CAIRO: Have you ever tried to live on LE 550 a month uncertain if you will receive your next paycheck? If that were not difficult enough, imagine that you have no health insurance, no pension, you can never retire since there is no retirement age and you have six children to raise, feed and educate.
Welcome to the world of Mohamed Hosni (names were changed to protect the identity of the sources) who sells fruit in a small market area in Dokki. He is not alone. He is one of more than 8 million Egyptians, who toil and sweat in the informal sector.
Mohamed has been selling various fruits like grapes, figs and oranges for the last 15 years without a license. He rents the cart he uses and buys his products daily. If he is lucky he sells the fruit on the same day, otherwise they perish at his own loss.
He barely makes ends meet. He is 48 years old and his kids vary in age from 9 to 19 years. And if that were not enough, he endures frequent harassment from local authorities and has to pay LE 10-20 under the table so they could overlook the fact that he doesn’t have a license to sell food.
Mohamed has always wanted to expand his business but it is not easy. Expansion requires borrowing from a bank and banks require Mohamed to have a business address, a corporate identity, audited financial accounts and more than that: valuable collateral. Mohamed has none of the above.
Given that his savings are also meager, if any, He is trapped in a cycle of low productivity and low income.
Mohamed says he does not think acquiring a license would make things better, and has seen enough of his friends try and fail.
Once they get the license, they have to deal with a serious headache: frequent visits from tax collectors, social security representatives, local authorities and agencies responsible for product inspection. At the same time, they have not found it easy to obtain credit or get long term contracts. They did, however, have to pay more bribes since they had to deal with more officials. Based on this experience, Mohamed concludes he is probably better off staying where he is right now, operating in the shadows.
For small entrepreneurs who are semi-formal, life is not much better. In fact, according to Ali, who sells clothes and fruits in Imbaba, they get the worst of both worlds.
While paying taxes, he still needs to bribe officials to allow him to operate. Ali has a license to sell clothes, yet he makes most of his profit from selling fruit on a cart in front of his shop. His main complaint is that “The government gives me nothing, no matter how much I pay.
Workers in the informal sector suffer even more than owners. In the thousands of small shops scattered all over greater Cairo and elsewhere in Egypt, workers are not protected against illness or old age. They have no job security, minimum wages or decent working hours. They cannot afford to be unemployed no matter what the working conditions are. The overlap of the informal and formal sectors complicates matters even more. Those who have a job in the formal sector often find themselves in need of another job to make ends meet. Ahmed, a librarian in a school in Dokki said he has been making LE 350 a month since 1989. To provide for his family of five, he has since been driving a pickup truck to help people move things.
The stories of Mohamed, Ali and Ahmed are not unique or rare. In 2004, there were over 8 million Egyptians employed in the informal sector as opposed to the 6 million in the government and 7 million in the legal private sector, according to “The Case of Formalization in Egypt by the Egyptian Center for Economic Studies. The latest research by the Central Agency for Public Mobilization and Statistics, the government statistical agency, states that 82 percent of all entrepreneurs in Egypt worked in the informal sector in 1996.
According to a study by Alia El Mahdy, a professor of economics at Cairo University, small businesses tend to lack capital, technology and know how. Not surprisingly, their contribution to Gross Domestic Product (GDP) is relatively modest, estimated at 30 percent. The loss to the economy from their low level of efficiency and limited capacity to grow is large. The fact they escape government taxation deprives the economy from revenues in the tens of millions of pounds that can be spent on social programs. In addition, the widespread informality means that millions live under economic uncertainty and poverty.
The government inaction to help entrepreneurs and workers in the informal sector join the legal sector, appears to be in contrast to the myriad official claims that formalization is at the head of their list.
“Helping the laborers of the informal economy in Egypt is not as high a priority for the government as it should be, said El Mahdy.
While the informal sector creates much-needed jobs, the predicament of its workers is unacceptable from both a social and economic perspectives, explained El Mahdy.
The government has implemented a microfinance plan catered for informal sector workers, however, the outreach has only been limited to only 5 to 8 percent, said El Mahdy.
El Mahdy believes “much can be done in addition to financial services. The best policies are to provide technical services, improve their technology, design of product, packaging and link these micro-firms with larger enterprises.
Technical and training programs for workers would have a serious impact on efficiency. Such efforts would establish a more hospitable environment.
Ali wants to see a change in the government, but his inaccurate understanding of the workings of the government make him blame the system as a whole. It is the rules of the game that need to be changed, not necessarily the players.
