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AFRICAN INSTITUTE FOR ECONOMIC DEVELOPMENT AND PLANNING INSTITUT AFRICAIN DE DEVELOPPEMENT ECONOMIQUE ET DE
PLANIFICATION (IDEP)
Thesis Submitted by EBRIMA OUSMAN CAMARA
In Partial Fu !filment of the Requirements for the A ward of . the Degree of Mast ers, of Arts in
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Economie Po licy Management at the African Institute for Economie Development and
· Planning (JDEP), read and approved by:
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Chief Supervisor:
Thesis Committee Members : External Examiner:.
Ag. Director of IDEP:
Dr. SamuelOCHOLA
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AFRICAN INSTITUTE FOR ECONOMIC DEVELOPMENT AND PLANNING INSTITUT AFRICAIN DE DEVELOPPEMENT ECONOMIQUE ET DE
PLANIFICATION (IDEP)
FEATURES AND GROWTH POTENTIAL OF SMALL-SCALE
PRODUCTION ENTERPRISES IN THE URBAN INFORMAL SECTOR IN
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THEGAMBIA
Thesis Submitted by EBRIMA OUSMAN CAMARA
In Partial Fulfilment of the Requirements for the A ward of the Degree of Masters of Arts in Economie Po licy Management at the African Institute for Economie Development and
Planning (JDEP), read and approved by:
Chief Supervisor:
Thesis Committee Members : External Examiner:
Dr. Matar GAYE
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Dr. Birahim B. NIANG--- - -
Dr. A math NDIA YE---=--=---..:::~~~M'""-- Dr. HakinrB-;-HAMMOUDA---~-- --
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Ag. Director of IDEP:
Dr. Samuel OCHOLA
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TABLE OF CONTENT
DEDICATION .............................. : ... -. .......... iii
ACKNOWLEDGEMENT .......................... : ...... :: ... iv
ABSTRACT ............ : .................. v
LIST OF TABLES ...... : ........................... vi
CHAPTER ONE: BACKGROUND AND INTRODUCTION TO THE STUDY ...... : ... 1
1.0 The Economy: Structure and Performance ........ .' ................... -......... 1
1.1 Justification and Statement of the Problem ... : ........................... 7
1.2 Objectives of the Study ......................................... 8
1.3 The Working Hypothesis ............................ 8
1.4 Scope and Methodology ....................................................... 9
1.5 Organization ofthe Study ................ : ......................... 10
CHAPTER TWO: REVIEW OF THE LITERATURE ......................... 11
2.1 Introduction ................................ 11
2.2 Concepts and Defmition Issues ............................ 11
2.3 The Informal Sector and the Economie Development Process ................ 22
2.3.1 Employment Creation ........................................ 22
2.3.2 Equity .......................... 23
2.3.3 Growth ...................... 24
2.3.4 Efficiency .............................. 25
2.3.5 Linkages ....................................................... 26
2.3.6 Training and Skills .................................................... 28
2.4 Small-scale Enterprise Development Strategy ............................. 29
2.5 An Overview ...................................................................... 34
CHAPTER THREE: RESEARCH METHODOLOGY, DATA AND SCOPE ................. 36
3. 1 Introduction ........................... 3 6 3.2. Methodological issues ......... : ................. 36
3.3. The Adopted Methodology ... 41 3.3.1. Study Area Selection and the Sample ..................... 41
3.3.2. The Pre-survey requirements ............................................. 44
3.3.3. The Survey ................................................. 45
3.3.4 Sm-vey Data Variables and Structure ................ 46
3.3.5 Data Analysis ................................................... 47
3.3.6 Scope of the Study .................................... 47
CHAPTER FOUR: PRESENTATION OF RESUL TS & SUR VEY DATA ANAL YSIS ............. .48
4.1 Introduction ............................ 4 8 4.2. Profile of the Enterprise ........................... 48
4.2.1 Age and Ownership of the Ente1prises ....................... 48
4.2.2 Size ................................. 49
4.2.3 Registration Status ........................... 50
4.2.4 Location of the Enterprise ......................... 51
4.2.5. Age Structure of the Labour ........................................... 52
4.2.6 Skills Leve! and Qualification ............................... 53
4.2.7 Gender composition oflabour ..................................................... 54
4.3. Profile of the Entrepreneur ...... , .......................................... 55
4.3.1.Age ....................................... 55
4.3.2: Nationality ...................... 56
4.3.3 Gender and Marital Status ......................... 56
4.3.4 Educational Background ................................ 57
4.3 .5 Source of Skills and Years on Training ............................. 58
4.3 .6 Past Employment Record ............................ 60
4.4 Business Profile of the Enterprise ............................................ 61 4.4.1 Motives for Starting ............................ 61
4.4.2 Assets Structure or Type ......... yôy .................................................. n2 .. 4.4.3: Creditfor Capital Financing ............................................. 63
4.4.4 Input and Raw Material Sources ............................. 64
4.4.5 Main Buyers of Products ... ............................ 65
4.4.6 Average Earning (Incarne) of the Business ...... 67
4.4.7 Incarne Distribution ......... 69
4.4.8 Business Volume; Recent Changes and Causes ...... 70
4.5 Major Constraints to Enterprise Start-up and Growth ...... 71
4.5.1 Introduction ............ 71
4.5.2 Marketing ................................ 72
4.5.3 Financial ........................... 73
4.5.4 Competition Pressures .................. 73
4.5.5 Al! others ........................... 74
CHAPTER FIVE: EMERGING PO LICY ISSUES AND RECOMMENDA TI ONS ........... 75
5.1 Introduction ...................... 75
5.2 Features of Informai Sector Enterprises: the Sample's Evidence ...... 75
5.3 Constraints to Informai Operations .......... 80
5.4 Strategies for Coping .......... 82
5. 5 Potentials for Enterprise Growth: A Concluding Assessment.. ... 85
5.6 Emerging Critical Issues for Policy ........... 88
5. 7 Recommendations ......................................... 91
5. 7.1 An Acceptable National Defmition ............................ 92
5.7.2 A Register of ail Informai Enterprises ...... 93
5.7.3 A One-Stop Centre on Informai Sector Matters ................. 94
5.7.4 Capacity Building ............................ 96
5.7.5 Infrastructural Development ........................ 97
5.8. Study Conclusion and Limitations ...... 98
BIBLIOGRAPHY ....................... 100
Annex 1: Informai Sector Enterprise-Based Interview Questionnaire ................. 103
Annex 2: Basic Fact Sheet on the Gambia ..................... 109
11
DEDICATION
In Memory Of The Man, Late Boto O. Camara,
Who Could Not Live To See Me Come This Far
Into My Carrier He Helped To Build From Day One Of The Journey.
May Allah 's Heavenly Rewards Be With Y ou
iii
ACKNOWLEDGEMENT
My very warm thanks go to many people and institutions that helped to make this study a success.
Too many to mention though, but sorne certainly must be. My thanks go first and foremost to the Economie Management and Capacity Building Programme (EMCBP) and in particular, Ms. Ida Sallah, the Programme Manager, for awarding the fellowship without which I certainly would not have been at IDEP. To my colleagues at the Department of State for Trade, Industry and Employment (DOSTIE), where I presently work and in particular, the Honourable Secretary of State Mr. Musa Sillah and his very senior staff, I am thankful for their patience and understanding. I willlike to single out in particular the following, each for the unique way he or she has been supportive: Mr. Baba- Mustafa Marong, Ms. Fatou Sosseh, Mr. Pansu Nyassi, Mr. Ba Saho, Ms. Yamuah, Mr. Jabai, Dembo Marie, and my good colleague of a man I have read and worked with ali my life so far, Mr. Saikou Saidily. As for Mr. Marong, head of my section at the Department, I admit I lack the wherewithal for words to describe his support, understanding and patience.
This work would not have seen the day of light also without the support of key personalities here at IDEP. To Dr. Jeggan C. Senghor who untillast week was the IDEP Director and also my very first Chief Supervisor, I am thankful for his fatherly care and his cooperation to put the study into a deserving perspective. I also thank Professor Philip K. Quarcoo who until just recently was the Chief of Training and Deputy Director, for his wonderful, humorous lectures, and for being timely at intervening during cri ti cal points in my stay at IDEP. Mr. Labidi, the new Chief of Training deserves my thanks for his excellent cooperation in getting the defense to take place, and also for his very warm reception. Mr. Burama K. Sagnia, formerly Director of the National Council for Arts and Culture in the Gambia and now in the UN system also deserves my commendation. His doors have never been closed. I also thank Messrs Amoako, Aurthur, and Diop, for their excellent translation of lectures received in French. I found their company indeed good and dependable. The staff of the IDEP library: Barra, Diallo, and Mr. Nageri must be commended also for their resourcefulness.
Thanks to Madame. Hawa Traore and Mrs. Abie Camara Sanneh who just wedded to a compatriot, both for assis ting the computer processing of all my works at IDEP, including this thesis.
I also thank the members of my thesis defense jury (names on front cover) for reading through the original scripts and for refining the final work to standard. I am particularly grateful to Dr. Matar Gaye who readily accepted to take over the supervision of this work at very short notice, yet proved masterly. I also thank Dr. Hammouda from CODESRIA for serving as the extemal examiner.
On a very final note, let me thank members of my family, especially my wife, Satou and daughter, Fatoumata, bearing the long days of absence. To my friends in Temple who alllived up to what it takes to become one's very intimate friends, I say to them through the Chair, lets keep that up. I thank Mr. Pa Lamin Beyai for his great concem for my work, and for being that humorous friend I hate missing for long. My stay in Dakar has been difficult during the last rush hours of finishing this study. However, sorne individuals, in particular Fatmata and Marna Hawa Darboh, have ensured that I got well fed to stand up to the challenges. I thank them sincerely. Finally, I want to commend Koto Modou, Alh. K.O.K Camara, and Kamburama, whose combined care and encouragement enabled me to come this far. The late brother Boto certainly earns the unrivaled title of being my closest mentor who kept paving the way to getting to the top. Finally, thanks to all those who readily talked to me during the interviews. The cooperation I have received from them had been exemplary indeed.
IV
ABSTRACT
The informai sector is real phenomenon in developing countries, where the theory now seems to establish a negative relationship between informality and economie growth. It is the conclusion of the literature on the subject that higher level of economie informalisation is an indication of lower pace of economie growth and development. With the formai economy shrinking in its capacity to create jobs, many end up taking jobs and eam a livelihood in the informai sector, swelling it in the process.
However, informality is a passing phase of the overall development process whose level, like subsistence agriculture, will decline as economie development properly gets underway.
This study works within a guiding assumption that maintains that assisting informai sector enterprises to grow is a desirable strategy, and that policies have to evolve to facilitate that growth. But the question is what do we know about the sector? How much can policies do without knowledge of the various attributes of the sector? What are the typical forms of constraints faced by the enterprises?
The search for answers to these questions is an important step to suggesting policy measures. This study seeks to generate sorne knowledge on the basis of a sample evidence involving sorne sixty enterprises that presumably constitute viable components of the sector with potential for growth through sorne judicious intervention of technical, funding and other forms of assistance.
Sorne of the conclusions reached at in the study have sorne implications for enterprise growth in ways as discussed in the text. The enterprises are indeed small to be able to handle large amounts of orders from customers, and their ownership entirely of the single-owner type. They are weakly endowed in terms of the types of assets and resources, and face threats of permanent closure in light of sorne challenging constraints. They may bring the entrepreneur higher income/earning than he could get from formai employment, but they are not high enough to enable them to reinvest through savings.
The study made sorne recommendations, constructed against the assumption stated above.
Importantly, these seek a gradually transformation of informai sector enterprises to formai entities, with the hope that this will involve establishing stronger linkages than has been discovered in the findings. The role of govemment is critical here. But the study warns that it must not seek to subject informai enterprises to cumbersome procedures. Lest, operators of the enterprises will rather remain informai to avoid being regulated.
v
LIST OF TABLES
Table 4.1: Size Distribution of the Enterprises by Type of Activity (in percentage )---53
Table 4.2: Registration Status of the Enterprises by Type of Activity (in percentage)--- 54
Table 4.3: Reasons for non-registration (in declining order of importance)--- 55
Table 4.4: Nature of the Location of the Enterprises by Type of Activity (in percentage)--- 56
Table 4.5: The Age Distribution ofWorkers (excluding entrepreneurs) by Type of Activity ---57
Table 4.6: Distribution of the Source(s) of Training of the Already-Skilled by Type of Activity (~)------58
Table 4.7: Gender Distribution ofWorkers'by Type of Activity (in percentage)--- 58
Table 4.8: Distribution of the Nationality of the Entrepreneurs by Type of Activity (~-age)--- 60
Table 4.9: Gender Distribution of Entrepreneurs by Type of Activity (in percentage)--- 61
Table 4.10: Distribution of the Marital Status of the Entrepreneur by Type of Activity--- 61
Table 4.11: Distribution of the educational Lev el/ Attainment of the Entrepreneurs by Type of Activity (in percentage )---62
Table 4.12: Distribution of the Source of Entrepreneurs' Training by Type of Activity--- 63
Table 4.13: Distribution Showing Years Spent on Training by Type of Activity (percentage )---- 63
Table 4.14: Distribution of the Job History/ Record of the Entrepreneurs (in percentages)--- 64
Table 4.15: Motives for Starting up Informai Business in the Urban Sector--- 65
Table 4.16: Distribution of the Type of As~ets held inside the enterprises by Type of Activity-- 66
Table 4.17: Reasons Showing Why Bank Loans are Avoided (percentage)--- 68
Table 4.18: Distribution of the main Source(s) ofRaw Materials by Type of Activity --- 69
Table 4.19: Distribution ofthe Usual Buyers oflnformal Products by Type of Activity (~)--- 70
Table 4.20: Structure of the Average Monthly Earnings of Informai Enterprises by Size and Type of Activity (in Gambian Dallasi) --- 71
Table 4.21: Distribution Showing Income Spending Behaviour by Type of Activity --- 73
Table 4.22: Distribution of the Change ofBusiness Volume by Type of Activity Direction of the Change (in percentage )--- 7 4 Table 4.23 Major Impediments on Enterprise Start-up and Growth --- 75
vi
CHAPTER ONE: BACKGROUND AND INTRODUCTION TO THE STUDY
1.0 The Economy: Structure and Performance
The Republic of the Gambia is a narrow strip of 11,295 square kilometers on the west coast of Africa
surrounded on three sides by the Republic of Senegal. Limited natural resources and an underdeveloped human capital base have constrained economie diversification and growth. Added to this, the Gambia's open, undiversified economy is vulnerable to volatile changes in the external environment: adverse weather conditions, fluctuations in the world priee of the country's main export commodity (groundnuts), a changing aid climate, economie conditions in neighboring countries, and shifting demand in Western Europe for tourist services.
In the first decade of independence, i.e. 1965-1975, the Gambia adopted import substitution and export-led growth strategies in pursuit of a number of development objectives, including industrialization. During this period, GDP grew at an average rate of 4.5% per annum. In the period 1975-1985, GDP growth slowed down to below 3% per annum; it was less than 1% per annum in the
first half of that decade. The economie reforms of the 1990s, targeted real GDP growth rate at 5.5%
per annum over the decennium. In the three year period 1990/91 to 1993/94, the growth rate per annum was 5.0%, 1.7% (in response to relatively bad agricultural season), and 5.6% respectively.
However, with a significant reduction of international aid inflows, and the negative travel advice affecting the tourism sector after the 1994 "coup d'etat", GDP grew at a negative rate of -6.7% in 1994/95. According to sorne reports, it seems unrealistic to expect that the targeted GDP growth rate of 5.5% over the decennium will be attained. The Gambia is rated as a least developed country. Its per capita incarne was US $370 in 1992 and US $337 in 1997, indicating a decline.
The mains tay of the Garn bian economy has traditionally been agriculture, primarily based on rain-fed cultivation of cereals, groundnuts, and other agricultural products, which in the past has been very adversely affected by irregular and inadequate rainfall. Groundnut production dominates the economy, covering about 40% of the total area under cultivation (65,360 ha out of 160,390 ha in 1993/94) and involving virtually ail farmers. It accounts for about 55% of GDP and more than 80 percent of re-exports. Potential sources for more diversified growth lie mainly in horticulture and livestock, light manufacturing (including processing of agricultural and livestock products), fisheries, tourism, and other services
Industry contributed about 12% of GDP; the remainder came from services, including trade (16%), tourism (4%), and public administration (10%). The small contribution of the industrial sector as a whole is mainly attributed to inadequate infrastructure, shortage of investment capital, unreliable and expensive electricity supply, as well as low skills.
Manufacturing made up only 7% ofGDP (World Bank 1993, pp115), and consists chiefly of activities
such as groundnut crushing, baking, brewing, tanning and the production of bricks, textiles and garments, wood and metal products, fruits juice, soap and plastics. Despite a government projection in
1990 that manufacturing activity is, in the medium term, expected to remain small-in view of the small domestic market and limited prospects of a take-off-the achievement of an export-oriented manufacturing through increased private sector participation remains a key policy objective.
Tourism in the Gambia, is the country's biggest single source of foreign exchange revenue, contributing around 10-12% of GDP and employing about 6,000 Gambians during the main season from October to May (EIU, 1997).
2
The Gambia's limited natural resource base means that the economy is both import-dependent and export-constrained. As a result, about one third of food requirements, machinery and transport equipment, most manufactured goods, and all fuel are imported1. Despite recent efforts to diversify exports from traditional groundnut cash crop production to tourism and re-exports, improved earnings from these have not been sufficient enough to sustain expanding import requirements.
Like many import-dependent countries m sub-Saharan Africa, the 1980s have been a period of immense economie downswing. Facing mounting extemal debt, a depletion of official reserves, an excessively expansionary fiscal policy, high levels of inflation, and an overvalued currency, the govemment initiated the Economie Recovery Program (ERP). The ERP introduced a series of macroeconomie reforms that included liberalizing trade, decontrolling exchange and interest rates, and adopting restrictive credit and fiscal policies to deal with the growing budget deficit and inflation.
According to various reports, in general the reforms were implemented satisfactorily, but the results were mixed. Several macroeconomie targets were met. However while real GDP grew by 2.1% from 1986/87 to 1992/93, it fell short of the 4.5% programmed. Inflation fell from a high of 46 % in 1986/87, but inflationary pressure did not_subside as expected. The budget deficit (excluding grants) was said to have fallen from 17% of GDP to 4% in 1991/92, while the current account deficit narrowed. Inadequate rainfall resulted in poor crop production, which in tum, led to lower exports and higher food priees. A successor program, the Program for Sustainable Development (PSD), was launched in 1990 to continue the reforms und er the ERP.
1 The Gambia's energy endowment is small. Problems with electricity are yet to be what government calls, ' a thing of the past'. Also, with no oil production of its own, the country must meet its commercial needs with imports of petroleum products. According to the Economie Intelligence Unit ( 1997) this amounted to 59 million litres in 1993/94.
3
Among the measures adopted in these programs was the restructuring of the civil service and reform of the parastatal sector, notably through retrenchment and privatization of state enterprises. One very notable impact of these measures was the loss of jobs, mainly of temporary wage eamers. In early 1986, 2,600 out of the 5,000 temporary civil service workers were retrenched, a further 1,200 laid off, and about 800 vacancies eliminated from the roster of established posts.2 Many victims of the exercise eventually sought refuge in the informai sector.
Economie and social indicators suggest that the Gambia is a typical example of a poverty-stricken countiy. The weak performance ofthe economy is evidenced by the somewhat rapid loss of the value of the Dallasi from D3.46: $1 before the float in March 1986, to D6.73: $1 after the float. Given the political instability expected after the July 1994 coup d'etat, the Dallasi weakened less than might have been expected, to an average of D6.58; $1 in 1994, compared to D9.13: $1 in 1993. In September 1996, the average exchange rate stood at D9.83 before further depreciating further to D11.45: $1 in end November 1998 (see Fact Sheet in Annex 2).
In addition to low per capita income and low purchasing power, especially of urban workers, poverty in the Gambia is manifested most clearly in weak levels of human resources and social development indicators both in absolute and relative terms. Illiteracy is estimated at a high of 59% while primary school enrollment, in spite of modest progress in recent years, remains largely low since 1980, especially in rural areas and for girls. Average life expectancy at birth is 53 years, about 20 years below that for the developed countries. The number of persans per doctor is 15,269 and population per hospital bed is 916, both suggesting a very high risk of a patient dying from lack of adequate medical attention related services. Finally, notwithstanding sorne significant attention by government
2 Hadjimichael. M. T et al, The Gambia: Economic_Adjustment in a Small Open Economy, IMF Occasional Paper, p 23 4
to improve the health status of the population, the incidence of mortality in the Gambia continues to be high generally. Its incidence is low among infants and children: infant mortality has declined by 31% (from 130 to 85 per thousand life-birth) whiles child mortality by 54% (from 156 to 71 per thousand life births). It is perhaps this improvement in age specifie mortality coupled with a consistent! y high level of fertility, which exp lain the rapid rate of national population growth.
The government recognizes the development implication of rapid population growth and the resulting gap in human resource development, an awareness which is changing the policy rhetoric, and calling for raising the long-term productive potential of the economy, and an improvement of the welfare of the population through improved allocation and efficient use of public resources, especially in education, health, and other social services. The social services sector has been the highest priority since 1990/91, despite pressures from ESAP to reduce spending in the interest of maintaining a balanced budget. Health and education share over 35% of public expenditures (1993 figures).
However, with increased rates of population growth, there was a decline in per capita expenditure from 1990/91 to 1995/96. This, according to sorne observers, had adverse effects on vulnerable groups mostly found in the informai sector. It has also contributed to the increase in the numbers of the unemployed and expansion of the informai sector.
Like many countries in Africa, the Gambia's experience of slow economie growth in the early 1980s resulted in unemployment becoming a serious and worrisome problem. In spite of this, alternative options for creating productive employment were not seriously explored. In particular, developing small enterprises in the informai sector was not seen as a possible solution. In all the national development plans of the Gambia, excepting perhaps, the Gambia Vision 2020 and the new industrial action plan, small enterprise development in the informai sector only received passing reference.
5
Adjustment efforts stimulated employment opportunities in the urban and formai sectors of the economy but not everyone benefited. In particular, the leveling off of agricultural output in response
to substantial decline in groundnut priees, has brought about marked deterioration in living standards among rural populations 3.
A consequence of this has been increased rural-urban migration. According to a labor force survey report of 1992, 46% ofurban migrants came from the rural areas and 28% from other countries. With
an average urban population growth rate of 6.17%, and an overall population growth rate of 4.1% per
year, the pace of urbanization is thus at around 2.0% per annum. Compared to other African countries, this is rather high. 4
As commonly concluded in the literature, the proliferation of informai sector activities m any economy is closely related to the pace of urbanization. 5 The more rapid the pace, the greater the proliferation of informai activities and, one may add, the more apparent it is that governments should allo ca te substantial amount of resources to the sector.
It is evident that the economy of the Gambia is increasingly being informalized. Before 1990, the informai sector was thought to account for.only 40% of total employment in urban areas. However, in 1990 the lLO estimated that 60% of the urban labor force and 30% of the rural labor force was
3 See, for example, Esim, S [1994] The Informa! Sector and Microjinance Institutions in West Africa, World Bank Regional and Sectoral Studies; Fidler. et al [ ed.], 1994, p. 116
4 Obviously, policy makers are often faced with a dilemma and a difficult trade-offto make: assisting informal enterprises to grow and develop would certainly satisfy social and economie requirements of a growing urban population. But this in tum is likely to trigger more urban-wards migration of people, with increased resource transfer needed to combat the social and economie costs of migration. The question then is how can we successfully pursue goals of developing the infmmal sector with checking its costly side effects simultaneously. Though a rigorous analysis of the question is needed, it can be said that increased tax revenue, fees and other charges that would accrue in the process of informal sector support, could judiciously be used to affect rural infrastructure and development and reduce rural-urban migration. This is an appropriate response to those who saw little value in launching programs of assistance to the informal sector-the sector taken here to mean an urban based phenomenon-for the given fears.
5 ILO/WEP, The Urban Informa! Sector in Retrospect and Prospect: An Annotated Bibliography, No. 10, 1991 p. 7 6
employed in the informai sector.6. The June 1993 budget, which gave the most recent estimate of employment figures, put total employment at 106,000. Ofthis, 36000 (reptesenting 34%) is accounted for by the formai sector (both public and private formai) and the rest by the urban informai sector.
Besides showing the extent of the unemployment problem in the country, the budget, in effect, also demonstrated the importance of the informai sec tor in the Gambian economy
1.1 Justification and Statement of the Problem
Visibly, there is growing number of informai sector activities in the Gambia's urban economy. From petty trading, commerce, services and production, people are engaged in different forms of self- employment with a view to earn a living. Thus the informai sector may be said to be playing an important role in the Gambia's overall socioeconomic development. Already, the effects of the reforms of the earl y 80's which, as discussed in the previous section ( see page 6-7) has led to a situation of declining capacity of the formai private and public sectors in creating jobs for the tens of thousands of people mainly living in the urban area and are formally unemployed. That capacity is not
likely to increase significantly at least in the short and medium-run, and one may therefore hazard the guess that the informai sector in the Gambia is there to stay for sorne time to come. Moreover, it is desirable for informai sector enterprises to grow and graduate into medium scale entities.
However, there is yet no national policy pronouncement on the informai sector in the Gambia, notwithstanding the official statements of intent to enable the sector, and the many units that constitute it, to grow into a potentially viable entity. But, what are the sector's potentials? What should we know about it and the constraints faced in the sector? And how do we intervene to assist the enterprises? These and other questions have not been explored to any great extent. Yet, in the
6 Op.cit., p 126
7
absence of such knowledge, it is inconceivable how informai sector enterprises of the kind covered by this study, could move from being operationally small-scale and marginal to becoming vibrant entities through vertical growth and graduation.
1.2 Objectives ofthe Study
The general objective of this study is to assess the potential of small-scale production enterprises in the urban informai sector in the Gambia to grow, with a view to proposing policies for enhancing that growth.
Within this general framework the following are specifie objectives:-
~ to examine structural features of small-scale production enterprises in the urban informai sector in the Gambia;
~ to identify the constraints experienced by operators in the sector;
~ to review coping strategies of operators in relation to the constraints identified
~ to assess the potential of small-scale urban informai production enterprises to grow and expand; and
to recommend poli ci es to enhance the growth potential of enterprises in the sector.
1.3 The Working Hypothesis
The study is largely description, and so no econometrie (regression and statistical) tests are used.
Notwithstanding this, any study must have a basis for reasoning and in this study the working assumption is that the growth potential of small-scale production enterprises in the urban informai sector in the Gambia, may not be high due to problems associated with the following: -
~ low level of productivity (i.e. output per unit of input employed);
~ lack of management and business skills;
~ weak formal-informal sector linkages;
~ lack of access to credit, and capital;
~ markets for outputs produced, (competition pressures and exclusion from the export markets);
8
conditioning policy rule such as licensing and registration requirements 1.4 Scope and Methodology
The specifie focus in this study is on small enterprises in the informai sector involved in small-scale production or manufacturing activities. The four main activities are metalworking, carpentry, tailoring, and tie-dyeing. About sixty small enterprises found in Serekunda and Kanifing-two localities in the Greater Banjul Area (GBA) with significant concentration of informai sector activities- are included in the sample. These activities are presumed to constitute a part of the productive components of the informai sector whose growth potentials could be enhanced. The study is limited in its geographical coverage because available resources could not allow a comprehensive nation-wide study to be undertaken.
With respect to the methodology used, the objectives of the study require that primary data be collected through questionnaires supplemented by informai interviews with heads of enterprises. In the informai interviews, respondents have the opportunity to express themselves on issues which have not been included in the questionnaire but which have an important bearing on the study. The third method, involving secondary data, is desk research related not only to theoretical issues but also other African and non-African experiences.
Enterprises to be included would be selected in a pre-survey. This can itself be problematical on two issues: (a) how does one decide which units to cover in a survey if the definition of informality contains sorne degree of ambiguity, and (b ), which of the units included in a survey are to be labeled as informai. Here the best guide has been Hans Singer's bon mot that an informai sector is like a giraffe; it is hard to describe but you know one when you see one.
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1.5 Organization of the Study
This study is divided into five chapters. The first chapter will be introductory whilst the second will present a review of the literature on the informai sector. The third chapter deals with the methods and procedures of research, including detailed discussion on data collection techniques and measures to ensure data reliability. A fourth chapter follows and it presents and discusses the survey results with reference to the profiles made of the enterprises (their physical and operational attributes), and the entrepreneurs before finally highlighting the constraints identified from the field. Chapter five concludes on the specifie objectives of the study (see Chapter One), and the hypothesis, before assessing the issue about the growth potential of the enterprises. The Chapter ends with a brief highlight of sorne emerging critical issues; which provide the framework for the policies proposed by the study. The study ends with appendices and a bibliography.
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CHAPTER TWO: REVIEW OF THE LITERA TURE
2.1 Introduction
This chapter is divided in three parts. Part One reviews conceptuai issues, including sorne defmitions of the informai sector in the literature. The second part highiights major areas in which the informai sector could positively affect economie development. Part Three looks into sorne salient justifications for small-scale enterprise development in the informai sector as a desirable strategy in African countries. This discussion lays the foundation for a review of problems and constraints facing expansion of informai sec tor enterprises.
2.2 Concepts and Definition Issues
Before the 1970s, the informai sector was regarded as part of an assembly of traditionai, backward and unproductive activities operating at the margins of deveioping societies. However, this perception soon changed significantly following publication in 1972 of ILO's classic Kenya Employment Mission report. This report mainly highlighted the fact that rural depopulation (migration) and resultant urban growth did not give rise to high open unemployment but rather to the deveiopment of small-scale activities, providing rural migrants and urban dwellers unable to gain empioyment in the modem sector, with a means of living and surviving [Charmes, 1988]. By the early 1980's, sorne 40 million workers in Africa were earning their livelihood in the informai sector. Their incomes allowed an additional 200 million children, out-of -school youths and the disabled to survive. All these facts converge with other evidence to show the in~aluable contribution the sector was making in African economies [Aboagye, 1985].
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Although it was the lLO mission report that brought the informai sector to popularity, the literature notes that the concept had been in use in Keith Hart's pioneering study on the urban poor in Ghana in
Hart, for his part, observed that western-based economies was ill prepared to accommodate the realities of production, employment, and income as prevailing in African economies, and that it was the application of western theories to planning in Africa that led to a total marginalization of a good chunk of producers now working in the non-formai sector of the economy. In other words, western- based theories, upon which much of Africa' s social and economie development strategies were founded, constituted what Augustine Owoye [1993] would call "a biased search for modernity".
Like many other writers, Hart associated the informai sector with two other terms; first, urbanization, in the sense that the sector is largely urban-based where almost all microenterprises are founded, and which become most attractive for most rural migrants8. Second, marginalization and poverty, referring to those unable to gain employment in the modem sector, and the urban poor whose demand for basic goods and services would have otherwise been left if they were to come solely from the formai sector.
Although ironically very few countries . in Africa had pursued employment as an independent objective of development, it was hoped that with the available measures of industrialisation, sufficient
7 Hart's study, entitled "Informai Incomes Opportunities and Urban Employment in Ghana" was done in 1971, but was only published later in the Journal of Modern African Studies, No. 11, 1973. Because of its late publication in relation to the lLO mission report in 1972,some people thought that the latter, fust discovered the term "informai sector"
8 See Owoye. A in The Courier ACP-EU, No; 137, Jan-Feb. 1993, who described the informai sector urban-based, but in reality a transplantation of rural skills which, on closer examination are revealed mostly as skills of the old social order of occupation handed down from generation to generation.
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employment would be created for large numbers of job seekers. In other words, hopes had been raised for automatic absorption of existing surplu_s of labor in subsistence sectors into the modem sector.
However, according to Hemmer and Mannel [1989], industrialization in these countries yielded two major effects, namely the growth effect and the distribution effect. Whilst the growth effect has been significant, they noted that the distribution effect and, in particular, the employment effects has been rather unsatisfactory. They blamed this on the biased manner in which industries have been located- mainly in cities-which not only created disparities in expected wages and incomes in favor of the urban centers but also triggered an unprecedented rural exodus of able-bodied workers looking for jobs in the so-called industrial centers. Realizing however that the industries had no sooner started than they lost capacity to absorb the available workforce, many migrants then settled for marginal activities outside the formai sector, marking the start of an informalization process that now seems to haunt policymakers and development planners.
The informai sector is, as Grey-Johnson rightfully put it, "different things to different people".
According to sorne, the term informai sector is useful shorthand to point to a section of those who apparently had been excluded from the fruits ofindependence. Renee, and just in the same way Hart's study concluded, the informais were the marginalized responding to the challenges of economie underdevelopment and poverty [King, 1988].
Other authors have tried to explain (the ongm of) the informai sector from a socio-cultural perspective. Hyden (1990] for example, writes that an informai economy emanated in Africa from the continent's "long tradition of open, competitive marketing at flexible and negotiable priee" and which
"continued to flourish, independent of, and against legal powers, demonstrating its vigor and persistence".
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Indeed, g1ven the reality of African economies, the v1gor and persistence demonstrated by the informai sector is, in Hugon's [1988] thinking, certainly very commendable. Many activities that would ordinarily devolve on households, central government, or the industrial system in an advanced country are undertaken by small trading units in the cities of the Third World. For example, street laundries, food kiosks, and carriers, are commonplace in African cities because households lack a range of consumer durables (such as washing machines, gas cookers, transport vehicles, cameras) to do these themselves. Also, traditional healers stand in for official health services in most, if not all, African cities. Thus without the vigor of the informai sector, survival will become a luxury that only a few people could afford to enjoy.
The goal of economie development is to raise standards of living among the population. As far as writers like Fields [1988] are concemed, for most people these standards are determined by their labor earning power. And for many, the best available job is one which is not "formal" or "modem"- in the sense these terms are used to refer to activities in factories and offices-nor is the worker unemployed in the standard lLO sense of not working for pay but actively looking for work. The worker, employed in a non-modem activity, needs to be counted somewhere. Fields termed that place where the worker holds a job and eams income the informai sector, distinct from the modem, formal or what others still prefer to call, the structured sector.
According to King [1987] the "informa.l sector" concept, in sorne ways, almost precisely parallels the notion ofnon-formal education. Both concepts came into vogue at the same time and shared common set of assumptions about the formal sector. Also, both concepts had almost immediate appeal to donor agencies, multilateral and bilateral, particularly because they fitted very well with what King himself described as "the agencies' desire to rethink more aid for the poorest"[King, Ibid.]. Finally, both
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concepts are still routinely used to describe the world of work, training and education that lie beyond the :frontiers of formai schools and formai employment.
But since it came to vogue almost three decades ago, continued debate has still not produced agreement on a precise definition of the term informai sector. Because the term applies to diverse sets of activities, almost entirely outside strict official regulation, somewhat opposing views and definitions continue to persist. Inherent methodological difficulties in dealing with the sector are another source of misconception. Definitions therefore tend to differ between pers ons and institutions, depending on their orientation and interest in the sector. In Grey-Johnson's language, "most attempts to de fine the informai sector despair even be fore beginning to do so ... because the sector do es not seem to fit properly into the conceptual 11lots of (western) development economies". Little wonder therefore that when the first real attempt was made to define and integrate informai forms of production in prevailing economie theory it met up with a host of conceptual, definitional, and measurement difficulties.
The lLO made the first real attempt to define the informai sector by employing a seven-point multiple operational definition which is the obverse of characteristics of the formai sector. In its Kenya Employment Mission Report, 1972 [Op. cit] the lLO defined the sector as a system of "doing things characterized by; a) ease of entry, b) reliance on indigenous resources, c) family ownership of enterprises, d) small-scale of operation, e) labor intensive and adapted (rudimentary) technology, f) training obtained outside formai system, and g) unregulated and competitive markets".9
9 According to Charmes (1988), multi-criteria defmitions are generally inspired by the classical theory of competition, which views the informai sector as an illustration of the market economy-pure and perfect but segmented (i.e. not diJ:ectly linked to the official, modem market).
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One cannot wholly agree with the above listed characteristics. Firstly, entry is not especially easy, particularly in the upper-lier informai sector that Garry Fields [1988] argued should be distinguished from the easy-entry informai sector requiring relatively small capital or seed financing.
According to Fields, the informai sector should not be conceived of as a free-entry sector since average capital investment required in the upper-tiers could be substantial enough to discourage easy and free entry. For example, whereas an initial capital of US$67 was required in less remunerative activities such as street trading and radio repairs in Kenya, by contrast, evidence from Yaounde (Cameroon) estimated that initial investment capital required in production (woodworking and metalworking) and services were $1,608 and US$421 respectiveli0. However, many ofthese upper- tier enterprises are able to deal with capital constraint by prolonging the life of machinery and equipment- an efficient response by informai producers to relatively expensive capital.
Secondly, operators in the sector do not always rely on indigenous inputs, as argued by lLO.
Certainly, in many cases, the input used in production and manufacturing is imported-leather in leatherworks; cloth and ink in tailoring, batik and dyeing activities; gas and metal in welding, and so on.
Thirdly, notwithstanding Augustine Oyowe's [1993] observation that the sector is "characterized mainly by a strong sense of solidarity and kinship ... where its dynamism lies", ownership of informai sector enterprises need not necessarily be by the family. Moreover, considering that one of the sources of funds to start a new business in the informai sector is contribution from friends, it is therefore
10 See, "The Informai Sector in the 1980s and 1990s", OECD Development Center Studies, Paris 1991, p. 32. See also p 42 relating to a study in the Philippines where fixed assets per enterprise in a sample of 402 enterprises in manufacturing or production, was estimated at $1 200 per ente1prise.
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possible for non-family members to gradually become joint owners of businesses that they have helped to establish. In this way, ownership would not exclusively be (through) the family.
Fourthly, it is not clear whether all or only sorne, or even just one, of the multi-criteria definitions of the lLO must apply at any one time before an activity can be considered as in the informa! sector.
And finally, although the criteria used in the lLO multiple operational definition captures a pure competitive market ( see footnote 19), sorne of them are relatively complex and cannot be reduced to simple observations. This may explain why sorne authors have tried to break down complex criteria into simpler and more specifie observations, Sethuraman [1981a] being one such author.
Sethuraman used an enterprise-based survey to propose a key for identifying an informa! sector activity. The key: a) all enterprises or production units with less than a maximum number of workers (usually ten)11, orb), an enterprise with more than the suggested maximum number of workers that satisfies at least one of the following criteria: it operates ille gall y; it works on an irregular basis; it is located in a temporary structure or in the open; it does not use electric power; it does not depend on formal credit institutions; it does not rely on formal distribution networks; most of its workers have less than six years of schooling.
Whilst in practice such a key could easily help to distinguish informa! activities from formal ones, the criteria involved are certainly not without drawbacks. Firstly, that enterprises in the sector do not depend on electricity can no longer be admissible in present times. Through in:frastructural development- however minimal this may appear to be-many informa! sector enterprises in A:frican countries could be seen relying on electricity for a variety of purposes. The support initiatives of the
11 In actuality, the informai sector enterprise is often characterized by fewer than ten employees engaged in each finn or establishment.
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government, NGOs, and local banks toward Jua Kali enterprises in Kenya are cases in point. Through these initiatives, all Jua Kali sheds are now fully equipped with electricity, telephones, water, and even rest rooms 12 .
Secondly, by using the enterprise-based survey approach (i.e. the enterprise as the unit of observation) as the catchall methodology, Sethuraman could be said to have referred exclusively to the localised part of the sector. In this way, the non-localised part, which broadly refers to home and household activities, were ignored [Charmes, 1988] 13
Finally, for whatever reason, Sethuraman's key neither defined illegality nor even ranked it as one of the criteria that could be used to characterise the informai sector. In this regard, he is unlike many writers who consider illegality as perhaps the single most important criterion of explaining informality.
After characterizing informai activities according to his key, Sethuraman then defined the sector as one consisting of "small-scale units engaged in the production and distribution of goods and services, whose primary objective is to generate employment for the participants rather than to maximize profits" [Sethuraman, 1981]. Again, the argument regarding profit maximization is open to question.14.
12 See, Worid Banlc Sub-Saharan Africa, From Crisis to Sustainabie Growth: Long Term Perspective Study, 1989, p.121
13 Whilst the enterprise methodology has formed the basic procedure in most empirical research on the informai s~;ctor, sorne authors have argued that this methodoiogy should be complemented further by a househoid-based survey approach in which the household becomes the unit of observation. This requires that a household module is added at the Ievei of each enterprise surveyed, and an enterprise module is added to the household questionnaire.
14 Unless otherwise reveaied by participants themselves, it will be a gross overstatement to generaiize, as Sethuraman did, that participants in the informai sector enter the sector prirnarily for the sake of generating employment for themselves. lt will be an interesting question to putto participants in the sector regarding their motive(s) for entering the sector. Sorne may say for skills, others for empioyment generation and, perhaps not surprisingiy, others may reveai profit making as the underiying objective to pursue. According to the World Bank, about 5000 informai craftsmen in the Kumasi "Suame Magazine" in Ghana, have flourished during the country's economie recovery program, in response to Iurking business
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