Technology key to transforming Uganda’s informal economy?

Patrick Ndegwa,

Considered one of the most vibrant developing countries in Africa, Uganda holds untapped potential for growth and transformation.

As in many developing nations, our informal sector plays a crucial role in the economy. Valued at $58 billion, it accounts for 75% of total employment and contributes 34.4% to GDP.

For these reasons, it is worth treating our informal sector as an inalienable resource and not simply as a shadow economy.

While it can be difficult to determine the state of the informal economy, there is room to grow and sustain this critical sector – with the help of digital technologies and smart advancements.

Informal but important

In developing countries where there is an uneven distribution of income, a vibrant informal sector is often more pronounced.

In these cases, the growth of informal operations is a result of necessity and should not be seen as negative.

Uganda’s informal economy is characterized by undefined work spaces, lower levels of skills and productivity, low or irregular incomes, and a lack of access to finance, wider markets and technology. However, they remain a vital part of our economy.

Challenges facing the informal sector include limited access to finance as well as basic amenities such as water and electricity.

There is also often a financial burden associated with formalizing the business and a reluctance to comply with taxation.

In a country where the cost of education is the reason 6 out of 10 people drop out of school, many working people struggle with a lack of education or access to formal training.

Fortunately, however, there is a strong entrepreneurial spirit among informal workers and a drive to succeed despite the challenges.

The Industrial Training Directorate works to assist workers and small business owners in certifying their skills and services – the first step towards recognizing informal sector participants while ensuring the quality of their work.

However, more needs to be done to support those who contribute to this sector of the economy.

Technology to drive a stronger informal economy

East Africa is the fastest urbanizing region in the world. It is estimated that by 2050 Uganda will have 33 million urban dwellers.

However, with internet penetration at 29.1% in early 2022, much can still be done to bridge the digital divide and allow more informal workers to participate in our growing digital economy.

Embracing technology – even something as simple as an internet connection on a mobile phone – can lead to the creation of new industries and countless jobs.

There is potential for increased employment opportunities in urban and suburban areas, where people could work as rideshare drivers, homemakers, or be involved in e-commerce logistics.

In 2019, the United Nations Development Program (UNDP) Uganda Accelerator Lab identified one such opportunity, establishing an e-commerce partnership between UNDP and online retail platform Jumia Food.

The partnership has seen Jumia reach 10 markets across the country as well as over 4,000 merchants registered on the platform.

Jumia sells over 300,000 unique products per month, helping to strengthen agricultural supply chains, connect rural farmers to urban markets, create jobs in the informal sector and increase digital literacy.

The partnership between UNDP and Jumia illustrates one example of how digitization and access to technology can be used to create sustainable livelihood opportunities, especially for those working in the informal sector.

Technology offers scale and acceleration, allowing small businesses to participate in regional and national trade.

It expands the customer landscape and allows people to provide customers with a greater range of services and products.

A technological solution like mobile money can revolutionize the informal sector and significantly improve financial inclusion. Even in rural areas, these innovations provide smart new employment opportunities.

What are the next steps?

The good news is that politicians and the government seem to agree that small businesses and the informal sector in general need their support.

During the MSME Week event in July, talks and exhibitions were held to recognize the role of small businesses in the economy and to showcase their products and services.

Special mention was made of how technology and innovation can be used as a strategy to recover from the losses of COVID-19 and promote financial inclusion.

Creating a regulatory framework that supports the informal sector and improves opportunities for the unemployed can improve the opportunities of the Ugandan economy.

For economies struggling to make the most of their potential, new hope may lie in the rise of digital technologies.

These solutions enable access to wider markets and customer networks, improve productivity and competitiveness through digital innovation, and could help blur the lines between the formal and informal economy with the rise of the gig economy.

If Uganda were to invest in ICT infrastructure to better support the adoption of technology solutions, there is no doubt that the informal sector – as well as our country’s wider economy – would benefit.

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