Informal sector on brink of collapse

SHARE   |   Thursday, 25 June 2020   |   By Bakang Tiro
HARD TIMES LOOMING: Informal sector trader in Gaborone HARD TIMES LOOMING: Informal sector trader in Gaborone

With majority economic sectors starting gradual recovery after the lockdown imposed due to COVID-19 threats, the local informal trade sector appears to need more interventions for recovery.

According to experts and traders, a handsome stimulus plan is needed to unlock survival. Corporate Credit Manager at BancABC Botswana and also a financial specialist, Pako Moshaga said lockdown is an economic phenomenon that isn’t in average economic textbooks like ours.

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“The group that has been largely affected in the context of our local economy is the informal sector that is largely made up of players in the agriculture sector, street vendors and the low-end retailers and service providers,” Moshaga said stressing the need for a viable recovery plan for traders.

He said the informal sector businesses need to continually operate to be successful, as such five-week long lockdown was crippling.

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“This sector is important to the economy as it is the livelihood behind a fair number of low-income households. It further drives daily trades in the retail and wholesale space,” he said.

Inadequate provision

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According to Moshaga, while government of Botswana’s economic response to COVID-19 has been robust and multi-prolonged, it does not address the peculiar needs of informal sector.

He contended that the government’s relief efforts cater for well-structured entities; however items such as tax concessions do not have any benefit of the informal trade players.

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Government through Citizen Entrepreneurship Development Agency (CEDA) has recently introduced Letlhabile, a relief stimulus. The stimulus package targets those individuals who receive daily income  through the business activities both at the micro and informal sector, offering loans ranging from P500 up to P10 000.

Thatayaone Ramasu, Chairperson of the Botswana Informal Sector Association (BOISA), said Letlhabile intervention is a welcome initiative but fears that traders will struggle to repay loans.

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The impact of the lockdown essentially cut the lifeblood of the business by putting an end to human interaction, blocking public transport with farmers movements to fields restricted as well.

“The traders have not been making money for two months due to lockdown. Moreover, it has disrupted us from building savings for our businesses therefore even if our members borrow the P10 000 loan from CEDA via Letlhabile it will be hard to repay as recovery is very sluggish,” he said.

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He warned that the informal sector is poised to collapse as the majority of businesses are broke.

Saving the sector

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Moshaga underscored that one challenge that is hindrance to informal sector growth is lack of up-to-date data on the size and number of players in sector which is key guide needed for assisting.

He said a March 2015 World Bank Group Study on Botswana looked at a similar sector, the SMME space  and  recommended deepening knowledge-base to ensure interventions are informed by strong evidence base, a similar  matter that is also affecting informal sector today.

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“The challenge with lack of accurate and up to date data in the sector is that its contribution towards GDP is hard to quantify. Having such a figure would work in the sector’s favour as the government would be able to weigh the level of trade activity at stake,” Moshaga reasoned.

Ramasu expressed the worry that some informal sector businesses have been excluded from BURS Wage Subsidy despite that they employ and pay Value Added Tax (VAT).

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In addition, he said government should consider to include the informal sector for bail out in the stimulus package that can be set post coronavirus, adding that government should have a documented official data on the informal sector because it also contributes to the economy.

The Minister of Investment, Trade and Industry (MITI) Peggy Serame has reiterated that government will continue to cater for the sector should more stimulus packages be setup.



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