A research on women in the informal economy in three districts of Ethiopia

Promoted by NEXUS Emilia Romagna and CETU Ethiopia.

Why informal economy and the unions

The condition of workers in the informal economy has always challenged the unions and all those committed to human rights and work rights. A challenge difficult to face for many reasons: from the lack of reliable statistics to the scattered nature of informal business, occupational diversity and, last but not least, the fact that in many regions informal work has been labelled as illegal and is sanctioned therefore. The challenge and the paradox for the Unions, is that workers in the informal sector are considered “marginal” or “marginalized” even when they represent a majority in the whole labour market, in urban areas and also in the rural world.

In the higher income countries as well as in the poorest this means to answer to the increasing number of workers outside of the formal system of waged work, exposed to risks, performing low quality jobs, not covered by social security and, most of all, unable to see and shape a future. On this common ground a real partnership can be built , founded on in depth knowledge of the specific different contexts.

If a union succeeds in meeting these challenges, offering organization, social protection and rights to workers in the informal sector, the very definition of what it means to be a labour union might change .

In Ehtiopia, in 2011, an official document states that: “Economic recession, adjustment policies and continued high rates of urbanization and population growth have
led to an unexpected and unprecedented expansion of the informal sector in many developing countries, as modern sector enterprises, and especially the public sector, have been obliged to dismiss workers or reduce wages drastically… This is evidenced by the facts that in Ethiopia 50.6 percent of urban employed are in the informal sector.” Women being over represented in Ethiopia as every where else.
Macro data shows a contradiction. The 11% of GDP growth, the fast improvement of HDI (Human Development Index) and, on the other hand, the country’s positioning at 173rd place worldwide. This can be explained with the low starting point, but also with the dimension of the informal sector, which has been, and still is, “invisible” to statistics. Making the informal sector “visible” therefore, implies more than just registering its existence.

On the other hand, the Social Protection System of the Country is the widest in Africa. But, although in the years 2011-2012 the Ethiopian Government invested 70% of its budget in programs for poverty reduction, no visible results were recorded.
How can Trade Unions cope with the problem of “organizing” and “representing” workers (women workers) in I.E. and meet the challenge of the new labor markets? First of all knowing who are the informal workers, which are the differences among them, which constraints they meet whether they are inside or outside the system of formalization designed by the government. The results of the research will be used as a basis to develop a pilot program which might suggest new policies within the framework of a model of labor centered development promoting social and economic rights.

Why Women
The new labour markets are more and more feminized. “The past three decades have seen increasing involvement of women in the global economy, but there has also been a steady erosion of labour rights”. As stated in many studies, informal economy is where the majority of women and the poor are to be found, but it is also here where official efforts for social protection are limited.. The Ethiopian Ministry of Women’s Affairs identified women’s economic empowerment as its first priority, while all other international agencies in the country (from the World Bank to Unicef to international NGOs and individual countries (Sweden, Canada and Italy among others)) support programmes that address individual women offering saving and credit schemes.

The Government of Ethiopia developed a very articulated program to support formalization of informal work. Door to door campaigns, registration of informal, illegal workers as “job seekers”, creation of groups of five members, mandatory group saving, access to credit and, where necessary, free business venue for five years till “graduation” of the business. Women are at the center of this program which was examined in detail, by the research, in three districts: in Addis Ababa (the Sub-city of Kolfe Keranio), in Jimma and in Hawassa [1].

The research results
Two groups of women answered the questionnaire (a total of 296 respondents): those who were formerly operating in the informal sector and currently organized as Micro and Small Enterprises (MSEs) and the ones who were still operating in the informal sector. More than two thirds (68%) of the surveyed women were migrants. The proportion of migrants was highest in Addis Ababa (74%) followed by Hawassa (68%) and Jimma (60%). One third of the total were illiterate and the majority of the informal not registered lived in households with other income gaining members. Only about one fifth of the women with a plan to start a new business in the future have the necessary capital to implement their plan (16% in MSE operating individually, 23% in MSE operating in group, and 20% of women operating informally). Lack of security of livelihood, lack of sufficient working capital, lack of job opportunity in the formal sector, competition with bigger vendors, and lack of access to clean running water were the major challenges. (Tilahun Girma )

Is formalization of informal activities sufficient as a way to “work out of poverty”?
The survey conducted with in depth interviews (Davide Chinigò) showed the existence of different groups identified according to their position in the roadmap from informal to formal business. From those who are not in a position to apply for licenses or pay taxes (so called “informal tolerated”, given the illegal nature of informal business) who are targeted to receive some kind of support (or assistance), those who are in a “waiting list” for getting employment support, and the “formal legal” to whom the government allocates a space (land or a shop) to discharge formal activities liable for taxes and licenses. Different systems of credit were analysed with varying uses of collaterals (form group, to families or friends to even officers to the SSE department).

The number of SSE in the three districts has being growing at a fast pace during the past ten years, yet some obstacles and constraints were found: 1) some women do not want to get loans because they don’t want to get indebted. 2) Women tend to spend the loan for household consumption right after funding. 3) In some circumstances women argued that they prefer saving on the Commercial Bank (instead of the MFI) or other saving instruments in order to be able to dispose of the money whenever they need.

Although the formalization programme follows the policy of saving first, i.e. instilling the attitude to saving through trainings, the constraints come from the vicious circle of poverty: fear of risk of those who are “too poor to save” Furthermore, or as consequence of this, the state of the large majority of the small businesses we have seen could be defined as not better than “stagnant”, although they were initiated 6 or 7 years earlier.

The larger becomes the informal sector, the more social protection becomes an issue as shown by the use made of loans. At the moment (but it might be too early to evaluate) we may state that micro finance prevents declining into greater poverty, but not growth out of poverty. Is there a way out of these constraints?

Can Cooperatives be a way out?
The survey investigated the case of women’s cooperatives in Ethiopia (Cecilia Navarra) as a possible way to upgrade small businesses and guarantee some kind of sustainability along with social protection The fragmentation of SEEs and their weaknesses in competing on the changing markets might find new strength in the organization of value chains in the form of cooperatives. This means that a market access for such enterprises should be guaranteed, at least for the first phase and on a temporary base. Cooperatives, in Ethiopia, are regulated by the Proclamation 147/1998 of 2004; it states that they have to follow the principles of open membership and democratic voting, that they will distribute dividends to members according to the number of shares they own, after having saved 30% of profits into reserves or devoted to employment creation or social aims. Credit cooperatives are a widespread institution, both in urban areas (SACCOs) and in rural ones (RUSACCOs) and seem to absolve different functions, first of all playing an important role in welfare policies, since people can get loans when they are in hardships. The main limitation of SACCO seems to be the size of loans that is too small and too constrained to the size of savings. The success of a cooperative which aims to strengthen the profitability of small business seems to depend on two factors: 1) the capacity to integrate into a value chain, and 2) the identification of a secure and stable market access. Women are well conscious of these two main issues influencing the success of a cooperative, but they cannot afford giving up the use they make of loans to provide as substitute of social protection. Since all the women interviewed have experience of both “solidarity” groups run along the “traditional” system and business groups aimed at income generation, the ground might be open to experiment a model in which the two systems might merge.

Empowerment for agency and social protection
Looking back at the research’s results, we must remember the original meaning of “empowerment”, (Gabriella Rossetti) when referred to women, since the main goal of these programmes is indeed spelled out as “women’s economic empowerment”. We realised that it is impossible to isolate one dimension of women’s life from the others- not even the economic one- and that women’s agency and voice are conditions necessary in order to guarantee a real change, i.e. a transformative process of gender relations at all levels of a society. We saw women negotiating inside their families on household budgets, committed to the social responsibility of sending children to school and even to guarantee a shelter for the families. These women, the ones “too poor to save”, ask first of all for security and social protection, as shown by the use they make of the little loans they can obtain, while waged work might be the only feasible answer to their needs. In some cases public works and public jobs were designed with some success. The policy choice made by the Ethiopian government, to invest in collective action/activity, the strategy of forming groups instead of investing on individual activities, hint to the importance of a collective “voice” able to claim rights. This will be channelled into value chain cooperatives, But this passage, from groups to collective “voice” should not be given for granted. It requires more than “forming groups” and efficient cooperatives. The question posed by many authors in studies of informal economy is “What motivates workers in the informal economy to take collective action on their own behalf, (given the possible threat to their jobs and livelihoods)?” This question points to a wider vision of all the issues raised by this research. The answer given traditionally by the Unions is: organization and representation. But, since organization is a tool and not a means in itself, it is effective only if developed from inside a social group as one face of the process of empowerment. A process which cannot happen in a vacuum, but requires the existence of a “conducive” social and political environment. This is a task to which Unions might contribute promoting a vision of a labor and employment centred development, which requires policies as well as programs, and might start with supporting all possible forms of self-organizations, especially those aimed at producing and controlling social protection. Meeting this challenge regards both Ethiopia and Italian Unions.

Written by Gabriella Rossetti, on behalf of NEXUS/CETU research team: Cecilia Navarra, Tilahun Girma, Davide Chinigò


[1A quantitative section of the research based on 296 questionaire created by Tilahun Girma, The qualitative part based on 96 in depth interviews performed by local officers, CETU leaders, the Women Affairs Department of CETU with professional researchers form Italy Gabriella Rossetti (Ferrara University) Davide Chinigà ( Bologna University) and Cecilia Navarra (former Torino University and Nemur). NEXUS/CGIL provided support and monitoring.