Informal enterprises

April 02, 2020

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THE country’s informal sector has always kept the wheels of the economy moving during every financial crisis we have ever witnessed in the past by supporting growth and protecting jobs. No more. The ongoing economic crisis triggered by the global coronavirus pandemic threatens to damage the informal sector the most, putting out of work those who need to labour every day to meet their daily needs. By the time the lockdowns enforced by the provincial governments as part of the social-distancing measures to limit the spread of the infection are lifted, millions of informal jobs would be lost and tens of hundreds of small, informal businesses destroyed — perhaps for good. It is in view of this looming economic impact of the coronavirus crisis that the government has announced economic relief packages to support the most affected segments of society in order to minimise the damage to businesses and jobs. The relief programmes so far announced aim to directly transfer cash to 12.5m poor households and distribute food hampers among them. Similarly, the government has announced funds to support businesses and deferred interest payments, in addition to several concessions announced by the State Bank, to help the enterprises facing cash-flow problems make it through the crisis.

Nevertheless, none of these packages contain anything significant to help the informal sector, which is estimated by the World Bank to be a little more than one-third of the country’s GDP and accounts for over 60pc of the total workforce and 71.3pc of non-agriculture labour. The informal businesses are not registered, regulated or protected by existing legal or regulatory frameworks. Similarly, the workers employed in the informal sector work mostly on daily wages and are typically not covered under any social protection scheme. According to the ILO, these people are in the bottom or lower middle-income segment of the population. The pandemic is exacerbating existing economic inequalities as the poor and vulnerable segments of society are struggling to cope with the economic consequences of the virus. The policy response to the coronavirus threat must focus on the most vulnerable people and enterprises. The government should ensure that its financial support reaches the enterprises that need it most — that is micro and small businesses operating in the informal sector — to protect jobs. The economy will suffer massively if micro and small informal enterprises go out of business and their workers lose their jobs. That could potentially lead to massive social unrest in the country.

Published in Dawn, April 2nd, 2020