Informal economy holds key on road to Zero Hunger

These businesses are not regulated and their workers are not registered or pay taxes. They are not ‘official’ and are often overlooked by governments. In the Global South food supply is overwhelmingly in the hands of these informal businesses. Dependence is highest in Africa, where 86% of those employed work in the informal sector. More than 70-80% of all fruits and vegetables is supplied through informal traders to consumers in Africa While the most poor people depend on the informal economy for affordable food, governments do not protect or endorse these businesses at all. In fact it is a blind spot.

Crucial in feeding the population

The researchers do also identify the pitfalls of informality. Small illegal businesses do provide affordable food effectively but not always do so efficiently. Food finds its way to consumers through many intermediate steps and over long distances and food losses along the way often make food more expensive than necessary. And because informal businesses are unregulated, working conditions and food safety are often poor.

Informal sector is not at the table

In 2015, the international community agreed to eradicate hunger and malnutrition by 2030 at the latest. That target can only be met if traders and other businesses in the informal sector are included in the planning. ‘And that is not happening," argues Bart de Steenhuijsen Piters, one of the report's authors. People who work in the informal sector are not at the negotiating table when policies are crafted and investments are made. This is because governments, investors and practitioners do not know how to deal with them properly. They want these companies to move to the formal economy in order to make them pay taxes. But because there is nothing to be gained for them in return, companies don't want to commit to that. Also, for knowledge developers like us, formal, economic processes are all we know and have tools for. But those formal, traditional instruments do not work well to encourage informal businesses to engage in public goals, such as a more diverse food supply, better food hygiene or reduced food losses.’

Informal economy is here to stay

‘We need informal businesses to achieve these kinds of goals, De Steenhuijsen Piters stresses. But sometimes they are part of the problem, for example when it comes to the legal status of workers or poor food hygiene. On the other hand they are also part of the solution, for example to reduce food losses in the chain and thus keep products affordable for consumers.’ De Steenhuijsen Piters is convinced the informal economy is here to stay, at least for a long period of time. And therefore, its involvement in plans and interventions around food security is necessary to make successful food system transitions.

How to involve informal businesses?

De Steenhuijsen Piters: ‘Governments, financiers and knowledge institutions need to take the role of informal businesses seriously if they want everyone to have safe and affordable food. It does indeed help to invest in good roads, a good market infrastructure, robust energy facilities and ICT services. Companies simply work more efficiently in an environment where these kinds of facilities are well organized. But it may take other stakeholders in the food system to provide effective incentives to informal traders to reduce, for example, food waste or improve hygiene standards. We should not rely solely on the government, which has a problematic relationship with the informal sectors.’

"Without them it won't work"

De Steenhuijsen Piters also stresses it is important to better grasp how informal businesses organize themselves: why are they successful? ‘Looking closer at them can provide valuable insights on how these businesses deal with challenges. Think about access to credit and market information and how knowledge finds its way into the informal sector.’

And finally more has to be found out about effective ways and incentives to include informal businesses in policies: ‘It is about time to turn things around. We need to understand the informal economy better so that it can contribute more to public goals. Without them, it won't work.’