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Informal economy’s suppression driving people into poverty

ScavengingBUSA JEREMIAH WENOGO | PNG Informal Economist

PORT MORESBY – With recent figures showing that poverty reduction is decelerating globally, a recent World Bank report urges governments around the world not to slack off in their efforts to combat it.

However, critics argue that poverty measurement should not only be confined to the standard $US1.90 a day imposed by World Bank but should also include health indicators, education levels and standard of living.

While poverty has been largely associated with the imbalances in the economy; it can also be induced by short-sighted government policies.

The government’s policy to crackdown on the informal economy is a classic example of this as it directly affects the only source of livelihood for the majority of the jobless poor.

The implementation of anti-informal economy policies have seen widespread harassment and beatings of vendors coupled with a substantial loss of business.

The loss of business means families are deprived of income to meet household needs and improve their wellbeing. Consequently, it takes a toll on people and induces them into poverty.

At a time when prices of basic goods and services are rising and formal sector job opportunities are declining, suppression of the informal economy can drive many families into destitution. The ramifications are huge for Papua New Guinea which is estimated to have 85% of its total population engaged in the informal economy.

That said, the government has introduced some reforms into its informal economy. The national informal economy policy of 2011-15 and its accompanying law (Informal Sector Development & Control Act of 2004) are landmark achievements that aim to nurture the positive aspects of the informal economy whilst tackling its problems.

Sadly though, the government has not been able to achieve this fine balance, opting instead to focus on curtailing the informal economy’s growth.

This approach has been very unpopular among the general public and informal economy participants and it has been responsible for deaths and violence. As a result, implementation remains a challenge for the government.

Globally the importance of the informal economy as a ‘safety net’ for the unemployed is recognised as critical, since the formal sector is unable to provide sufficient jobs to the economy.

In PNG, recent findings indicate that the informal economy is growing faster than the formal sector.

This is an interesting phenomenon when one considers the fact it occurred at a time (now behind us) when the country experienced historic uninterrupted economic growth fuelled by the boom in the extractive sector.

The implication is that, if the government continues to take a hardline stance towards the informal economy, many Papua New Guineans will not escape poverty in their lifetime.

So, unfortunately, the government of PNG continues to pauperise the informal economy despite its championing of important reforms in the informal economy. This is contradictory and counter-productive, since it endangers the survival of many Papua New Guinean households and is a major barrier to their flight out of poverty.

As a result, PNG’s informal economy is under-developed and requires a lot of nurturing to expand its scope beyond the traditional agriculture sector and the betel nut trade.

PNG needs many innovative informal economic enterprises to flourish in the manufacturing, retailing, construction and technical sectors. A diverse informal economy can translate into a diverse formal sector which can assist the country to be less dependent on the extractive sector. \

More importantly, a diversified and productive informal economy can distribute windfall gains to the masses from large impact projects like PNG LNG.

Given that the formal and informal economies are interdependent, the government must recognise that they are both important in addressing poverty.

In short, the informal economy in a country like PNG is too big to fail. However, the flip side is that it is constantly under so much duress it is unable to perform an important function.

Perhaps this explains the paradox of why PNG is so rich and yet so poor, with the majority of its citizens still living in poverty.


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