A 46-page study prepared by Senator and leading businessman Ahmed Abu Hashima has highlighted the need to integrate the informal economy.
“The longer the informal economy remains without official regulation, the greater the losses to the national economy and local industries,” said the report.
The study noted that in April 2021 the government had vowed to integrate the informal economy as part of its long-term structural reform programme.
“The process should aim to raise economic growth rates, reinforce the role of the private sector in generating jobs, contain inflation, narrow the budget deficit, and shore up FX reserves,” said the study. It added that although the government had announced plans for the informal economy to be fully integrated by the end of a three-year period (starting in FY 2020-21), nothing concrete has been achieved.
Addressing the senate on Monday, Abu Hashima said the study distinguished between the informal and the black economy. The latter includes illegal activities including the trade in drugs, arm smuggling, corruption, and money laundering.
The study estimated that up to LE400 billion in tax revenues had been lost in FY 2020-21 due to the failure to regulate the informal economy and noted “losses this sector has caused the formal industrial sector in the form of low-quality products and services”.
It also pointed out how workers in the sector are excluded from insurance and pension systems, leading to social unrest and the proliferation of haphazard communities and slum areas.
The informal economy is estimated to have contributed 40 per cent of total GDP (LE6.4 trillion) in FY 2020-21.
“The sector employed around 50 per cent of the workforce in Egypt in FY 2020-21, and made profits of LE164.3 billion versus the LE1.2 trillion generated by the formal economy in the same year,” said the study, citing figures released by the Central Agency for Public Mobilisation and Statistics.
The study also cited figures by the Finance Ministry estimating that the informal sector represented 55 per cent of the entire economy in FY 2020-21.
“Most of the income and profits generated by the informal economy come from activities in the industrial sector (small and micro-scale enterprises that employ between five and 10 workers, are not registered with Federation of Egyptian Industries, and produce low-quality products), street peddlers, private tutoring, and the transport sector [illegal taxis and tuk-tuks].”
The study found workers in the informal economy are concentrated in the governorates of Cairo, Giza, and Qalioubiya, with almost 85 per cent involved in just four activities: retail, manufacturing industries (eg furniture-making), agriculture and fishing, and food services.
“In recent years, cell phone and computer maintenance services have also grown within the informal economy, to the extent that 65 per cent of the workforce in the sector is now employed in the informal economy,” found the study.
Integrating the informal economy into the national economy has become a pressing need, not least because “it will improve the quality of Egypt’s industrial production, help it access new local and foreign markets, and increase income to the state in the form of taxes and fees.”
Reda Abdel-Qader, assistant finance minister for tax affairs, said the Finance Ministry has already integrated 850,000 informal economy units into the national economy. “We conducted tax awareness campaigns and offered tax breaks to help these units integrate,” he said.
Measures to speed up the integration process recommended by the study include amending labour laws to make it easier to establish businesses and employ workers on flexible employment contracts, and simplifying commercial and administrative registration procedures to make it more attractive for the informal economy to join the formal sector.
The study also recommended that a Supreme Council for the Informal Sector be established to oversee the process of integration.
* A version of this article appears in print in the 12 January, 2023 edition of Al-Ahram Weekly