INSTITUTIONAL SUPPORT FOR INFORMAL SECTOR
The long run hope is informal sector should transform itself into formal sector. Until then, institutional support for the development of the Informal Sector is needed
By DR. KHAWAJA AMJAD SAEED
Feb 17 - 23, 1996
Based on information available in various Pakistan Economic Surveys published annually, performance of small-scale industries can be explained with the help of the following table prepared by us:
Performance indicators of small scale industries
Particulars Specific details
1. Value added in manufacturing sector 30 per cent
2. Contribution to GDP 5-7
3. Existence in Private Sector per cent
4. Employment Labour Intensive
5. Employment of industrial labour force. 81 per cent.
6. Organisational profile Mostly self proprietary
7. Economic impact Better distribution of wealth
8. Management development Growing training trend
Contributions to GDP
Sustainability of contribution to GDP by Informal Sector is higher than that of large scale manufacturing sector.
Contributions of Informal sector to Pakistan economy: On March 10, 1990, a seminar was held on The Informal Sector in Pakistan in Karachi. This was well organised by the famous Institute of Business Administration, University of Karachi. The following contributions of this sector were listed:
1. It is an unorganised sector and consists of small business enterprises.
2. Significant contributions were made by it in the production of goods and services.
3. The estimates of the share of informal sector in the production of goods and services vary from 60 to 70 per cent.
4. The contribution in providing employment is estimated around 70 per cent.
Part III: ILO's and APO's contributions to informal sector
ILO and Informal Sector: ILO has been assisting in the promotion of small enterprises through its programmes for employment creation, rural development and the informal sector. Manuals, training guides and other aids provided by the ILO offer simple and cost-effective training materials. Their contribution has been significant and deserves appreciation.
"Role of Government and the APO in facilitating productivity improvement in the informal sector.
1. The overall role of the government should be promotional and the government may establish an institutional mechanism for the formulation of development policies including government agencies, NGOs, the private sector, voluntary organisations, workers' organisations, and trade unions. The implementation of the developmental programmes can be preferably entrusted to NGOs, the private sector, and voluntary self-help organisations (SHOs).
2. Round-table conferences should be organised to promote common understanding and to forge a consensus among the above-mentioned parties on the formulation of the development strategy for the informal sector.
3. The development strategy for the informal sector should be integrated with other policies for other subsectors, such as tourism, which have high employment and productivity potentials. Round-table conferences can be instrumental in facilitating communication among different ministries and agencies, which, in turn, may lead to the development of integrated policy.
4. Appropriate incentives and service facilities such as one-stop service centres or industrial service clinics may be provided. Special incentives for environment-friendly activities may be created.
5. An international survey of successful approaches and models developed in individual countries should be undertaken by organisations such as the APO with a view to facilitating adaptation of these models by other countries with suitable modifications to suit local conditions.
6. Knowledge about successful productivity improvement projects in selected sectors may be disseminated in member countries through symposia, publicans, etc.
7. The APO and NPOs should intensify their role in networking and facilitating links among enterprises as well as government institutions, NGOs, and voluntary organisations to promote productivity improvement in the informal sector.
Supporting self-help organisations, voluntary organisations, women and youth.
1. SHOs should be promoted from the early stages of developing support programmes for the informal sector.
2. Emphasis should be given to enhancing the managerial capability of SHOs in order to improve their sustainability and provide a basis for effective participation in policy-making processes.
3. The government should initiate action to improve the access of SHOs to facilities such as infrastructure, technology, marketing, skill development, and credit.
4. The ILO, APO, and NPOs should provide technical assistance programmes to NGOs and voluntary organisations which in turn should assist SHOs.
5. Motivational schemes and approaches need to be designed to ensure full participation of women and youth in all stages of programme development, e.g. planning, decision making, implementation, and evaluation.
6. The government should play a catalytic role in encouraging the private sector and large institutions to take up the responsibility of supporting activities of community development, particularly through transfer of managerial skills.
Technology, marketing, training and skill development.
1. A survey on technology status needs to be conducted in order to establish the state of art in selected subsectors such as metal products, leatherware, handmade paper, textile printing, and the like.
2. Demand-driven and user-oriented technology upgradation and modernisation programmes should be initiated on a "cluster basis" to improve the productivity and the capacity of employment generation in informal sector enterprises.
3. To implement upgradation and modernisation programmes, self-managed service centres should be established. These centres could provide one or more of the following services and facilities: product design development and value-added packaging and presentation; alternative materials and processes; expert technical information; environment-friendly and waste minimising techniques such as joint procurement schemes and centralised waste processing facility; and marketing strategies.
4. The impact of the above services should be multiplied through the development of video films and other media.
5. Training and skill development packages aimed at improving entrepreneurial and management skills including basic accounting practices need to be development. Master craftsmen should be trained and they in turn could replicate the improvements through on-the-job training in other enterprises in the informal sector.
6. Seminars, workshops, study visits, exhibitions, and other know-how exchange programmes should be organised on a national and international basis. These programmes could be supported by NPOs, the APO, ILO, and UNIDO."
Pakistan Institute of Entrepreneurship Training (PIET)
PIET was established in November 1990. It is serving under the administrative control of the Ministry of Industries & Production, Government of Pakistan, Islamabad. At present it is located in the premises of Pakistan Industrial Technical Assistance Centre (PITAC), Lahore.
So far PIET has conducted 50 entrepreneurship training courses all over Pakistan. Some interesting areas covered included how to set up small business, manage and export leather goods, textile garments, grey cloth, bed sheets, mushroom planting, wood working etc., business communication, investment in stock market, diagnosis of problems and their solutions, retail and wholesale marketing, handicrafts, legal aspects of business, quality control in textiles, dyeing and printing.
It is hoped that PIET and PITAC will expand the HRD activities to benefit informal sector.
Designing Informal Sector Development Programme
CIPE (Centre for International Private Enterprise), Washington D.C., USA has made a rich contribution for Informal Sector Development Programmes. A checklist of questions to ask when designing informal sector development programme was issued by it. Consisting of eleven points, it deals with comprehensive aspects and is reproduced below:
1. Does "Micro" or "small" necessarily mean informal?
2. What is the optimum size of an enterprise? Does the programme tend to lock in the size of the enterprise, limiting its maneouvreability for growth?
3. What does the programme mean in terms of additional government growth, intervention, red tape, bureaucracy, and new laws?
4. What affect does the programme have on the concentration of political power?
5. How does the programme affect the barriers that divide the formal sector from the informal? Does it make them more or less flexible?
6. Does the programme redistribute scarce wealth or is it oriented to wealth creation?
7. In what ways does the programme advance an understanding of the operation of market processes, and of the free enterprise limited government system?
8. Does the programme create special laws and regulations to deal with the informals, perpetuating the gross error of "unequal under the law?"
9. Is the programme an "affirmative action" effort with reverse discrimination, or does it liberate a hampered markets?
10. Is the programme parallel with other actions that will:
a. Extend private property?
b. reduce the tax burden?
c. reduce or eliminate price distortions?
d. produce monetary stability?
e. eliminate barriers of entry into the market?
f. widen the tax base?
h. restore the political role of government, taking it out of the market?
i. eliminate monopolies?
11. Does the programme create financial dependency of the beneficiary?
Part VI: Suggested role of governments
Governments in developing countries generally publish medium term plans (5 to 7 years). It is recommended that a special plan focusing on the Informal Sector should be prepared so that the grass root approach is followed. Persons involved in Informal Sector be given due recognition. The right type of policies be developed and efforts be made to ensure that the contributions of informal sector become more pronounced and people working in it are extended logistical support with sound commercial, fiscal, monetary, industrial, agricultural and services sector policies to achieve the major goals. At present Informal Sector is a forgotten chapter in several medium term plans. It is high time that the Government in power may actually consider this serious issue and develop a medium term plan with special attention to Informal Sector. Supporting hand in this respect is suggested to be extended by various donor agencies, financial institutions and other bodies all over the World.
Persons working in the Informal Sector have initiative. They need training, technology, financial support and sound managerial techniques to demonstrate their vibrant success. Besides, if the above suggestions are implemented, social progress in the developing countries will be ensured and standards of living will improve with the passage of time. Wider prosperity ought to be earmarked for socio-economic development strategies. However, achieving these noble objectives greater attention and institutionalised approach of the governments in developing countries is the crying need of today. B
Fellow Member of the Institute of Chartered Accountants of Pakistan, (FCA), Institute of Cost & Management Accountants of Pakistan (FCMA)Institute of Corporate Secretaries of Pakistan (FCIS), The Institute of Marketing Management (FIMM), The Institute of Taxation Management (FITM), and the Institute of Chartered Secretaries (FICS) and Managers (FICM).