THE INFORMAL SECTOR OF THE URBAN ECONOMY AND POVERTY ALLEVIATION: NECESSITY UPON THE STATE. - Allwell Ome-Egeonu
International
Journal of Research and Development Studies
Volume 7, Number 2, 2016
ISSN: 2056 – 2121
THE INFORMAL SECTOR OF THE URBAN
ECONOMY AND POVERTY ALLEVIATION: NECESSITY UPON THE STATE.
Allwell Ome-Egeonu
Department of Sociology
University of Port Harcourt, River
State, Nigeria
ABSTRACT
This study examines the place of the
information sector on the lives of Nigerians (Port Harcourt metropolis
inclusive and consequently establishes the relationship between this sector and
the poverty level in the state. This is due to the fact that the Post-Colonial
Nigeria has witnessed progressive rise in the rate of unemployment. The rise in
unemployment has been found to be either cyclical (that is high during periods
of economic depression) or structural (that is, created by structural
imbalance, for example schools turning out more graduates than the labour
market can absorb) Generally,
this
growing rate of unemployment which is a major feature of an ailing economy has
been largely due to: (1) the urban population; the economic dependency level
which has imposed various unfavorable and hard-biting economic measures on the
teeming populace .Consequently, the informal sector has become important in
absorbing some of the over available manpower. In fact, poverty has remained a
major feature in the lives of most Nigerians, especially those in the informal
sector. To achieve the objectives of this study, questionnaires, interviews and
observational techniques were used as sources of data collection. Hypotheses
were framed based on the objectives and z-test of mean was used to analyze the
data. The study recommends, among others, that government should encourage
stronger cooperative association amongst the informal sector and ensure that
community leaders stand as surety for those applying for loans from them.
Keyword:
Informal sector, Poverty, economy, unemployment, urban
INTRODUCTION
The
fact that there is urban poverty in Nigeria is not news. In response to this
situation. The poor have tried to find ways of increasing their income and
thereby improve their standard of living. In order to augment income, as many
members of the family as possible (father, mother, children) engage in one form
of trade activity or the other. In other words, in order to survive, the poor
do everything possible to augment their income.
Mc
Gee (2009) has identified the efforts made by the poor to improve income and
resources: (1) As many members of the family as possible engage in one form of
income generation or the other. These family members range from the children to
the grandparents. In many of the poorer nations where self-employment thrives,
family and kin labour inputs are necessary part of the work organization.
Indeed it is immensely difficult to distinguish so-called domestic work from
other activities as member of the family often combine the expenditure-saving
activities such as cooking the family food with income generating activities
such as training for cooked food stalls, (2) the poor are involved in different
types of occupation; so far as a mill operator in the market (that is, for
blending/grinding of condiments such as crayfish and tomatoes) could at the
same time be a crayfish seller. (3) The poor and are forced to borrow money
from diverse sources. Whether the purpose of borrowing is for business or for
personal consumption, the poor are forced to borrow and accumulate capital from
unofficial sources such as relatives, friends and local money lenders.
All of these efforts by the poor can
be summed up as the informal sector. Because of the ease of entry into the
sector, many engage in informal sector activities. These activities may be both
legal and illegal and are known by the generic term informal sector by virtue
of their one
The Informal Sector of the Urban
Economy and Poverty
Alleviation: Necessity upon the State.
common
characteristics, namely operating outside the formal economy with its
established procedures and regulations.
Be that as it may, within the informal
sector, most are engaged in crafts, petty trading, domestic services and other
subsistence activities including street venturing, urban gardening, keeping of
small animals and other quasi-legal and illegal activities. At its lowest
levels, some make a living from refuse scavenging. Costs are minimized through
illegal use of public utilities and the use of networks to obtain cheaper goods
and services. At its highest level, those who have gotten requisite skills and
needed capital are engaged in petty commodity production and service
industries. The Participants in the sector are either self-employed, journeymen
or apprentices.
On a general note, informal sector
activities can be classified into three groups.
(i) Manufacturing: Examples are machine
fabricators such as welders, soap, cream
and paint manufactures.
(ii) Services: Examples are food vending, mil
operators, motor mechanics.
(iii) Petty trading/commence: Examples are
provision shops, cosmetic shops tomato
stalls and hawking
However,
the questions that agitate the researcher are, why should the goods and
services of the informal sector be highly devalued particularly by the formal
sector, thereby impoverishing it, and why would the informal sector suffer such
a high level of financial constraints which has hampered its development; that
it is unable to fight poverty. These questions will be addressed in course of
the study.
Objectives of the study
This
study shall be built on the following objectives:
(i) To critically analyze the link between
the state and the informal sector and see where how the state come in sector.
(ii) To examine if the informal sector has, by
extension, positively contributed to the socio-economic growth of the state.
(iii) To examine the measures of improving not
only the informal sector, but also the
link between the two sectors to the common good.
Hypotheses
i.) There is significant relationship between
the informal sector and the formal sector of the economy being the state.
ii) There is significant relationship between
the socio-economic growth of the state and the informal sector.
CONCEPTUAL REVIEW
The role of the informal sector is
becoming increasingly important given the inability of the formal sector to
absorb all the available labour in the country. Todaro (1977. 422) defines the
informal sector as that part of the urban economy of less developed countries
characterized by small competitive individual or family firms, petty retail
trade, and services, labour intensive methods of doing things, low level of
living, poor working conditions, but is it often neglected as one of the major sources of urban
employment and economic activities. World Bank (1994.62) described the informal
sector as a valve especially during difficult economic times. It is also seen
International
Journal of Research and Development Studies
Volume 7, Number 2, 2016
as
performing vital functions- both for equity and growth. It helps stem rural to
urban migration and absorbs social pressures generated by such migration. It is
the seed bed for entrepreneurial development as 50 percent of all small firms
started out in the informal sector. Davies (2009.180), Informal sector firms
enjoy economic liberalization which gives them access to input at more
reasonable prices.
While this description tends to extol
the virtues of the sector, Bromley and Gerry (2009.208) at the same time submit
that the sector suffers constraints, some of which include inhibition of growth
of firms due to high cost of complying with regulation condemnation to low
productivity activities, lack of access to infrastructure while still crediting
it as being able to create the greatest employment opportunities at increasing
ways due to their labour intensive nature, quick start-up times and agile
responses to rapidly shifting markets and technologies.
Ekpenyong
( 1992.120) asserts that the distinction
between the formal and informal sectors lies in the fact that the former is
wage-earning while the latter is self-Employment. This definition does not
suggest that there could be wage earners in the informal sector. Although, the
view of Ekpenyoung is that informal sector is a casual work, being anther way
of making a living which lacks a moderate degree of security of income and
employment. Under this definition, ways of making a living are considered
simply as income opportunities and include both working for others and
self-employment whether legal and illegal, productive or unproductive. However,
if productive means simply anything that generates income it therefore means
that activities such as theft, prostitution and begging (though prejudicial to
the societal interests) fall under this category. The major actors in this
sector are involved in agriculture, artisanal production, small industries,
petty commerce, personal and domestic services, construction and transports.
However, Gerry (2009.110) has credited
the informal sector with flexibility of working hours and location, greater job
mobility than their counterparts in the organized sector. In fact many of them
work part time or maintain several jobs at the same time. Children, old people,
mentally and physically disable people, women with young children lacking both
literacy and manual skills and persons without legalized identity papers and
work permits have found this form of work particularly useful. It is
interesting to note that Kuppuswamy (2003.68) summarizes the effect of this
sector on both the poor and the rich, Whilst the poor may suffer from the
characteristics of causal work, the rich may benefit from the same
characteristics both through their capacity to harness causal workers without
deserving any major obligation towards them, and through their ability to
engage in flexible and clandestine business deals. This is because causal works
are very much dependent upon employment contractors, suppliers and customers
and are susceptible to any economic, social, political, ecological or technical
changes which may affect their work in general. Poor casual workers are used to
carry out much of the burden of risk in unstable and insecure situations, being
incorporated into the economic system when extra labour and production is
advantageous and being excluded from the same system, when they are no longer
needed.
INTERPOSITION
POVERTY AND THE INFORMAL SECTOR OF
THE ECONOMY
In defining and operationalizing
poverty, Harlambos and Heald (2004.160) view it in terms of absolute poverty,
involving a judgment of basic human needs and are measured in terms of
resources required to maintain health and physical efficiency. Most measures of
absolute poverty are concerned with establishing the quality and amount of
food, clothing and shelter deemed necessary for a healthy life. It is often
known as subsistence poverty, since it bothers on the assessment of minimum
subsistence requirements. These requirements include nutrition based on intake
of calories and protein, shelter measured by quality of dwelling, degree of
dwelling and health, measured by mortality rate and accessibility to good
medical care.
The Informal Sector of the Urban Economy
and Poverty
Alleviation: Necessity upon the State.
Relative poverty, according to
Haralambos and Heald (2004.160) is measured in terms of judgments by members of
a particular society of what are considered necessities based on societal and
cultural conventions. Thus Odibo (1997.16) argues that individuals, families,
groups in the population can be said to
be in poverty when they lack the resources to obtain the types of diets,
participate in the activities and have the living conditions and amenities
which are customary ; at least widely encouraged and approved in the societies
to which they belong.
On subjective poverty they refer to
what the individual thinks of himself; either poor or rich. Karl Marx (1912)
relates poverty to the very nature of capitalist economics which generates
inequalities. In Marx’s view, the capitalist society reflects the interest of
the ruling class .Government only
attempt to reduce the harsher effects of poverty. This has been particularly
true of the Nigerian economy. Max Weber (1958.200) on his part argues that an
individual’s class situation is dependent on his market situation, on the
amount of power he has to influence the working condition of the market in his
favour and on the reward, his skill and expertise can command in a competitive
market. This could be an explanation for the proliferation of informal sector
activities and apprenticeship form of exchange relations to the sector.
McGee (200.178) links urban poverty in
third world countries to urban population explosion which has caused these
cities to be plagued by high unemployment rates, with a large proportion eking
out a living in low income informal sector and thus, the poor seem likely to
persist and proliferate in the informal and low wage sector of these third
world cities. In attempting to define poverty, McGee uses a monetary measure
which sets a poverty line; Minimum
monetary requirement to ensure that a household lives above a minimum standard of living defined by the household’s
budget. He further identifies the developmental paths towed by third world
countries as major determinants of poverty.
In this regard, Ekpenyong (1992.163)
maintains that the urban poor are not a separate society or culture, or even a
sub society or subculture. Their poverty is the result of societal process,
rather than their own making and their situation can only be effectively viewed
as part of a total system, and in terms of the relationships between rich and
poor. Indeed, the world “poor” would have no meaning without the opposite word
“rich”.
However, it is pertinent to note that
the origin of poverty in third world countries and particularly in Nigeria lies
in colonialism. The path of industrialization handed down by the colonial
masters (the role of peripheral nations in the capitalist system). One must
admit that chronology of our national attitudes namely, excessive taste for
imported products, undue affluence engendered by the era of the oil boom, the
attendant corruption and grabbing of the national cake by selected and
opportune actors have left the national confers empty leading to borrowings and
huge debts. These facts have indeed further forced on the populace undue
poverty emanating not only from inflationary trends but also from measures
aimed at restructuring the economy.
INDICES
Given the
above literature, an attempt is made to examine the nature and the effect of
informal sector on poverty in Rivers State. To achieve this, questionnaire
survey and oral interview techniques were used to get the data for this study. The
target population was 1200 respondents from the upland and Riverine areas of Sate.
The research made use of six randomly sampled local government areas out of the
twenty-three Local Government areas in Rivers State. Six urban areas namely
Port Harcourt, Bori, Buguma, Abonnema, Ahoada and Abua located across the six
local government areas of the state were used for the study with a sample of
200 respondents per urban centre randomly chosen. On the whole, one thousand
two hundred (1200) copies of questionnaire were distributed to the respondents
across the urban cities. Above all, 1,000 copies were dully field and returned
based on kikert scale of strongly Agreed (SA) Agreed were analyzed using Z test
of mean. Below is the kikert scale rating.
International
Journal of Research and Development Studies
Volume 7, Number 2, 2016
Key
Strongly
Agreed (SA) - 5 Points
Agreed (A) - 4 Points
Undecided
(UD) - 3 Points
Strongly
Disagreed (SD) - 2 Points
Disagreed
(D) - 1
Point
Hypothesis 1
There
is a significant relationship between the informal sector and the formal sector
of the economy
Table 1: Informal and Formal Sector’s
Relationship
|
Item
|
SA
5
|
A
4
|
UD
2
|
SD
2
|
D
1
|
Total Responses
|
|
Item
5
|
50
|
50
|
100
|
200
|
600
|
1000
|
|
Item
6
|
50
|
70
|
180
|
300
|
400
|
1000
|
|
Item
7
|
40
|
60
|
100
|
400
|
400
|
1000
|
|
Item
8
|
50
|
100
|
50
|
600
|
200
|
1000
|
|
Frequency
|
190
|
280
|
430
|
1500
|
1600
|
4000
|
|
Eranks
x Frequency
|
950
|
1120
|
1290
|
300
|
1600
|
7960
|
Z –
Test formula
= 2
DECISION- Accept the hypothesis if the
computer is greater than theoretical value otherwise reject it. Based on the
above analyses, we accept the hypothesis which states that there is a
significant relationship between informal and formal sectors of the urban
economy; this conforms to the work of Davis (2009). 180 assets that informal
sector is a hiding place where the unemployed wait until there are openings in
the formal sector. In the same vein, Ekpenyoung (1992. 120) suggests that the
distinction between informal sector. And formal sector is that the forma is
wage-earning while the latter is self employee. Our respondents who were
interviewed supported a strong relationship as observed by Davies (2009, 180)
that it is taking place for the defeated and a place where the unemployed wait
until there are openings in the formal sector. Therefore, based on the above
analysis, and the subsequent literature, it is clear that there is a strong
relationship between the informal and formal sectors of the economy.
Hypothesis II
There
is significant relationship between the social economic growth of the place and
the informal sector
Table II: Informal and formal goods
and services
|
Item
|
SA
5
|
A
4
|
UD
2
|
SD
2
|
D
1
|
Total
Responses
|
|
Item
9
|
100
|
70
|
180
|
200
|
400
|
1000
|
|
Item
10
|
150
|
100
|
50
|
500
|
200
|
1000
|
|
Item
11
|
140
|
60
|
100
|
300
|
400
|
1000
|
|
Frequency
|
390
|
230
|
330
|
1000
|
1000
|
3000
|
|
Eranks
x Frequency
|
1950
|
920
|
990
|
2000
|
1000
|
6860
|
Source: Fieldwork 2016
The Informal Sector of the Urban
Economy and Poverty
Alleviation: Necessity upon the State.
= 2.28
=
2
DECISION – Accept the hypothesis if the computed
values are greater than the table value. Otherwise reject it. Based on the above analysis, we reject the
hypothesis which states that there is a significant relationship between the
devalued goods and services of the informal sector and the formal sector
production of goods and services. This conforms to the work of McGee (2009.
150) who asserts that:
The
informal sector is basically dependent on the formal sector for its survival
due to financial constraints which hamper its development. Therefore, the goods
and services of the informal sector are highly undervalued and their profit
margin is highly minimized by the formal sector enterprises
Ekpenyong
(1992.120) supports this view when he asserts that:
…The
financial constraints of the informal sector has affected the production of
goods and services. As a result, most informal sector enterprises have not been
able to expand and develop considerably, thereby rendering the productions
undervalued. They are effectively as they would have it this problem of
financial constraints were solved…
Based
on this analyses and the subsequent literature, it is clear that one of the
causes of the under valued goods and services of the informal sector is due to
financial constraints.
CONCLUSION
Unfavourable economic environment has engendered large scale re-organizations
in various areas to help companies and individuals adjust to the prevailing
economic situation in the country. Individuals have adopted mechanisms that
have helped them to cope with the changing times. Some have changed their
pattern of feeding, families are also reshaping their life styles. For example,
many families today have reduced the quantity of animal proteins which cost a
lot and have started to look towards plant proteins like beans for nourishment.
Organizations too are not left out in
this reorganization bid. In fact, many have been forced to fold up and still
others are now operating below their operational capacities. Some others have
been able to diversify their activities so that the loss of one could be paid
by the gains of the other(s). For those companies that have the good fortune of
remaining in business, most have had to cut down on their staff strength to
enable them give better welfare package to staff. Some companies now use either
contractors or workers to handle some of their activities.
In the Nigerian labour market as a whole,
many have become unemployed or retrenched, the result of which is poverty in
all its ramifications. To tackle this, certain measures could be carried out to
ensure a vibrant informal sector of the economy.
Government had taken steps to enhance
the informal sector. Such steps include the establishment of people’ bank,
community banks, family support (Economic Advancement) programme; the National
Directorate of Employment to give loans to intending or existing entrepreneurs
in the sector to improve their capital base and thereby improve their standard
of performances and consequent, income. However, as laudable as these
programmes might be, they have only remained a tip on the iceberg because
commitment at the implementation stage has been lacking. This is because the
people put in place to oversee these programmes are always politically
appointed whether they can do the job or not. Consequently, they lack the
expertise and so, they simple become square pegs in roundholes.
International
Journal of Research and Development Studies
Volume 7, Number 2, 2016
RECOMMENDATIONS
To
redress this situation; the researcher has made the following recommendations;
(i) Govern meat should encourage stronger
co-operative associations amongst the informal sector businessmen and ensure
that the community leaders stand as surety for those applying for loans from
the enumerated bodies. Thus will reduce the influx of people from the rural
areas into the urban centres.
(ii)
Training programmes could be held of manufactures and technicians to update
them with the latest technology and know-how. After all, only very recently an
Newi based mechanic put together the first made in Nigeria car. Only very
recently too, the researcher witnessed the construction of an electric blender
by an Aba based technician. What about during the Nigerian civeil war days when
dane guns and bombs (popularly called Ogbunigwe) were manufactured locally.
Accounts of such ingenuity abound. If this ingenuity is developed and
encouraged, these entrepreneurs will not have to wait for the formal sector
before they produce. Instead they would go on producing for sale locally as
well as for exports.
(iii)
Efforts should be made to link the petty producers to form stronger
co-operatives where they could pull resources together and buy straight from
the company to enable them avoid middlemen. By so doing, their profit margin
will be increased.
(iv)
There is the need to revive the price control Board to regulate prices and
production. This measure while maintain a uniform price level, will also check
the current trend of formal sector hawkers who over reduce prices and in the
process to look forward to while in the rural areas.
(v)
A greater emphasis should e placed on education parents to ensure their children
finished the primary education if not secondary education before going to learn
any skill.
(vi)
In order to raise the worth of the informal sector businessmen, government
could create markets for their goods. With a substantial capital base and easy
access to machines, manufacture could produce things locally for sale and even
export to other African countries. An example is the manufacture of
baby-clothes hanger which the research came across. It was beautifully
constructed by a welder and painter by a painter its sale price was less than
one quarter of the cost of the imported make, yet this hanger has lasted over
three years.
(vii) Finally, there is the need for general
overhaul of our personal lives so that the high rate of corruption in the country
can be tackled with commitment and tenacity. This measure will take care of the
Nigerian factor of gratification which has equally further thinned the
businessman profit margin.
REFERENCES
Davis,
R. (2009) Informal sector or subordinate mode of production? Amodel in Bromley
R. and Gery C. Bestman printers Lagos.
Ekpenyong,
s. (1992) the city in Africa. Lagos: African Heritage.
Gerry,
C. (2009) Small scale manufacturing and repair in Dakar: A survey of market
relations within the urban economy. Lagos.
Haralambos,
M. and Heald, R. (2004) Sociology: Themes and Perspectives. New Delhi: Oxford
University Press.
Kuppuswamy,
B. (2003) Elements of social psychology. New Delhi, Vikas Publishers.
Marx,
K. (1912) Capital. Vol. I London Lawrence and Wishert.
Max, W.
(1958) The protestant ethnic and the
spirit of capitalism, New York: Scribner.
McGee,
T. C. (2009). The poverty syndrome in South East Asian City. Lot and Lot press.
Odibo,
A. (1997) Informal sector hold the Ace for job creation. The vanguard, October
24.
Tedaro,
M.P. (1977) Economics for the developing world. London, Longman Group Ltd.
World
Bank (1994) Private sector development in low income, countries. Washington
D.C.
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