Addressing informality in Egypt

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A recent African Development Bank publication – Addressing informality in Egypt – proposes solutions for addressing informality in Egypt taking into account its disparate definitions as well as the various stakeholders involved in the issue. The publication highlights that labour market dynamics in Egypt have been characterised by three major trends since 1990. The first trend includes rapid growth of the informal economy, which now employs over half of Egypt’s workers. The second trend is a sharp decline of the formal private sector up to 2004, when government policies directed at formalising informal sector enterprises resulted in some firms joining the formal economy. Finally the third trend is the slow expansion of the public sector – despite the exigencies of structural adjustment – until 2000, when the government declared a hiring freeze.

The publications stress out that informality in Egypt has grown since 1990 because the formal private sector has not generated a sufficient number of formal jobs to absorb Egypt’s growing labour force – or even to replace the number of formal sector jobs being destroyed. But this expansion is also due to the fact formal private sector employers are unwilling to hire certain groups of workers, owing to skills mismatches or because of prejudice; and educated youth have not developed an appetite for private sector work or entrepreneurship. According to the paper, the consequences of informality vary along with the level of aggregation of actors inhabiting the informal economy. Low (or no) pay and lack of social protection means that many informal workers suffer from working poverty and are unprotected in sickness or old age, or during market and employment transitions. In addition, lack of access to government technical and financial support and formal credit sources prevents many informal enterprises from developing and fully contributing to economic growth, productivity and employment. Therefore, removing the causes of informality means eliminating blockages to formal private sector growth, reducing impediments to formal private sector hiring, and reorienting graduates’ aspirations towards the private sector, while reducing the consequences of informality means extending legal and social protection to informal workers and boosting the developmental potential of informal sector firms. Measures based on these themes need to be combined into a comprehensive set of policies aimed at addressing informality.