product around Barka, Senhit and Gash & Setit. Almost all the producers are found at the stage of collapse because of marketing problem. Generally most of the product of the informal sector needs an outlet because a) the domestic market is limited b) appreciation of the local product towards the local product is very poor, and c) due to the industrialization most of the artisan products are substituted by local industrial products or imported ones.
b. Finance - the existing financial institutions in the country are not at a position to serve the IS operations. The procedures and requirements requested by the bank to get credit from the commercial bank is very difficult. Also the knowledge of the operators about the bank credit facility is limited. As a result almost all of them are self-financed ventures or loan from money lenders at high interest rate, or are family based. The traditional financial cooperatives are very weak unable to facilitate credit to start or run business.
The country has not yet established financial institution that may serve the IS or that may give long term financing. The IS operators are unlucky in this
area.
c. Shortage of inputs - Entrepreneurial and material inputs - The availability of foreign input which are bought by a foreign currency and some local resources are scarce. The human resources input is also poor because there is no entrepreneurial capacity to manage internal affairs. The formal sector especially the manufacturing industries were given 6.5 million USD for the purchase of foreign input but the informal sector were not privileged because they are informal.
d. Land - The informal sector especially those found at the threshold to be transferred to the formal also among the formal sector for the purpose of expansion land is critically needed. Two meter square of land along the corner of the street for a shoe shiner is difficult to get. The problem will continue to hinder progress until the land reform is started to be implemented.
e. Taxation - all operators in the IS are taxed on subjective estimation of income by the inspector of the inland revenue. They are not at a position to supply financial statements in a modern way. Until then they are always victimized.
f. Luck of education, poor record keeping and management. Eighthly percent of the informal sector operators are illitrate or below the level of primary eduction which does not help them to understand simple instruction and regulation. Systematized training programme should be launched.
13
g. Luck of information - Information is becoming very important input for the development of any business. They are weak in their education, therefore, they are very far from developments. They are living within themselves without any awareness about their surrounding beyond hear - saying. There is no centralized information service. Simple case irritate clients in the offices because of the poor handling of cases and approaches of the government servants.
In conclusion IS are created within a problem to solve problems. Their strength is measured by the degree of resistance to the inconvenient circumstance. Yet they need assistance and support institutionaly especially now where the internal economy is trying to assimilate with the international economic globalization.
5. GENERATING OF EMPLOYMENT, INCOME and THE LINKAGE OF THE INFORMAL SECTOR WITH THE FORMAL SECTOR.
The economy of the country at present is not at a position to create sufficient jobs for the whole working force. The unemployed population in the country is very far from the natural and accepted unemployment rate which the economy can hold as normal. The entrance of new working force from the women's population, the big number of unproductive high school leavers and dropouts, the retrenched government workers and demobilized fighters and the internal migration to the urban and returnees from diaspora etc are worsening the unemployment situation in the country. This is becoming one of the challenge for the government.
The government for its berecueracy and for the projects run under it , the public sector and the formal and informal private sector were the sources of new jobs for the job seekers during the past years. The capacity of the government and the public sector is over saturated unable to hire new workers. Infact the central government as part of the structural adjustment has already accepted a proposal for a retrenchment of former governments servents. New Jobs in the public sector is also a dream. The prospect for new jobs falls on formal and informal private sectors.Under the Department of Industry there are more than 1300 enterprises with a total capital of 139 million birr. They hired more than 6900 workers employees which is half of the public enterprises.
According to the statistical information of the domestic trade of the Ministry of Trade and Industry, throughout the nation there were 18108 domestic commercial traders and manufacturing enterprises established with a capital of 96 million birr in 1993. See table 5.1
Based on the actual data collected from five administration regions namely Asmara, Hamasien, Gash & Setit, Barka and Senhit, a projection was made for the number of licensed businesses under the Department of Trade , DOT, for the year 1994. See table 5.1. Accordingly it reached upto 27000 excluding the import-exporters and commission agents which are estimated to be 4000.
Roughly in these 31000 business entities about 66800 people are hired.
NUMBEROFDOMESTICTRADELICENCESBYAWRAJAFOR 1993ANDPARTIALLYPROJECTED1994 Table5.1 ADMINISTRATIVEREGIONYEARWHOLESALES No.CAPITAL
RETAIL No.CAPITAL
SERVICE No.CAPITAL
TOTAL Asmara Akeleguzai Barica Denkcl Gash-Setit Hamasien Sahil Senhit Seraye Totals
1993 1994 1993 1994 1993 1994 1993 1994 1993 1994 1993 1994 1993 1994 1993 1994 1993 1994 1993 1994
274 till 148 218 81 90 21 30 121 1S5 74 369 21 31 49 156 334 491 1165 2742
9376314 1028000 1025800 225765 3268148 795500 442000 2947110 5415500 247546?7
3390 4613 1081 1590 514 717 329 481 1714 2627 1218 1494 1006 1479 1514 2143 1302 1914 12739 18047
16878842 2454899 1882200 1222725 6626428 2653182 2143584 3173793 4535070 43417338
1669 2336 350 515 300 341 188 276 774 1186 148 283 91 134 320 615 214 315 4204 6222
16163320 851670 1069877 1419424 3744920 955010 322000 1448270 1454570 27876731
5333 8060 1579 2323 895 1148 538 790 2609 3998 1440 2146 1118 1644 1883 2914 1850 2720 18108 27011
42418476 4334569 3977877 2867914 13669496 4403692 2907584 7569173 14405140 96048706 ource
-Department of Trade- Ministry Office & Administration Region for 1993 Projected for 1994 except for Asmara, Barka, Gash & Setit,
HamasienandSenhit15
As employees the owner and his/her family members. This makes the local people engaged in the formal and informal sector to reach upto 101775 supporting a total of 508875 people which is 15% of the total population of the country. The number of employees in the sector and the participation of the private sector will increase in the coming years as the trade policy is becoming more liberal. There were 9222 members registered under the Asmara Chamber of Commerce which are all informal sector operations of the Asmara and Hamasien regions, see table 5.2
The other source about the informal sector are the municipalities of the cities. Apart from all the licensed formal and informal activities with permanent licences and addresses, there are more than 3200 people in the informal activities such as shoe polishing, repairing, grain selling, second hand items, brokers and porters, coaches and cart, taxis, tailors etc. For the purpose of revenue earning and other social objective, always the administration of cities are curious about these activities. Typical example can be Keren( see the attached table 5.3 about the classification). The same system followed in all major cities. According to the internal regulation of the administration all activities should be " formalized \ All in all people operating with temporary licences or "white paper" are estimated to reach 7600 in the cities.
Communities that are forgotten in Eritrea are the handicrafts found in the urban and rural areas such as blacksmiths, tinsmiths weaver of threads and doum leaves, potteries, embroiders, tailors etc. Unfortunately the country is getting poorer due to the industrialization and the poor appreciation of the people towards the domestic products. But there are a lot of people who are leading their lifes from the income of these activities. The typical example are the blacksmith in Asmara at Medeber and Keren. A number of adults and children are working in these places.
Women of the Gash & Setit, Barka and Senhit are also earning their living from the products of these traditional trade.
16
MEMBER OF ASMARA CHAMBER OF COMMERCE, 1994 (ASMARA AND HAMASIEN)
Table 5.2
S/N 01 02 03
04 05 06 07 08 09
10 11 12 13 14 15 16 17 18 19
20 21
22 23 24 25 26 27 28 29 30
CLASSIFICATION SWEATER FACTORIES
ALCOHOLIC AND SOFT DRINKS DISTRIBU COSMETICS AND EDIBLE OIL MANFACT.
GENERAL GOODS RETAILERS THREAD SHOPS
DRIVING SCHOOL FRIDGE REPAIR PENSION
SHOE MAKERS
NATIONAL CLOTH SHOPS TAILORING
TEXTILE RETAILERS MEAD HOUSE BUTCHERY BARS
RESTAURANTS
READY MADE CLOTHS SHOPS GRAIN RETAILS
HOT PEPPER AND SPICES SHOPS BAKERY AND PASTRY
CATTEL TRADERS
COAL AND WOOD STORES GRAIN MILLS
PHARMACIES PRINTING PRESS SNACKBARS
FRUITS AND VEGETABLES PHOTO STUDIOS
CARPENTERS-WOOD WORKS GARAGES AND CARRIAGE REPAIRS
No.OF MEM.
93 3 28
1806 13 43 5 79 72 12 128 202 42 64 304
154 239 120 127
47 88
108 33 36 9 180 57 64 90 308
%
18.2
3.1
17
31
32 33 34 35 36
37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57
58 59 60 61 62 63 64 65
HOTELS LAU1NDRY
IMPORTERS .EXPORTERS & COMM.AGENTS STATIONERY AND BOOK SHOPS
WATER DISTRIBUTION
PETROL STATIONS & GAS DISTRIBU.
GOLD SMITH
WATCHES, RADIOS & MUSIC INST.SHOPS TAILORING & EMBROIDERY SCHOOLS TRAVELING AGENCY
SPAREPARTS SHOPS
BUTTER AND HONEY SHOPS BEAUTY SALON
GLASS WORKS MATTRESS SHOPS
HOUSEHOLD UTILITIES SHOPS SALT TRADERS
ELECTRICAL INSTRUMENTS AUDinORS AND ACCOUNTANTS PUBLIC CONSULTANTS
CONTRACTORS
AGRICULTURAL SERVICE SKIN RETAILERS
rope: retailers TYRE REPAIR CART REPAIRS VARIOUS ACTIVITIES DAIRY PRODUCTS
BUILDING MATERIALS SHOPS COFFEE TRADERS
BROOM MAKER
BICYCLE & MOTOR CYCLE REPAIR LAUNDRY MANUAL
SECOND HAND GOODS SHOPS
SEWING MACHINES & TYPEWRITER REPAIR
32 22 2017 73 20 35 75 82 5 3 41 4 72 12 15 53 12 77 5 83 83 5
1 1 21 1 20
5 196
39 2 46 8 20 6
20.4
1.98
18
66 67 68 69 70
71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86
MEDICAL SERVICE SACK RETAILERS
FLOWER SHOPS CAR 1JPHOLSTRY ANIMAL FEED SHOPS USED BOTTLES TRADERS SOUVENIR SHOPS
TYPING COMPUTER SCHOOL LEATHER ARTICLES & SHOE SHOPS FACTORIES (PRIVATE)
TAXI SERVICE
AGRQ INDUSTRY
GOVERNMENT SERVICE GIVING ENT.
TRANSPORT & COMMUNICATION (OOV.T) GOVERNMENT FINANCIAL INSTITUTIONS GOVERNMENT INDUSTRIES
HEAVY TRUCKS SERVICE HAMASSEN GENERAL SHOPS HAMASSEN ACTIVITIES BUS SERVICE
ALCOHOL & SOFT DRINKS DISTRIB. (AURAJA) GRAND TOTAL
LESS GOVERNMENT ENTERPRISES & INSTITUTION PRIVATE UNDERTAKINGS
5 9
5 28 7 1 10 17 93 50 315 7 2 7 5 39 316 949
316 14 19
9960 53 9907
3.2
3.2 9.6 3.2
Number of enterprises under the department of Industry found in Asmara and Hammasien as of Dec. 31 were 685. Assuming all are members of the chamber, they represent only 6.9%. This shows that over 93% of the members are engaged in non-manufacturing activities known as commere (Trade) , service and construction which are recognized as informal sector according to the definition.
19
FORMAL & INFORMAL ACTIVITIES IN KEREN MAY 3, 1995
Table 5.3
S/N 1 2 3 4
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
21 22 23 24
25 26 27 28
ACTIVITIES
LOCAL DRINKS BREWING SHOE SHINNING
COACHES-HORSE DRIVEN CARTS RETAIL SHOPS
TEXTILE SHOPS
SECOND HAND- SALVAGE PEPPER & OTHER SPICES CONTRUCTOR
WOOD & CHARCOAL BUILDING MATERIAL HEAVY TRUCKS TAXI
TYRE REPAIR
METAL - BLACKSMITH LEATHER & SHOE SHOPS HAIR DRESSERS
BARBERS - HAIR CUTTERS PUBLIC RELATION OFFICE LAUNDRY
HOUSEHOLD ITEM SHOPS CIGRATTE WHOLE SALES SHOP BICYCLE REPAIR
DOUM LEAVES SHOP IMPORT- EXPORT FRUITS & VEGETABLES BAR
RESTAURANT & HOTELS SNACKS
No.
97 10 55 460 76 4
19 1
21 12 7 23 3 33 14 7 ■ 5 4
3 5
2 3 20 40
17 40 24 41
20
29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
51 52 53
GOLD & SILVER SMITH WOOD WORK
GARAGE
DRIVING SCHOOL
MACOORNI & SPAGHETTI FACTORY BROKERS
MUSIC SHOPS PHARMACY VETERNARY PHOTOGRAPH
TYPING & COMPUTER SCHOOL STATIONARY
GAS STATION
NATURAL GLUE PROCESSING WHOLE SALE-DOUM LEAVES GRAIN MILLS
EXPORT IMPORT
FATTENING & DAIRY CATTLE SELLING ANIMAL FOOD SELLING
SELLING GOODS-MOBILE
TOMATOES CUCUMBER & LEAVES GRAIN SELLERS -RETAIL
TAILORS - (ESTIMATED)
(THEY PAY $ 6 BIRR FOR LOCATION)
29 14
5 3 1 3 7 9 1 5 3 2 3 1 11 26 2 5 1 6 2 52 52 67 200
21
The other important sector which holds the majority of the informal operators interms of
employment is the agriculture. In a country like Eritrea with 85 % of the population in therural, there can not be any doubt about the greater role of the informal sector in generating employment in the non-farming activities. The work can be seasonal varying according to the natural time table of any farming activities. Based on the assumption of
10% of the working force is engaging in the non-farming activities there are approximately about 134000 people in Eritrea.
According to the ILO estimate, the contribution of the IS to the GDP is more than 5%
upto 10%. Offcourse there is no specific measurement used to estimate the contribution.
As clearly stated in the above paragraphs a lot of people are getting their income from the informal sector activities. In Eritrea, activities in the construction, transport and the agricultural sector are becoming very attractive in the payments greater than the minimum wage. But a lot of people are living below the poverty line earning below 100 birr per month. The informal sector is used as a last alternative or a means for a transition to a
better condition.
Particularly women in the lowlands are getting the least income. They are not even covering their cost of production. Life is miserable getting less than lOObirr but supporting five heads. Relatively tailors are earning better among the handcrafts.
The IS is also a source of revenues for the government treasury in the form of tax and for the local administration in the forms of rent, fee and tax. Almost all the municipality are covering their expenditure with the revenue collected from the majority informal and few
formal operators.
The worst outcome of the industrialization in Eritrea is its poor linkage among the different economic sector, especially among the industries. Except few textile and leather industries in Eritrea, almost all enterprises are independent of each other for the input they consume. Majority of them are using foreign input that ends within without effective forward or backward linkage. Under such type of industrialization the chance for the development of small scale industries is weak and un-attractive for investors especially in Eritrea where its market is limited .Instead it can be a fertile ground for the development of commercial enterprises which is harmful for the development of industrial entrepreneurship.
There is also a poor linkage between the formal and informal sector. Except some recycling materials are used by the informal sector around the (metal work) blacksmith there is no strong links. People in the country are engaged in the commercial activities.
Over 90% of the member of the Asmara Chamber of Commerce are traders. There were more than 2000 import-export and commission agent only in Asmara and Hamasien.
Under such type of condition it would be very difficult for the development of entrepieneurship. Technology of the handcrafts can not be improved because of the market dominated by cheap and imported goods.
22
The African experiences shows that more than 65% of the urban labour force or 25% of the total labour force of the population of the Sub-Saharan countries is engaged in the IS earning for his living. The same is true for Eritrea, therefore, the government should be able to give more attention and support institutionally consistenUy and continuously for
the sector. J
6. EXPERIENCE OF THE PAST AND THE PRESENT.
Industrialization in Eritrea started during the Italian colonization.The manufacturing and trading activities in the urban were owned by foreigners Italians, Greece and Arabs. The IS was the sole supplier of goods and services and generator of employment and income for the Italian settlers. Some basic infrastructure were built and financial institutions established but colonizers substituting one another destroyed the economic base of the country. Especially the Derg regime with its ill policy and the long destructive war waged upon the people and the country has destroyed the material and human resource of the nation.
After the fall of Imperor Haileslassie, 42 private industries were nationalized. Two independent institution were running the industrial sector of the country. The ministry was mainly concerned about the public enterprises and the industrial policy of the country, and the other institution known as Handicrafts and Small Scale Industries Development agency- HASIDA- about the privates.Both were structured to serve the socialist economic system serving two different type of ownership of the manufacturing - the public and private.
The branch office of HASIDA was established in Eritrea in 1978. The main objective of the agency was to organize similar trades under one roof ofproduction and management so that to transfer them to industrial cooperative to promote the private industries , to make feasibility studies of projects, to give auditing services
to the cooperatives and issuing licences.
All manufacturing enterprises were obliged to have an industrial licence after full filling the criterion. The office also was giving a legal personality for the cooperatives. Because the socialist economic thinking was to organize any handcrafts and commercial activities in cooperation, there was no this much consideration about the IS within the system. Private ownership was discouraged.
In Seraye, Semhar, Keren, Akeleguizai, and Asmara in 1984 there were 15
cooperatives with a capital of 613051birr and 763 members.
23
STATUS OF COOPERATIVES UNDER HASIDA IN 1983
Table 6.1
S/N
1.
2.
3.
4.
TRADE
Weaving Tailoring Metal Embrording Total
IN 1984 No.of CooP.
4 9 1 1 15
MEMBERS
301 311 50 98 763
CAPITAL
225,891.63 291,887.48 22,492.56 72,979.56 613,051.11
Source - HASIDA PUBLICATION MARCH 1984
By the end of 1990 their capital was reached over one million and members over 900 and the number of cooperatives 18.
Relatively speaking Eritrea was the weakest province during the time in organizing cooperatives and in the number of artisans due to the long war and the impact of industrialization on the handcrafts. It was covering only 2% of the total cooperation in Ethiopia.
The other historic event in relation to the organizing process had taken place in the Ministry of agriculture through an organization called EPID which was mainly concerned about the rural peasants and non-farming activities. An attempt was made to organize the poor peasants and the non-farming operators along the side of farming . Its impact has not been felt this much.
In general HASIDA was concerned about the organized cooperatives and licensed manufacturing. Concerning the other informal sectors and industrial handcrafts nothing had been done by the government.
At present the former cooperative are found undera miserable condition. The government has left them free to compete in the free market. They could not survive but are trying to re-organize themselves as an economic association legally according to the commercial code of the state. The licensed manufacturing enterprises that were under HASIDA are continuing as usual under the Department of Industry.
Other outside the DOI are completely outside the attention of the government except by few local administrative bodies. Most of the time the informal sectors are wanted and controlled not for the purpose of their development but for the revenue they are generaiing. Any activity outside the knowledge of the local administration is illegal. Either a permanent or temporary licences should be given to run any activity. Every municipality striving is to earn as much as possible to cover any expenditure.
24
The general policy at the national level is very clear. Privates are going to be encouraged to participate in the development process but the pre-conditions have not been fulfilled from the side of the government. There is no coordination among the service giving government bodies horizontally. There is no one stop service. Zoning law licensing procedures foreign input availability, taxation, acquisition of land etc. are all working against the development of the informal sector. Above all there is no an independent
private or governmental institution that serves the informal sector.7. EFTECTTVE POLICES, STRATEGIES AND MEASURES FOR DEVELOPING AND PROMOTING THE INFORMAL SECTOR.
Policies are a guidelines expressed in general form used to achieve a major objective at the national level . Any state has its own policy concerning the politics, economic, social military and foreign relation.
The policy of the state of Eritrea towards the private sector is positive with a strong belief that the private sector can play a great role in alleviating poverty generating employment and income. The plan of the government is to withdraw gradually from any intervention in the economic activities.
Leaving the economic activities for privates is not a solution by itself unless the sector is supported and provided with the necessary facilities to increase the participation of the people. In this case the government should be responsible to provide the infrastructural facilities and encouraging them through the macro and
micro policies.
Profound changes in the economic and trade condition and relationship with externals have forced national economic around the world including Eritrea to undertake urgent programmes of structural adjustments. On the other hand the operations of the multinational enterprises are expanding. Both the governments of the developed and developing countries are developing and competing in attracting foreign investment which is becoming scarce. The globalization of the economy and the shift to a free market often enlarged possibilities of investment which multinational enterprises are quick to capture. The wining of the heart of the local and foreign investors for tangible economic development then fully
depends on the policy of a country.
The IS is a universal drive of human being to stay alive. It exists at any level of economic development and systems. In Eritrea the sector plays a significant role in the urban and rural areas by producing goods and services in confirmity with the needs of the population. It is a poor man's sector. It provides the basic necessities for the poor which may covers 70- 80% of his budget. In meeting such needs the sector has some comparative advantage over the formal sector since the prices are lower and the output adapted to the needs of the people. The small trading and handicrafts found in the major cities are used to supply goods and
services to the people.
25
Any burden or consequences resulted from structural adjustment or economic reforms are always absorbed or shouldered by the informal sector through self-
employment or/and lower payment to survive. Unless the IS, small and mediumprivate enterprises are encouraged and assisted the social and economic problem
of a country can go deeper preparing the ground for a social upheavals.The impact of economic globalization and the structural adjustment programmes on the development of the idegeneous entrepreneurs has been started to be felt by local governments of the developing countries. It has been proved that without mobilizing the internal human and material resources corresponding with the external resources, it is almost impossible to achieve any economic development.
Mobilization of internal resources through any means must be the primary
objective for a dependable national economic development. This has been understood by the government of Eritrea. Training would be an essential meansto develop the skill and awareness of the human resource in general and the
potential indigenous entrepreneurs, but , it should be supported by the general policy and the system of the government.Policy about the IS should originate from the interest and needs of the group and character of the IS itself. It should be supportive rather than strict control. The policy maker should be able to listen to what they say and what they want to reach a compromising point because the policy is for them.
For an effective contribution of the IS the following measures and strategies must be taken and followed.
1. Promoting the IS activities in the rural non-farming and in the urban. This very vast activity must be led institutionally at sectoral level or through independent organization established and budgeted partially by the government or other NOOs. Particularly the informal activities around the non-farming must be given a special attention because they are supporting force for the development of agriculture.
The forming of an intermediary institutions facilitate to reach the micro- enterprises and communicate with the resource institutions, including government and sponsoring agencies. [In Eritrea there is no such type of institution] As a matter of fact the task of reaching micro-enterprises require small flexible and responsive organization. It must have an autonomy to make ad hoc decision in response to the needs of beneficiaries field staff and to quickly changing local and external environment. At the same line such type of organization can function as a consultant and organizer for the IS. It can also lead a rational survey periodically to know the condition, to come up with new ideas that may enrich the policy formulation relating to the sector.
2. Establishing special development bank for the small and IS. Finance is a critical and most important factor for the starting and running business activities. The requirement demanded by the existing commercial banks to get loan is very difficult to be fulfilled by the IS operators. Infact it is
26
very difficult for the IS to arrange a credit facilities with a profit making financial institution especially when the demand is high and competition is intense. Therefore the only possibilities would be a) to establish a special financial institution that can give long term loan with less interest if necessary with a government guarantee, b) to encourage the operators themselves to form a strong association and traditional financial institution recognized by law to acquire them a strong position in the bargaining and to act as a guarantee for its members, c) financed by a government or NGOs a revolving fund can be arranged to solve the financial problems of the operators by creating a guarantee group well known among each other from among the beneficiaries.
3. Provision of infrastructure facilities. Development of infrastructure is not a simple task left for the private sectors especially in Eritrea because it demands huge investment. Without it, it would be difficult to lead any economic development and attract private investors. It is a pre-requisite or condition for any industrial development. In remote area interested handicrafts can be grouped under one association. The utility service-water electricity and fuel - can be arranged and facilitated easily for these groups instead of for individuals scattered at every corner in the urban and the rural areas as well. Working place with the necessary facility like that of
"Medeber" in Asmara and Keren can be established in every major cities and rural settiement areas step by step after identifying the number of beneficiaries and analysing the needs and interests of the target group and
the community they are living in.4. Establishing skill development center with mobile training for the different fields necessary for the operators. The IS is spreading over a large area within the territory. It is very difficult to establish fixed training centre in all cities and also difficult to disconnect the operation without covering the living cost of the trainee. To tackle this technical and organizational problem it is possible to initiate and form a mobile training schemes for the poors in the remote areas among the peasants. Such programme can be effective and easy to manage, reduce costs and creates comforts to the
trainees.
5. Encouraging the IS operators to form their own association or cooperatives
Forming an association can benefit both the informal sector operators and
the government. Any assistance packaged programme can be effective and
successful when people in the same activities are coming together
volunteerly. Autonomous decision can be made and development
programme can be arranged by the leadership and ideas can be exchanged
among members easily without any interference. Strong association by
itself is a strong instrument for bargaining and communicate with the
government and other interested groups. The role of the government in
this case would be to facilitate the condition to form the association and
assists whenever an application is coming from.
27
The marketing organization, technical and financial assistance and training
can be possible and effective if entrepreneurs are able to come togetherwillingly under an association. The association can be used as a platform for open discussion and identification of interests and problems that can be basic sources and feedback for any planning, training programmes and
policy reform.
8. CONCLUSION AND RECOMMENDATION
Informal sector in Eritrea is diverse, disarrayed and heterogeneous. Problems and constraints faced by the operators are immense originated from internal and
external.
The internal problems are originated from their own weakness poor education, lack
of finance , poor management and poor entrepreneurial skill and capacity. Mostof them can be overcome by training and non-training interventions by the government or independent institution provided they are ready to learn and cover costs. The external problems are marketing and government regulations.
Harrasement and poor service from the different government offices, long
licensing procedures, poor financial and management services are the few amongthe many.
The informal sector in developing countries holds more than 60% of the working forces of supporting millions of people with the income generated from. In Eritrea excluding the handicrafts more than 247,000 people are working in the sector. Output of the sector is relatively inferior in quality (not the handicrafts) but suitable for the poor sold with lower price for the low income earners of the
society.
As a matter of fact the IS constitutes the bulk of the economy and backbone of the non-farming agricultural sector interms of providing livelihood and basic goods and services. It plays an important role in recycling materials and mobilizing
resources left unused which are difficult to tap through a more standardized organizational structure and complex production process. The sector is highly active in using local materials.There is no economic development and social transformation without the IS. Any government including Eritrea should formulate a clear policy that facilitate the growth and development of the sector. Conducive environment must be created
