Setting ground rules for Egypt's informal economy is vital to empowering the poor For years the Egyptian economy's inability to create enough jobs to meet demand by new graduates and the backlog of employment seekers, has pushed many people to work in the informal sector, writes Nesma Nowar. The informal economy includes all unregistered economic activities and assets that are not subject to tax or supervision. The sector is estimated to contribute 40 per cent of the country's economic activity. This week, in a seminar organised by the Egyptian Centre for Economic Studies (ECES), economist Malak Reda said that the informal economy deprives small businesses from the benefits of the formal economy. These include access to credit, the potential to expand, and the ability to obtain technical services. Nonetheless, "studies show that 84 per cent of small and medium enterprises are informal," she said. Reda added that turning informal activities into formal businesses has its privileges. It would increase the country's tax revenues, and enhance the poor's potential while preserving their rights. Unregistered assets, Reda said, are considered "dead capital". She said that due to the fact that the poor do not own such assets formally, they cannot utilise them effectively. Converting these informal assets into formal, viable economic assets, according to Reda, would serve as a collateral to increase the poor's access to credit and their integration into mainstream economic activity. However, Reda stated that there are obstacles that hinder the formal registration of such assets. Most notably, there are multiple laws and decisions related to approving real estate rights, as well as a number of government entities responsible for approving these rights. "Procedures to register real estate involve 96 steps, that take 208 days to go through," Reda said. "That's why a lot of people shun registering their properties." Meanwhile, Souad Rizq, professor of economics at Cairo University, argued that integrating the informal economy into mainstream activity is not always the best solution. She said that when the state understands the importance of the informal economy, it feels torn between supporting its activity and imposing taxes on it. "This happened in Egypt," she said. "The state started to track the informal sector in order to tax it." She added that other countries' experiences show that government taxing can lead to the informal sector's disappearance. As such, the jobs generated by the sector are lost. Because of this, Rizq was in favour of improving conditions for informal workers, rather than attempting to integrate them into the formal economy. She suggested that the state does not force informal workers to enter the formal economy. Instead "the state should examine informal workers' priorities," said Rizq. "Access to credit, in most cases, is not a priority." The professor explained that the informal sector includes all those who are working for an economic entity that contains less than five persons, in addition to all street businesses. She showed that while in 1996 there were five million informal workers, in 2006 this figure increased to eight million. That figure represented an annual increase of six per cent.
