Laila Iskandar* writes about the dilemmas of the informal sector The belief that economic growth is an effective path to employment-generation in all countries and all levels of society, overlooks the immediate and short-term problems facing those living in poverty and working in the informal sector of the economy. They cannot make the leap from their present condition to reap the benefits of policy approaches that only facilitate formal sector job opportunities. At the same time, the informal sector in Egypt is exceedingly large, operates at lower than optimal levels and includes marginalised youth who have no other access to employment opportunities. The informal sector has grown exponentially in Egypt for a number of reasons, including the fact that formal labour markets have generated insufficient jobs and are unable to absorb a continuously growing unskilled workforce. Also, it is an easier option for unskilled workers and is more suited to their skill level; the community-based nature of the informal economy makes information about work opportunities in this sector more accessible to the poor; the complexity of registering businesses and the uncertainty of business sustainability, which often extends the "trial" period into a more permanent status of informality. Youth employment is high on the government's priorities for improving socio- economic conditions of the large labour force. The issue, therefore, is creating employment and livelihood conditions for the unemployed, reforming economic structures to facilitate formalisation of the informal sector and improving economic performance. This is coupled with absorbing more of those who still lie outside the circle of well being, much less prosperity, in order to offset the mismatch between learning needs and actual learning acquired in the technical vocational system. Today, vocational education and teacher training and methods in Egypt no longer match the speed of labour market developments. There is an obvious mismatch between labour market needs and the vocational skills and qualifications of current graduates from formal technical schools and centres. They are ill-equipped to seek a livelihood in any place other than the informal, popular market. Teaching is overwhelmingly traditional, while "on-the-job" training schemes are potentially only open to those who are literate, skilled and in the formal job market already. The millions left behind need new options and a fresh conceptualisation of where they are to learn, earn a living and be entrepreneurial. An enormous amount of money has been spent on formal technical and vocational schools, yet there is growing evidence that the money has not been well spent. One question which has haunted policymakers has been whether formalisation is an endeavour which is likely to improve that sector and increase youth employability while upgrading the sector's performance, or whether it is not worth the effort. Initiatives have been piecemeal, resulting in few tangible benefits perceived or measured in the informal sector economy. A study conducted by the Economic Research Forum (ERF) revealed that the estimated numbers of small- and medium-size enterprises (SMEs) increased by 4.7 per cent annually, and from 2.5 million Economic Units in 2003 to 3.5 million Units in 2006. Furthermore, the study documented the vibrancy of that market with huge numbers entering and exiting every day. But formalisation is not an easy process. Research conducted by ERF and the Egyptian Centre for Economic Studies shows that the high cost of abiding by the legal and regulatory procedure s in the formal sector regarding entry, operation and exit is still a barrier towards formalisation. This, in spite of the government's impressive record in streamlining measures and supporting business start-ups with one-stop shops and other facilitating instruments. Some 40 to 60 per cent of the costs of doing business arise from regulatory burden; entrepreneurs in general spend close to 35 per cent of their time solving problems related to government regulation. Social security costs and complexities also discourage SMEs from hiring and registering workers. Total employment in SMEs climbed to 6.43 million in 2006, an increase of more than 60 per cent since 1998. The highest growth was in enterprises with 1-4 workers (50 per cent of non-agricultural private sector employment), while employment in firms with more than 50 workers had not grown at a comparable rate. Over 83 per cent of enterprises are informal, according to the Egyptian Labour Market Survey. They further lack the human and material resources to deal with bureaucratic procedures, and suffer the burden of inspection by a variety of regulatory authorities. In 2006, nearly 50 per cent of all jobless people in Egypt were between the ages of 20 and 24 years; young adolescents have little chance of acquiring work experience. However, the formal sector has begun to offer an increasing number of positions for which there are no qualified applicants. This is essentially due to Egypt's inadequate vocational education system, which is disconnected from the needs of a growing and modernising economy and the needs of the youth. Few programmes guide youth from school or unemployment to take up gainful employment. Professional and technical requirements include the need for personal initiative, critical problem solving, in addition to core competencies and knowledge, abilities and skills. Innovative thinking is required to empower the marginalised, and this should be done through simplifying formalisation procedures through comprehensive reform; increasing SME income earning potential; upgrading their technology; improving working conditions; introducing industry safety measures; and offering literacy, in all senses -- alphabet, legal, health, culture and the arts, etc. -- in keeping with UNESCO's multiple literacies approach. * The writer is chairperson of CID Consulting.
