Social Protection for Informal Workers in Malawi

Transcription

1 Social Protection for Informal Workers in Malawi A Paper Presented at a SASPEN and FES International Conference; Capital Hotel, Lilongwe (13-14 November 2013). Presented by Wezi Galera Shaba, University of Livingstonia.

2 Social Protection for Informal workers in Malawi Introduction This paper explores the extent of social protection coverage for the informal sector in Malawi. It starts by attempting to define the informal sector in general and further discusses the causes and characteristics of the informal economy. The paper further examines the functions of social protection and suggests the ways through which social protection coverage could be extended to the majority in the informal sector. Gerxhani, (2004, p. 273) defines the informal sector as the sum of all income earning activities with the exclusion of those that involves contractual and legally regulated employment. The informal economy covers a multiplicity of activities and different types of work relationships. Included in this sector are the self employed, casual workers without a fixed employer, street vendors, hawkers and others in the agricultural sector. It is quite evident that recently, attention has been focused to the informal economy because evidence on the ground suggests that this sector is here to stay. Besides, the informal sector is growing rapidly at the expense of the formal economy. Causes of the informal Sector Gallin (2001, p. 533) argues that the growth of the informal sector since the 1980s is a result of the global economic crisis and the way production is being organised by the transnational capital. The global recession has led to mass job losses, forcing people to turn to the informal sector for survival, since not many people worldwide are covered by social protection. In Malawi for example, introduction of the Structural Adjustment Programs (SAPs) from the early 1980s was followed with massive retrenchments in the civil service as well as privatization of several public companies. The result was massive job losses and high levels of unemployment. Again, the transnational capital has witnessed firms relocating to regions where the labour law is weak, where production cost is low due to the lowering of labour standards, including the high use of casual labour, with no job security for the workers. Gallin (2001) claims that the dependency on subcontracting work by the transnational enterprises has led to massive job cuts, and deterioration of employment conditions in the sub contracted companies such as low wages and unstable form of employment, forcing people into the informal sector. This is also a common trend in Malawi. The rapid growth of the informal sector in Malawi could also be attributed to the availability of surplus labour. Breman (1980 cited in Gerxhani, 2004) claims that the presence of few productive industries and the availability of abundance labour account for the existence of the informal sector in the developing countries, since the formal economy cannot absorb all the labour force. 2

3 Characteristics of the informal economy The major characteristic of the informal sector is the absence of regulations. Most establishments in the informal sector are unregistered and unlicensed (Gerxhani, 2004). As a result, the sector does not comply with the existing labour regulations, hence is associated with poor working conditions which include low wages and lack of job security and social benefits. It is a fact that the emergence of the informal sector is a response by people who have been denied entry into the formal economy to survive. Ease of entry is another feature associated with the informal economy. Many people are introduced to the informal economy through social networks. There are no minimum qualifications that enable one entry into this sector. Extent of the Informal economy in Malawi Recent data suggest that labour participation rate in Malawi was 88% in 2011 (Welfare Monitoring Survey, 2011), of which 81% of the employed were not paid as they were mostly subsistence farmers (ibid). According to the same survey report, only 8% were salaried workers while a further 5% were the self employed. Thus, well over 80% of those employed are in the informal sector which is largely characterised by the working poor. What is more particular about the informal sector is the absence of rights and social protection of the workers involved in it. After all, people turn to the informal sector as a survivalist strategy. Need for Social Protection for Informal Workers Majority of the people in the informal sector are amongst the most vulnerable groups in society. Examples include street vendors, hawkers and casual workers, just to mention but a few. Common amongst the informal economy participants are the high levels of poverty and vulnerability. To most, once they do not have the energy to carry out their business that day, chances are high that they may struggle to find food for the day. In short, once they are no longer able to fend for themselves due to illness or invalidity, they are reduced to destitutes. As such, provision of social protection ensures some sort of income redistribution hence protects everyone against abject poverty. It is a fact that without social protection, poor people are prone to increased risks of sinking below the poverty line; worse still, to remain stuck in poverty. The highly informalised labour market also calls for the extension of social protection initiatives to the informal sector participants, lest the majority are excluded. Looking at the case of Malawi for example, over 80% of the employed are in the informal sector, hence, more vulnerable to shocks. It is also worth noting that Social protection is a human right. Article 22 of the Universal Declaration of Human Rights clearly define; everyone has a right to social security and is entitled to realisation through national effort and international cooperation (UN, n.d). Thus everyone is entitled to some sort of social protection coverage. 3

4 How covered are the informal workers in Malawi? Legally, the informal sector is not covered by any type of social protection in Malawi. The few available legal instruments put much emphasis on covering those in the formal sector, as they are designed to suit those in the standard employment relationship; where an employer and employee exist. For instance, the Pension Law of 2011, Employment Act number 6 of 2000 and the Workers Compensation Act number 7 of 2000 all provide some elements of social protection to those in formal employment, in which the employer has obligations to undertake. A good example is the Pension Law which makes contributions mandatory such that every employer has to make provision for every person under his employment to be a member of a registered pension fund, and that the employer must contribute at least 7.5% of one s salary towards a pension scheme of its employee. The informal sector is virtually excluded from this arrangement by its very nature. Just like legal coverage, effective coverage for the informal sector remains very low. The absence of a functional comprehensive national social protection scheme (by 2013) continues to expose those in the formal sector to various risks. What is currently available is a multiple of social insurance schemes being provided by private financial institutions to those who can afford on the one hand and the government s means tested assistance that targets the poor, unemployed, labour constrained and mostly rural masses. Thus, those who cannot afford social insurance and have failed to prove that they are ultra poor are excluded from government s assistance. Many of the government s assistance initiatives are in the form of projects that are donor funded, hence, their continuity is not guaranteed. Governments Social Protection initiatives towards the Informal Sector Below is the summary of the projects being currently undertaken by the Malawi Government as a means of providing social security to some of its citizens. Farm Input Subsidy Program (FISP) The FISP, being currently implemented by the government aims at increasing food security at household and national levels. Specifically, the program aims at increasing the smallholder farmer s access to improved farm inputs and adoption of improved technologies in maize production systems. FISP is a coupon based scheme, which entitles eligible smallholder farmers receive two coupons, one for 50kg basal dressing and another for top dressing, entitling the holder to purchase the fertiliser at a subsidised rate (approximately U$ 1.5 instead of the market price of U$ 48 per bag in the 2012/13 growing season). Public Works Programs (PWPs) Public Works Programs (PWP s) refer to activities which entail the payment of a wage in return for the provision of labour. In Malawi, PWP s go back to at least 1995, when the Malawi social Action Fund (MASAF) was created. Public works are popular with policy 4

5 makers because they offer the potential of simultaneously creating useful assets and transferring food or income to the poor because of the work requirements. Examples of PWPs in the country include; food for work, cash for work and inputs for work. The main objective of PWPs is to provide an employment based safety net. As observed above, both FISP and PWPs demand something from the intended beneficiary; minimum payment for FISP and labour from PWPs, implying that the most vulnerable groups who could not afford a subsidised price, the weak, frail and elderly are technically excluded from the benefit. It is no wonder that cases are rife where targeted beneficiaries sell their coupons in order to raise money for buying food for the day. Social Cash Transfer Scheme (CTS) Since its inception in 2005, the CTS is being implemented in the country on a pilot basis. Starting with one district at its inception, by 2012, the program had been scaled up to 7 districts, benefiting up to 28,864 households (110,345 individual beneficiaries) in the 2012/13 financial year alone (Ministry of Gender, Children and Social Welfare, 2013). Effective July 2013, the program has been extended to a further 8 districts, thus reaching 15, out of the 28 districts of the country. The CTS is a poverty alleviation program targeting 10% of the ultra poor, incapacitated and labour constrained households. The program receives technical and financial support from UNICEF, the Global Fund, and the Government of Malawi. As indicated in the Social Support Policy document, 250,000 households would require support under the program nationally. This translates to about 1,030,000 individuals. Though still on a pilot basis, the CTS is carried out as a means of providing social security to the elderly and the unemployed in the selected districts of the country. The value of the cash transfer ranged from K1, 200 to K2, 000 (approximately U$4 to U$ 6) per individual per month during the 2012/13 financial year. Mudzi Transformation Trust Launched by the President of the Republic of Malawi in 2013, this initiative aims at fighting poverty through the provision of infrastructure development and basic social amenities at village and community levels. At its inception, the President proclaimed, I have decided that for the first time, government will specifically target individual villages across the country with comprehensive high impact interventions that will accelerate the betterment of well being of rural and urban poor (Nyasatimes, May 2013). The government initially targeted 20,000 village heads who would work with the trust to mobilise communities for the implementation of the program. By August 2013, at least 20 villages had benefited from the trust (ibid). Amongst other things, this program is building decent accommodation for poor people by supplementing the locally mobilised resources with iron sheets and cement. 5

6 One Family-One Cow Project Just like the Mudzi Transformation Trust, the One Cow per family project was also launched in 2013 (April), and aims at bailing Malawians out of abject poverty. One dairy cow is given to a family so that proceeds from the produced milk would assist in uplifting a poor family from the poverty trap. Currently, this initiative is still in its infancy. Initiatives by the Informal Workers in providing for Social Protection Realising that the informal sector is largely excluded from the current social protection schemes, some participants in this sector have come together and formed groups that act as their social protection schemes. Members, usually ranging from 5 to 10 would pull their resources together on a monthly basis and give them to one member on a rotational basis. Thus the lump sum that is given to a member during his/her turn enables one to acquire some assets or do things that otherwise would not have been affordable due to low levels of income. Locally, this practice is popularly referred to as chipereganyu. Both men and women are involved in this practice though it is more popular amongst women. Women have even extended it beyond monetary contributions. In addition to the revolving arrangement described above, some in the informal sector turn to money lenders and cooperative credit unions for some sort of relief. It has to be noted though that these loans are paid back with an interest. Limitations with the existing Social Protection Initiatives The existing social protection arrangements in Malawi do not favour the informal sector. For instance, the recently enacted Pension Law which makes pension contributions mandatory exempts those employers who have less than five employees from contributing to the pension fund for their workers. But, in the informal sector, several enterprises have less than five employees, who according to the Pension Law are legally excluded. Thus their employers are not obliged by law to register them with a pension fund and contribute towards the same. The same legislation is also restrictive as it mainly recognises the employer-employee relationship towards pension contributions, as the employer contributes a certain percentage in addition to contributions made by the employee. Hence, those outside the formal employment relationship do not benefit from the employer contribution which is usually more than that of the employee. Additionally, for those not covered by the law would only voluntarily contribute to a pension scheme, including the majority in the informal sector. The question that arises is whether someone who is struggling to meet immediate demands would wilfully contribute for future use. As a result, majority in the informal economy do not contribute, hence no protection when they become invalid. The social protection schemes that are available for the informal workers are means tested, hence not everyone in the low income bracket is covered. Besides, means tested arrangements are marred with high levels of corruption, ranging from the identification 6

7 process to the delivery of benefits, resulting in a good percentage of assistance not reaching the intended beneficiaries. Currently in Malawi, apart from the several poorly coordinated social assistance initiatives, the country lacks programs that would guarantee continuity of these grants to the chosen few. As most of these initiatives are donor funded, their continuity largely depend on the willingness of the development partners in funding them. Once development partners decide otherwise, the beneficiaries are left in suspense. How could Social security coverage be extended to majority in the informal sector? It is undisputable that the current arrangement in which social protection initiatives are delivered to a fraction of the needy population in Malawi is discriminatory. Errors of inclusion and exclusion are also evident which have resulted in who can financially support themselves benefiting while leaving out the poor and vulnerable. It is again a fact that a majority of Malawians do not realize that accessing social protection is a right, as such they are not vigilant in claiming the same. Thus, there is urgent need for the civil society, including trade unions to increase awareness for the need for social protection so that it becomes a national issue. The masses need to be mobilized so that they collectively demand the provision of a universal basic social protection floor from the government. Both trade unions and innovative activists can take the lead in this process. Forming coalitions between trade unions and other social movements could result in a force that the government cannot easily ignore. At the end, coverage could be extended to both the working poor and those in the informal sector. The civil society must advocate for the abolishment of the projectisised interventions and call for the institutionalisation of a universal basic social protection floor. The communities too must be encouraged to form small groups (of between 4 to 10 members) which would pool their resources together, mainly through periodic contributions and give total contributions of a particular time to a member on a rotational basis. Though this arrangement is very popular amongst women and small scale business owners, it could be replicated to other groups of people as well. Political will and prudent use of resources are key in determining the scale and level of social protection coverage. Politicians must show commitment towards institutionalising social protection interventions, moving away from the projectisised donor dependent approach which is currently common. Additionally, encouragement of contributory, often community based schemes for informal sector workers is vital in reducing the coverage gap that exist within the current system. But above all, promoting a tax-financed social benefit for poverty stricken individuals who are unable to benefit from contributory schemes could play a significant role in narrowing the coverage gap. 7

8 Conclusion The extent of social protection coverage in Malawi is still very low. Though those in the formal sector seem to be legally covered with the enactment of the Pension Law, the legislation does not cover the informal sector workers. Effective coverage has also not fully extended to the majority of workers in the private sector and the working poor. Inspite of evidence on the ground indicating that the informal sector is steadily growing in Malawi, (at least 80%), there is very little attempt being made to extend social protection coverage to those in the informal economy. The few initiatives being undertaken are means tested hence subject to errors of inclusion and exclusion. Additionally, most of these initiatives are in form of projects and are highly donor dependent, as such, their continuity is not guaranteed. A new paradigm shift is needed by the government, private sector, civil society and communities to explore ways of making the provision of a basic social protection floor universal in Malawi. 8

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