African Centre for Statistics United Nations Economic Commission for Africa 2. Identifying informal sector and informal employment Ramesh KOLLI African Centre for Statistics At Expert Group Meeting on Statistics for SDGs: Accounting for Informal Sector in National Accounts January 2016, Addis Ababa, Ethiopia

African Centre for Statistics Outline of the presentation Informal economy Operational definitions and guidelines for identifying informal economy

African Centre for Statistics Informal economy, informal sector and informal employment (1/5) Informal economy refers to informality in enterprises and employment, thus encompasses the informal sector enterprises and informal employment –Informal sector refers to the production and employment that takes place in unincorporated small or unregistered enterprises (15 th ICLS), –informal employment refers to employment without legal and social protection—both inside and outside the informal sector (17 th ICLS). –The infor­mal economy refers to all units, activities, and workers so defined and the output from them.

African Centre for Statistics Informal economy, informal sector and informal employment (2/5) Informal sector and informal employment account for a significant share in GDP and employment among the African developing countries In the Sub-Saharan Africa, informal sector contributes about 55 per cent of GDP and 80 per cent of the labour force. Nine in 10 rural and urban workers have informal jobs in Africa It offers opportunities to the most vulnerable populations such as the poorest, women and youth In terms of informal employment among economic activities, 17 per cent are in manufacturing, 7 per cent in construction, 43 per cent in trade, 6 per cent in transportation and 27 per cent in other services

African Centre for Statistics Informal economy, informal sector and informal employment (3/5) Contribution of informal sector to the GDP (quoting Jacques Charmes, 2012) Countries (years) Share of informal sector (including agriculture) in GDP Share of informal sector (excluding agriculture) in non-agriculture GVA Share of informal sector (excluding agriculture) in GDP Sub-Saharan Africa Benin (2000) Burkina Faso (2000) Cameroon (2003) Niger (2009) Senegal (2000) Togo (2000) Middle East and North Africa Algeria (2003) Egypt (2008) Tunisia (2004) India Latin America Transition countries

African Centre for Statistics Informal economy, informal sector and informal employment (4/5) Development of statistics on informal sector –15 th ICLS Resolution states that countries where informal sector plays a significant role in employment and income generation should aim at developing a comprehensive system of statistics on informal sector, which should contribute to improvement of labour statistics and national accounts –Since 15 th and 17 th ICLS, there have been initiatives at the international and regional forums on developing statistics on informal economy –These initiatives led to publication of handbooks, manuals and country practices, which provide rich information on the subject and offer guidance on measuring informal economy

African Centre for Statistics Informal economy, informal Informal sector and informal employment (5/5) Two important handbooks for measuring informal sector are: –Measuring the Non-Observed Economy - A Handbook (OECD, IMF, ILO, CIS STAT 2002) »One of the problem areas of NOE is informal sector. The handbook provides extensive guidelines for measuring informal sector –Measuring Informality: a Statistical Manual on the informal sector and informal employment (ILO 2013). This manual aims »to assist countries planning a programme to produce statistics on the informal sector and informal employment, in undertaking a review and analysis of their options; »to provide practical guidance on technical issues involved with the development and administration of the surveys used to collect relevant information, as well as on the compilation, tabulation and dissemination

African Centre for Statistics Purpose and Outline of the chapter This is the main chapter of the guidebook and draws from the handbooks and manuals on informal economy with the purpose of providing guidance to African countries in measuring informal economy and its inclusion in the GDP It is mainly aimed for use as a reference document by the statistical offices and compilers of national accounts in the African countries. The Chapter is organized under four sections. –Section 2 presents the operational definitions and guidelines provided in 2008 SNA and ILO manuals and documents, for identifying informal sector and informal employment. –Section 3 discusses in brief the direct surveys for measuring informal sector and informal employment –Section 4 describes the methods that can be used to account for informal sector and informal employment in national accounts.

African Centre for Statistics Operational definitions and guidelines for identifying informal sector Concepts, definitions and guidelines for identifying informal sector units in the economy have been provided in the 15 th ICLS, 1993 SNA, 2008 SNA, ILO Manual on Measuring Informality and Delhi Group recommendations. The term ”informal sector” is used to denote tiny units, engaged in the production of goods and services but whose activities were not recognized, recorded, protected or regulated by the public authorities and includes a wide range of activities from street vending, shoe-shining, food processing and other petty activities requiring little or no capital and skills to activities involving some amount of skill and capital such as tailoring, repair of electrical and electronic goods, and operation of transport equipment.

African Centre for Statistics 15 th ICLS The ICLS considered two different but interrelated ways of viewing the informal sector while defining informal sector. –Non-registration: One approach views enterprises in relation to the legal and administrative framework in force and defines the informal sector as being made up of enterprises that do not conform to this framework in some way. It assumes an intrinsic relation between non-registration and informality. –Employment size: The second approach views the informal sector as constituting a particular form of production, in terms of the way the enterprises are organized and carry out their activities. The definition in the 15 th ICLS Resolution incorporated both approaches by allowing non-registration and/or employment size to be used as a criterion in distinguishing informal sector enterprises from other household unincorporated enterprises.

African Centre for Statistics 15 th ICLS : Concepts of IS Concepts of informal sector in 15 th ICLS Informal sector consists of units engaged in the production of goods or services with the primary objective of generating employment and incomes to the persons concerned. These units typically operate at a low level of organization, with little or no division between labour and capital as factors of production and on a small scale. Labour relations – where they exist - are based mostly on casual employment, kinship or personal and social relations rather than contractual arrangements with formal guarantees Production units of the informal sector have the characteristic features of household enterprises. The fixed and other assets used do not belong to the production units as such but to their owners. Expenditure for production is often indistinguishable from household expenditure. Similarly, capital goods such as buildings or vehicles may be used indistinguishably for business and household purposes. Activities performed by production units of the informal sector are not necessarily performed with the deliberate intention of evading the payment of taxes or social security contributions, or infringing labour or other legislations or administrative provisions.

African Centre for Statistics Characteristics of households as producers Households as producers enterprises that are directly owned and controlled by members of households, either individually or in partnership with others Producer units within the household sector are all "unincorporated enterprises“ producer unit is not incorporated as a separate legal entity from the household itself The fixed and other assets used in unincorporated enterprises do not belong to the enterprises but to their owners Their owners are personally liable, without limit, for any debts or obligations incurred in the course of production Household unincorporated market enterprises are created for the purpose of producing goods or services for sale on the market low level of organization, little or no division between labor and capital, and labor relations are based on casual employment and/or social relationships, as opposed to formal contracts

African Centre for Statistics 15 th ICLS: Operational definitions Operational definitions For statistical purposes, the informal sector is regarded as a group of production units falling under the household sector of SNA and comprises –informal own-account enterprises –enterprises of informal employers

African Centre for Statistics 15 th ICLS: informal own account enterprises Informal own-account enterprises Informal own-account enterprises are household enterprises owned and operated by own-account workers, either alone or in partnership with members of the same or other households, which may employ contributing family workers and employees on an occasional basis, but do not employ employees on a continuous basis For operational purposes, informal own-account enterprises may comprise, depending on national circumstances, either all own-account enterprises or only those which are not registered under specific forms of legislation. Registration may refer to registration under factories or commercial acts, tax or social security laws, professional groups’ regulatory acts, or similar acts, laws, or regulations established by national legislative bodies

African Centre for Statistics 15 th ICLS: Enterprises of informal employers (1/2) Enterprises of informal employers Enterprises of informal employers are household enterprises owned and operated by employers, either alone or in partnership with members of the same or other households, which employ one or more employees on a continuous basis and which have the characteristics of informal sector. For operational purposes, enterprises of informal employers may be defined, depending on national circumstances, in terms of one or more of the following criteria: –(i) Size of the unit below a specified level of employment; –(ii) Non-registration of the enterprise or its employees.

African Centre for Statistics 15 th ICLS: Enterprises of informal employers (2/2) The upper size limit may vary between countries and branches of economic activity. May be determined on the basis of minimum size requirements as embodied in relevant national legislations, where they exist, or in terms of empirically determined norms. Choice of the upper size limit should take account of the coverage of statistical inquiries of larger units in the corresponding branches of economic activity, where they exist, in order to avoid an overlap. In the case of enterprises which carry out their activities in more than one establishment, the size criterion should, in principle, refer to each of the establishments separately rather than to the enterprise as a whole. Accordingly, an enterprise should be considered to satisfy the size criterion if none of its establishments exceeds the specified upper size limit. Registration of the enterprise may refer to registration under specific forms of national legislation.

African Centre for Statistics 1993 SNA Endorses 15 th ICLS, recognises that IS is a subset of household sector Complete accounts that would permit a financial separation of activities of the enterprise from other activities of its owners are not available; Produce at least some of their goods or services for market; Produce goods and services using labour as input. This excludes units producing goods for own final use and services of paid domestic staff and owner occupied dwellings; Refers to a group of production units based on their characteristics, irrespective (i) kind of workplace where the productive activities are carried out, (ii) extent of fixed capital assets used, (iii) duration of the operation of the enterprise (perennial, seasonal or casual), (iv) operation as a main or secondary activity of the owner; The employment size of the enterprise is below a certain threshold (to be determined according to national circumstances); And/or not registered under specific form of national legislation.

African Centre for Statistics 2008 SNA (1/2) Included a separate Chapter 25 on “Informal aspects of the economy” In order to identify informal sector, SNA household sector is divided into: –households containing an unincorporated enterprise that is registered or has more than a given number of employees; –institutional households, such as prisons, religious orders and retirement homes, etc.; –households with no unincorporated enterprises; –households only undertaking production for own final use (services of owner occupied dwellings, subsistence farming, and services of paid domestic staff); –Households containing unincorporated enterprises that are not registered and/or have less than given number of employees: Informal sector enterprises »without employees "informal own-account enterprises" »with employees "enterprises of informal employers"

African Centre for Statistics 2008 SNA (2/2) Operational guidelines to identify informal sector units exclude the following from SNA households sector –Institutional households such as prisons, and retirement homes –Households with no production activity –Produce exclusively for own final use –Households whose only activity is the production of services from owner-occupied dwellings, the production of services by employing domestic staff –NPISH, if included in household sector –Agricultural production –Households with enterprise that is registered or has more than a given number of employees to provide a breakdown by type of activity so that common exclusions according to type of activity can be made.

African Centre for Statistics Essential SNA: Building the basics, Eurostat, General essential criteria: o legal organization of the enterprise: unincorporated enterprise; o ownership of enterprise: belong to a household; o type of accounts: absence of separate complete accounts; o production destination: at least some production is destined for sale or barter, which excludes household enterprises with no market production (own-account agriculture or construction), services of paid domestic workers, services from owner-occupied dwellings. Additional operational criteria: o size limit of the enterprise: left to the country’s discretion (for international reporting, less than five employees); o non-registration of enterprise and/or of employees in an enterprise within some arm of government; o economic activity: non-agricultural activity including units mainly involved in agricultural sector and performing secondary non-agricultural activities; o location of units: urban and rural areas.

African Centre for Statistics ILO Manual Measuring Informality: a Statistical Manual on the informal sector and informal employment Most comprehensive document providing guidance to countries in measuring informal economy Chapter 2 of the manual presents the concepts and definitions of informal sector and informal employment (drawing upon the 15 th and 17 th ICLS resolutions). Identification of informal sector units –Depending on national circumstances, either all own-account enterprises or else only those that are not registered under specific forms of national legislation. –Enterprises of informal employers should be defined in terms of one or more of the following three criteria: »Small size of the enterprise in terms of employment; »Non-registration of the enterprise; »Non-registration of its employees. –An enterprise composed of more than one establishment should be considered informal if none of its establishments exceeds the size limit.

African Centre for Statistics Expert Group on Informal Sector Statistics (Delhi Group) Set up in 1997 to address various methodological issues involved in the treatment of the informal sector. One objective of the Group was to try to identify internationally comparable data for the informal sector or, at least, a common subset of informal sector. The Group held several meetings since its inception and came to the conclusion that informal sector manifests itself in different ways in different countries. Therefore, national definitions of the informal sector cannot be fully harmonised. It recommended that international agencies should disseminate informal sector data according to the national definitions used. In order to enhance the international comparability of informal sector statistics, proposed a subset of the informal sector that could be defined uniformly across countries

African Centre for Statistics Definition of informal sector adopted in some African countries (1/2) Botswana: informal sector businesses are defined by a number of attributes, such as: (a) non registration with a registrar of companies or legal professionals; (b) informal accounts or no accounts at all; (c) five or less paid employees; (d) expenditure not easily distinguishable from household expenditure; and (e) often being temporary or mobile or located in the owner’s home. Paid domestic workers and subsistence farming are excluded from the definition. Burundi: informal sector includes all production units that do not have a fiscal or statistical identification number, or, in case of employers and employees who work for their own accounts, those who do not keep formal accounts. The sector includes microenterprises with less than five employees. Cameroon, Chad, the Democratic Republic of the Congo, Madagascar and Malawi informal sector includes all production units that do not have a registration or identification no., and/or those that do not keep formal accounts

African Centre for Statistics Definition of informal sector adopted in some African countries (2/2) Ethiopia: (a) at least one member of the household must be engaged in a productive activity; (b) employment status of the owner of the activity must be either an employer or a self-operated activity; (c) not registered; (d) no full written book of accounts; (e) less than 10 persons engaged in the activity; and (f) no license. Morocco: includes all production units without accounting. Agricultural activities are excluded, with the exception of commercial and artisanal activities carried out by those working in agriculture. Nigeria: informal jobs are those generated by individuals or businesses employing less than 10 persons or those businesses that operate with little or no structures. Rwanda: non-existence of formal accounting. The informal sector excludes agricultural activities Zimbabwe: if the establishment is neither registered with the Registrar of Companies nor licensed. Households employing paid domestic workers and those involved in communal farming are excluded from the informal sector enterprises. 24

African Centre for Statistics Summarising criteria for identification of informal sector units Looking at the recommendations made in various documents (mainly based on 1993 ICLS guidelines) and the country practices, an informal sector unit has the following four essential characteristics: –Household unincorporated enterprise that is not registered; –Does not have complete set of accounts –Has at least some market production –Size limit left to country’s discretion

African Centre for Statistics Informal Employment The phenomenon of outsourcing of services has contributed to the development of more casual arrangements between owners of enterprises and those contributing labour services in the form of informal employment. Informality of employment is characterized by absence of contracts, social protection, entitlement to certain employment benefits and not being subject to labour legislation or taxation Broadly, informal employment comprises informal jobs both in formal and informal enterprises and in households. A person can simultaneously have two or more formal and/or informal jobs. Due to the existence of such multiple job holding, jobs rather than employed persons are taken as the observation units for employment. The concept of informal sector refers to production units as observation units, while the concept of informal employment refers to jobs as observation units. Where they exist, employees holding formal jobs in informal sector enterprises should be excluded from informal employment.

African Centre for Statistics Identifying informal employment The following five categories of jobs were considered by the ILO for identifying the informal employment. own-account workers (the self-employed in SNA terms); heads of unincorporated enterprises with employees, treated as employers; unpaid family workers contributing labour to the unincorporated enterprise; employees; and members of producers’ cooperatives. Informal employment can be identified from the above five categories of jobs. Formal enterprises provide informal jobs only as employees or contributing family workers. Informal enterprises may offer any of five types of informal jobs and also formal jobs. Households provide informal jobs as own-account workers, employees and family workers Some domestic staff may have formal jobs.

African Centre for Statistics Informal employment: Conceptual framework Cells shaded in dark grey refer to jobs, which, by definition, do not exist in the type of production unit in question. Cells shaded in light grey refer to formal jobs. Un-shaded cells represent the various types of informal jobs. Production units by type Jobs by status in employment Own-account workersEmployers Contributin g family workers Employees Members of producers’ cooperatives InformalFormalInformalFormalInformal FormalInformalFormal Formal sector enterprises 1 2 Informal sector enterprises (a) Households (b) 9 10 (a)As defined by the 15 th ICLS (excluding households employing paid domestic workers). (b)Households producing goods for their own final use; households employing paid domestic workers.

African Centre for Statistics United Nations Economic Commission for Africa Thank you Ramesh KOLLI African Centre for Statistics At Expert Group Meeting on Statistics for SDGs: Accounting for Informal Sector in National Accounts January 2016, Addis Ababa, Ethiopia