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Nam Informal Economy Conundrum and Transition Cost

By: Nghiinomenwa-vali Erastus

If one formalises their business, they face costly compliance matters. If they don’t, they face harassment from the police and municipalities and do not benefit from various fiscal packages, but one can keep their untaxed profit.

This was the summary of the labour and industrial relations minister Utoni Nuyoma during his address at the Informal Economy Stakeholder Workshop early this month.

According to Nujoma, on the one hand, individuals and firms may choose to remain outside the formal economy to avoid taxes and social protection contributions or compliance with standards and licensing requirements.

On the other hand, individuals may rely on informal activities as a safety net; they may lack the education and skills for formal employment to access public and financial services.

According to the available statistics, the Namibian economy is relatively informal in terms of enterprises and employment.

According to the International Labour Organisation (ILO), about 2 billion workers, or 60 per cent of the world’s employed population aged 15 and older, spend at least part of their time in the informal sector.

Today, the informal sector still accounts for about 35 per cent of GDP in low- and middle-income countries versus 15 per cent in advanced economies.

Nujoma explained that informality critically affects how fast economies can grow, develop, and provide decent economic opportunities for their populations.

“Informal firms do not contribute to the tax base and tend to remain small, with low productivity and limited access to finance and other technical supports,” he stated.

As a result, economic growth in countries with large informal sectors remains below potential.

As for the informal workers, they are more likely to be poor than workers in the formal sector because they lack job security, representation voice, income security, and all other decent work indicators, said Nuyoma.

In 2020, at the inauguration of the 14th Labour Advisory Council, Nujoma tasked the Labour Advisory Council to advise him on transforming the informal economy into a formal one.

The Committee saw it fit to bring various stakeholders with diverse perceptions of the sector together to brainstorm how to transform the informal sector into a formal one.

They also compile views that will inform the country’s Plan of Action on giving effect to ILO Recommendation 204, which deals with the transition from the Informal Economy to the Formal Economy.

The prevalence of informal work is also associated with high inequality, as workers with similar skills tend to earn less in the informal sector than their formal sector peers.

According to Nujoma, Namibia, like any other developing country, also faces key developmental challenges such as the growing informal economy, lack of decent and secure jobs, and insufficient social protection for workers.

He also highlighted that the informal economy is also difficult to measure because activities within it cannot be directly observed, and for the most part, operators in the informal economy do not want to be accounted for.

“This scenario makes it difficult for planners and lawmakers to engage in proper planning, decision making and implement policies of service delivery,” Nujoma stated.

ILO Country Office for Zimbabwe and Namibia director Hopolang Phororo, in her remarks, reminded the country about the discussions and the outcomes of the National Conference on Informal Economy held here in Windhoek in 2019.

The resultant action plan included pursuing five key outcomes – Enhancing Policy Coherence, Coordination and Organisation; and Improving Statistics and knowledge sharing.

Moreover, Strengthening Social Dialogue and Legislation for the Informal Economy; Increasing productivity and Enterprise Development and Improving Labour Market Governance for the Informal Economy.

“The question we should be asking ourselves today is how far we have gone in pursuing these outcomes, which are also reflected in the Decent Work Country Programme (2019-2023), which we signed during the visit of the ILO Director General in August 2018,” she asked.

They added that the conference and action plan were done four years ago and now.

Secondly, Phororo explained that if there is one thing that the country can take away from the Covid-19 pandemic, it is the dire need for a human-centred recovery.

They, however, require that employment and social protection policies work in tandem, not only to improve people’s living standards and reduce inequalities but also to empower people to navigate the challenges imposed by a rapidly changing world of work.

She added that it should then be a reminder to everyone that the efforts to develop and implement a National Employment Strategy in Namibia must go hand-in-hand with implementing the Social Protection Policy. This, she said, must be done if the country wishes to empower those who labour in the informal economy to recover and continue to contribute to sustainable development.


Most informal activities are legitimate efforts by the urban and rural poor to forge a livelihood in often hostile policy environments due to the failure of the formal economy policy environment to provide employment and opportunities, while others view informal activities as evasion of tax/ contributions.

The International Labour Organisation presented at the workshop the multiples drivers and incentives of informality attractiveness.

The macroeconomic drivers are the inability of the economy to create enough formal jobs, economic crisis and economic restructuring.

The country’s regulatory framework and public institutions also have a role to play in informality-this due to inadequate regulatory framework and lack of transparency and accountability of public institutions (lack of trust).

ILO also highlighted that weak enforcement systems also contribute to the proliferation of informality, such as labour inspection.

The country’s lack of adequate social benefits to secure income and inappropriate modalities to comply are also contributing to the expansion of the informal economy.

At the micro level, determinants of informality are the low educated and qualified workforce- presenting low mobility from informal to formal jobs.

Another factor is discrimination (exclusion of workers from categories of jobs based on race, gender, and age), lack of market access; finances; technology is forcing more and more to enter the informal economy and engage at a low scale.

ILO observations have also revealed that many entrepreneurs’ inability to overcome the costs of formalisation is also keeping them in the informal economy

According to ILO, informality comes in two forms; informal enterprises and informal employment. Formalisation of enterprises (and jobs for independent workers) will require registration and legal recognition of the economic unit/compliance with fiscal, labour, and social obligations.

It should, however, be accompanied by measures to tackle the root causes of informality (including enhanced productivity), allowing enterprises to be sustainable and provide decent working conditions: for the owner and employees.

Formalisation of jobs for employees requires effective access to adequate job-related social and labour protections.

ILO stated that the formalisation of jobs for employees may require, as a first step, the extension of legal coverage (scope of social security and labour laws) to workers not yet covered.

Furthermore, the provision of an adequate level of legal protection and the recognition and the declaration of the employment relationship by the employer (both being necessary but not sufficient). Email:

Nghiinomenwa-vali Erastus

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