Technology, key to transforming Uganda’s informal economy?

Patrick Enderwa,

Uganda is considered one of the most dynamic developing countries in Africa, with untapped potential for growth and transformation.

Like many developing countries, our informal sector plays a vital role in the economy. It is worth $58 billion, accounts for 75% of total employment, and contributes 34.4% to GDP.

For these reasons, it is worth considering our informal sector as an indispensable resource, not just a shadow economy.

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

informal but important

A flourishing informal sector tends to be more pronounced in developing countries with unequal income distribution.

In these cases, growth in informal business is a corollary and should not be viewed as a negative.

Uganda’s informal economy is characterized by unclear workspaces, low levels of skills and productivity, low or irregular incomes, and a lack of capital, broader markets and technology. However, they remain an important part of our economy.

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

Formalizing businesses also often comes with financial burdens and reluctance to comply with tax regulations.

In a country where education-related costs account for 6 in 10 people who leave school, many working people struggle with a lack of education or access to formal training.

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

The Industrial Training Authority is working to help workers and small business owners gain skills and service certification – a first step towards recognising informal sector players 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 drives a stronger informal economy

East Africa is by far 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% at the start of 2022, much work remains to be done to bridge the digital divide and involve more informal workers in our growing digital economy.

The adoption of technology—even something as simple as an internet connection on a cell phone—can lead to new industries and countless jobs.

There is potential for increased employment opportunities in urban and peri-urban areas where people can work as ride-sharing drivers, host families or involved in e-commerce logistics.

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

The partnership gives Jumia access to 10 markets across the country, with more than 4,000 market suppliers registered on the platform.

Jumia sells more than 300,000 unique products each month, helping strengthen agricultural supply chains, connecting rural farmers to urban markets, creating jobs in the informal sector, and increasing digital literacy.

The UNDP x Jumia partnership presents an example of how digitization and access to technology can be used to create sustainable livelihood opportunities, especially for those operating in the informal sector.

Technology provides scale and acceleration by enabling small businesses to participate in regional and national trade.

It broadens the customer base and allows people to offer customers a wider range of services and products.

Technological solutions such as mobile money can revolutionize the informal sector and significantly improve financial inclusion. Even in rural areas, these innovations provide smart new jobs.

What are the next steps?

The good news is that policymakers and governments seem to agree that small businesses and the informal sector as a whole need their support.

During the MSME Week events 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 is made of how technology and innovation can be used as strategies to recover from COVID-19 losses and promote financial inclusion.

Establishing a regulatory framework that supports the informal sector and increases opportunities for the unemployed can strengthen the Ugandan economy.

For economies struggling to realize their full potential, new hope may lie in the rise of digital technology.

These solutions can tap into wider markets and customer networks, increase productivity and competitiveness through digital innovation, and help blur the lines between the formal and informal economies as the gig economy rises.

If Uganda invests in ICT infrastructure to better support the adoption of technological solutions, there is no doubt that the informal sector, as well as our wider economy, will benefit.

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