Business Growth and Policy Development for Eswatini’s Informal Sector

At the beginning of 2020, the government of Eswatini declared 2020 the year of the Micro, Small Medium and Enterprises (MSMEs). Corporate tax rate was cut from 27% to 12%, a bold step on the part of government in creating employment through entrepreneurship and committing investment in the growth of SMEs. The MSMEs are the backbone of Eswatini economy employing 70% of the country’s workforce.   With the COVID-19 pandemic planned interventions were heavily affected. On 27 March 2020, Eswatini announced its first lock down, with non-essential businesses closed. Most informal sector activities were halted, particularly affecting women who own 65% of the businesses compared to male owners at 35 %.  Three quarters (75%) combined rely on their business as the only source of personal income.

As programmes and the Lab, the country office has begun exploring ways of how to further support the immediate and long-term challenges for the informal sector. Through our Entrepreneurship Lab, we have consulted partners, including rural, formal and informal entrepreneurs, the business community, government, civil society organisations and development partners to learn more about the challenges of youth unemployment. The Lab undertook solutions mapping and exploration within the sector to contribute to building resilience to shocks. Through these exercises, the Lab identified several digital solutions to allow for business continuity. An example is our online shopping platform – Imakhete Online for the informal sector which has 92% women participation. The Lab has begun an experiment with Limkokwing University of Creative Technology working with the wider informal sector to provide a platform for the online marketing of their activities.

We have gone a step further in dialoguing about the informal sector.

UNDP, in partnership with the Eswatini Economic Policy Analysis and Research Centre (ESEPARC) hosted a dialogue with partners, and the informal sector on creating an enabling environment for business growth and policy development. The dialogue aimed at moving beyond addressing the impact of the COVID-19 pandemic challenges of how to build back better and position Eswatini’s informal sector for inclusive development, social protection, and social security.  

Key points from the dialogue:

-          Developing an adequate database of the informal sector, i.e. size, composition, and characteristics

-          Defining the informal sector to better target resources

-          Formalising the informal sector and what it means

-          Capacity building and improved coordination between the informal sector representative and coordinating bodies

-          Financial products be tailored for the informal sector to create welfare change, i.e. a small-scale farmer only gets paid once they have harvested and sold their produce, so a monthly repayment system for a loan would be inadequate for a trader of this nature

-          Business models to adapt to the new normal

-          Supporting the informal sector to develop a credit history and for the financial sector to adopt and accept non common credit and financial record history

-          Permanent workspaces for the informal sector and inclusion in Municipal Council decisions

-          A fund with an interest rate of 0.5% has just been established for the informal sector whereby collateral is not a requirement

-          Informal Sector acts as a social safety net providing livelihoods for communities.

The coverage of workers in the informal economy through adapted regulatory, institutional, and administrative mechanisms is key to ensure no exclusion from government interventions including the current unemployment benefits support being provided as part of the COVID-19 response. Currently, the informal sector is unable to adhere to the four pillars of decent work as described below by government:

“(a) Employment - this includes skills, access to information, the organisation of work;

(b) social protection - which speaks to the whole contingencies of things that can take people out of work, i.e. sickness, disasters, pregnancy, old age, unemployment for whatever reasons;

(c) social dialogue – enabling the sector to have a voice;

(d) Rights at work – rights that are drawn from the employment contracts, so if we are to consider this a place of work, then they need to have rights to such things as working hours, minimum pay, minimum health and safety issues”.  

Key policy issues raised include the need to review financial policies and regulations to ensure the provision of appropriate financial products that create welfare change in the lives of those in the informal sector. Review includes the overregulation of financial inclusion services, digital financing products; extending formal financial services to cover services beyond the banking sector, including mobile money which is also generating credit history for a lot of people in the informal sector.

Another policy issue is addressing security of land in rural areas through the Land Policy for small scale farmers which also extends to   establishing a framework for localised standards for quotas of products locally sourced by retailers. As the informal sector is a safety social net for many, social protection policies are important as part of inclusive development.  

Key actions are to strategise and collectively find ways for aligning the informal sector to become a pipeline for developing micro, small, and medium enterprises as an extension of the private sector. To find out more on the dialogue: https://www.youtube.com/watch?v=AZ0Mc9OxfG4&t=1003s