Informal Economy in Benin

Clarisse Gnahoui, WIEGO Board Member, BeninClarisse Gnahoui, WIEGO Board member, wrote the following about the informal economy in Benin.

Benin is a francophone country in West Africa with over 10 million inhabitants. The development of the informal economy in Benin has been encouraged by the system of economic governance in the country since colonial times and especially in the 80s. While it constitutes a driver of economic and social development, the degree of formalization of the private sector in Benin is a result of the particular mixture of social and economic elements, and of the modern and the traditional. The persistent resistance to moving from a family- and household-based economy (initial liberalization), to a modern economy poses the following questions:

  1. Is “modern,” formal organization at odds with African culture and therefore exacerbating poverty? 
  2. Is the informal economy a result of the traditional order resisting the modernizing regulatory power of the state? And is it a response of women (who are in the majority in the informal economy) to the economic order of men? 
  3. How should the behaviour of actors in the informal economy be “rationalized,” and how should this sector be organized in a way that does not necessarily oblige it to formalize?                      

In posing these questions it should not be assumed that the problem is one of formalizing the informal economy in Benin: a sector which is capable of creating wealth, contributing to the well-being of the population and to the development of the nation…

In fact it is not a question of forcing economic actors to formalize in the hope that they will achieve some kind of economic modernity, but of assisting them to shift from a position of short term and small scale investment to one of building viable enterprises that reinvest sizeable profits.

Today the informal private economy comprises 85% of the workers of Benin. The formal private sector accounts for 8%, with 7% employed by the public sector; so the large majority of workers in Benin are in the informal private economy. This sector is varied and multi-dimensional, covering a wide range of activities from operating market barrows to agriculture, driving motorbike taxis, import/export of goods, handicraft, hairdressing, selling food and other products inside and outside marketplaces, etc.

Informal workers include those who work for their own account and those who are dependent workers. But whether or not they are dependent workers, what is striking in Benin is that the majority are women and children and that their sources of finance are small scale associations and micro-finance institutions. They have no access to bank loans and yet despite the precariousness of their business activities and their lack of social protection, the sector as a whole has developed to the extent that it is today an inescapable part of the society of Benin. The informal and the formal co-exist alongside one another but have an ambiguous relationship. Sometimes unfair competition prejudices investment in some sectors; sometimes the complementarity or complicity of their activities can turn the formal sector into a supplier or a blocker of supplies to the informal economy. In summary we can say that the informal economy covers the whole of economic, social and political life in Benin and is an integral part of its society.

Because of the fact that the informal economy occupies an important place in the economy of the country and does not contribute directly to the financing of the apparatus of the state (or at least does not contribute a share commensurate with its share of the economy, but only contributes through the payment of some duties and local taxes), the authorities treat the actors of this sector as parasites on society and prevents them enjoying some opportunities within the country. However, despite the poverty of most informal workers, some have profited in the informal economy and could support the poorest informal workers and also contribute to the state coffers if the authorities were to take account of the realities of a sector that is becoming stronger and developing on a daily basis. This could be done by putting in place a policy of incentivizing a shift from a position of small scale investment, with the goal of subsistence or providing only enough for household consumption, to one of building viable enterprises that reinvest sizeable profits. In doing so it would be important to differentiate between the informal economy and the underground economy, which has to be curtailed. It should also be noted that fiscal reform is not a miracle cure that will enable on its own the informal economy to better contribute to the growth of the economy, nor will it necessarily speed up the transition to the formal sector. The current reality, and that for the foreseeable future of the economy of Benin, is that the informal economy plays and will continue to play an important role in the various dimensions of the social and economic life of the country. So the informal economy ought to be the object of the careful attention of the government as well as its development partners in their strategies and programmes of cooperation.

In view of the above, policies should be directed towards: 

 

  1. Better understanding of the sector and its needs with a view to developing a strategy of support and promotion to turn the informal economy into a seedbed nursery for small and medium enterprises; that is to say: a policy that would focus above all on training, access to credit on easier terms, equipment and the building of management capacity. 
  2. A strategy to formalize the activities of the actors in the informal economy by putting in place a programme of incentives to make the transition, voluntarily, from the informal to the formal economy.

 

This strategy would be based on the following three pillars:

 

  • Promote complementarity between the informal and formal sectors by taking both into account.
  • Set up a programme of assistance that responds to the needs of informal workers.
  • Promote the use of the proposed management centre and of the Regional Solidarity Bank (BRS) within the context of this strategy.

 

To conclude, we can say that the informal economy is an integral part of the economy of Benin and plays a role that goes beyond the economic sphere. The need is not therefore to “integrate the informal economy in the economy” of the country because it already is. So it is important for the Government of Benin to develop a constructive policy that responds to the needs of the sector in order to make it a partner in the economic component of the building of tomorrow’s Benin.