The Role of the Informal Sector in the National Economy :: Economics

The Role of the Informal Sector in the National Economy MOZAMBIQUE Introduction ============ In an attempt to respond to the topic this essay will discuss the role of the informal sector in the Mozambican economy. For a better understanding of the topic some important definitions shall be given. For the purpose of this essay, the concept of economy can be defined as the science that deals with production and consumption of goods and services, the circulation of wealth and the redistribution of income. On the other hand, the concept of the informal sector was introduced into international usage in 1972 by the International Labor Organization (ILO) in its Kenya Mission Report. Though there is no consensus on the definition of the informal sector, coupled with the fact that in Mozambique the concept varies with the different periods of history, the following are the common characteristics of this sector as defined by ILO: (a) ease of entry; (b) reliance on indigenous resources; (c) family ownership; (d) small scale operations; (e) labor intensive and adaptive technology; (f) skills acquired outside of formal sector; (g) unregulated and competitive markets. Since that time, different authors and the ILO itself introduced many definitions. The ILO/ICFTU international symposium on the informal sector in 1999 proposed that informal sector workforce can be categorized into three broad groups: (a) owner-employers of micro enterprises, a few paid workers, with or without apprentices; (b) own-account workers, who own and operate one-person business, who work alone or with the help of unpaid workers, generally family members and apprentices; (c) dependent workers paid or unpaid, including wage workers in micro enterprises, unpaid family workers, apprentices, contract labor, home workers and paid domestic workers. (Santos in Dhemba; 1999) Mozambique Social Economic Situation ==================================== The signing of the peace agreement and the implementation of the Structural Adjustment Program (SAP) in Mozambique caused an impoverishment of the poor, especially in towns where the decline in purchasing power is most felt as it is harder to find alternative income to buy food. The liberalization of the market opened up the possibilities to import goods, however, the purchasing power of Mozambican citizens are still very low. There was a rise in the levels of unemployment as a result of the mass retrenchment originated by the implementation of the SAP policy. According to a World Bank study, and many other studies, unemployment is a strong indicator of economic crisis. In spite of all the measures taken by the Government to bring about economic and social development, this development was not percolating down to the masses fast enough. Due to the pervasive effects of the globalizing economy, population growth and urban migration, the active labor force was growing at a much faster rate than the availability of