Informal Sector and its impact on Dhaka

Informal Sector

The phrase "informal sector" came onto the development scene in 1972. Since then the concept of the 'informal sector' has continued to gain recognition as a central theme in employment and human development. In the Bangladesh context, although still widely ignored in national law and policy, or subject to various means of suppression, the sector provides employment for up to 87.4% of the total employed persons aged 15 and above, with only 12.6 percent in formal employment. This study is an attempt to explore the nexus between informal sector and growth: Understand the nature and productivity of informal sector, explore the prevailing working conditions and law, identify the driving factors of informal sector, and determine the impact of informal sector on employment and economic growth of Dhaka city.

What is an informal sector?

Over time the definition of informal sector has evolved. The sector can be defined through its activities in urban and rural economies: micro and small scale economic activities in crafts, trade, restaurants, or open food stalls, transport, repair and maintenance, etc. Often these activities are carried out from temporary structures, sometimes even pavements and other open spaces. The issue can be viewed from the perspective of employment status: some employees in the formal sector may also have the characteristics of informal sector thus they also need to be incorporated in the discussion on informal economy. Hence informal economy should include: all those in the informal sector, informally employed in the formal sector, domestic staff in households, casual workers, sub-contractors. The sector is seen as a reservoir of indigenous entrepreneurs, technology and skills. Its role in the generation of employment, efficient utilization of scarce resources, and expansion of non-agricultural employment – offering an urban foothold to the society's disadvantaged, providing income opportunities to the urban poor, supplying basic goods and services at affordable prices, and stimulating innovation and adaptation of technology have substantiated the essence of this sector as a driver of economic growth.

Informal sector in the context of Dhaka city

Dhaka city has become the breeding ground of informal sector activities. Dhaka streets are always buzzing with the cacophony of rickshaw pullers, head-loaders, cart pullers, construction workers or occupied by barbers, cobblers, garbage collectors, waste recyclers, and vendors of vegetables, fruit, meat, fish etc. The 500,000 rickshaw drivers and 80,000 waste-related workers Dhaka streets are merely the tip of the iceberg. Beneath the surface there exists a vast web of informal employment which are very much heterogeneous in nature. Informal sector includes activities and workers that are less visible and even, invisible. Less visible informal workers work in small workshops. The sector also includes the casual workers in restaurants and hotels; sub-contracted janitors and security guards; casual or day labourers in construction; piece rate workers in sweatshops; and temporary office helpers or off-site data processors.

The least visible informal workers, the majority of them women (15.2% women across the country have informal employment), sell or produce goods from their homes: garment makers; embroiderers; incense–stick rollers; paper bag makers; hair band makers; food processors, shoe makers etc. Some of these home-based workers work on their own account, while others work on a piece-rate basis for a contractor or a firm. Also it is a widely held notion that child labour is widespread in the informal sector. There are 1.7 million child labour in the country, of which the highest concentration is in Dhaka Division (.69 million). As high as 89.6% children of the country are involved in informal sector and the concentration is again high in Dhaka. Most child labour in the informal sector is either hired or wage labour.

Working condition and Legal protection in Informal Sector

Almost all workers in the informal economy share one thing in common: the lack of formal labour and social protection. Most workers in these categories are informally employed, without secure contracts, worker benefits, or social protection. Work in the informal economy is often characterized by small or undefined workplaces, unsafe and unhealthy working conditions, low levels of skills and productivity, low or irregular incomes, long working hours and lack of access to information, markets, finance, training and technology. Degree of vulnerability remains very high in the informal sector because the employer is not obliged to provide any explanation or subject to any specific rules while terminating any informal employee. Moreover, the sector receives little (if any) legal protection; those who work in the informal economy are generally not covered by labour legislation. In such circumstances, the probability of degree of exploitation will remain high for this sector. Such decent work deficits are most pronounced in the informal sector. From the perspective of unprotected workers, the negative aspects of work in the informal sector far outweigh its positive aspects.

Factors fuelling the informal sector growth and its impact on Dhaka:

The activities concentrated in cities serve as a "pull" factor, as the prospect of informal sector work encourages migration to the city, particularly to the mega-cities, as manifested by their concentrations of national wealth and assets. Dhaka makes up less than .06 per cent of the landmass of the country but provides resources for nearly 12 per cent of the entire nation's population. Migration is one of the main reasons for the growth of informal sector in Dhaka city. Dhaka is a highly dynamic city that attracts some 300,000 – 400,000 new migrants each year, a rate that would result in a population of almost 23 million by 2025; currently it is the home for 16 million inhabitants.  Every year thousands of climate refugees migrate to Dhaka due to the multiplying impacts of climate change – increasing floods, cyclones, and drought. According to the latest census on slum dwellers and floating population conducted by the Bangladesh Bureau of Statistics (BBS) in 2014, 50.96 percent of the shanty people relocate to cities in search of jobs, 28.76 percent due to poverty and 7.04 percent after losing their lands and houses to river erosion. Most of these migrants come in search of the many opportunities the city can offer for finding new work to survive, and end up working in the informal sector. In turn, the new migrants contribute significantly to Dhaka's economic growth as they provide much needed labor.

However this growth of informal sector in Dhaka City is a double edged phenomenon. On one hand, it is providing employment of 75% urban people; on the other hand it is having serious impact on the space and public services of the city. The influx of migration in search of livelihood in Dhaka has created infrastructural challenges and service gaps, including inadequate access to housing, water and sanitation, solid waste management, energy, health and education. It is needless to say that people involved in informal sector are mostly bearing the brunt of these challenges. Given that most migrants come from humble financial backgrounds, they are left with little alternative but to join the estimated half a million people who already live without gas or electricity in cramped and substandard squatter settlements, known as bosti or slums.

Though informal sector in Dhaka is the core of convergence in Bangladesh, absorbing the most number of migrants and housing the most number of residents, it is still far from being the panacea to ensure a decent livelihood. Lack of education is a big obstacle for people engaged in informal sector to graduate themselves from this sector to formal sector employment. This also creates the barrier to come out of the prevailing poverty line even though the sector is commonly regarded for its positive role in upward mobility in terms of income generation and improvement of living standard. The situation in Dhaka illustrates the many folds of the informal sector, an indicator of the development and a precursor of the potential threats that might collapse the city's growth and progress.

Dilemma with policy

The dilemma with the contribution and impact of informal sector is ubiquitous. In the introduction to the 1991 report to the International Labour Conference, "The Dilemma of the Informal Sector" the Director-General of ILO gave it the following brief definition: "The dilemma, put simply, is whether to promote the informal sector as a provider of employment and incomes; or to seek to extend regulation and social protection to it and thereby possibly reduce its capacity to provide jobs and incomes for an ever-expanding labour force". This sums up the current scenario of informal sector in Dhaka city. As the ILO report observed, "The challenge to policy-makers is to attempt to maximize both the employment creating potential of the informal sector and the degree of social protection and regulation extended to it". Policy makers of the country need to have a critical evaluation about this double edged manifestation of informal sector and adopt appropriate measures to ensure sustainable growth of Dhaka city by creating decent livelihoods.