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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
E-mail: alome 1955@gmail.com

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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