From the womb to the tomb via Ja’s $800m in­for­mal econ­omy

Jamaica Gleaner - - GROWTH & JOBS - Neville Gra­ham Busi­ness Re­porter neville.gra­ham@glean­erjm.com

THERE HAVE been vary­ing es­ti­mates about the size of the in­for­mal seg­ment of the Jamaican econ­omy. Stud­ies dat­ing back to 2006 and as re­cent as 2014 in­di­cate that the in­for­mal econ­omy is be­tween 40 and 60 per cent of the for­mal econ­omy. Stud­ies analysing the in­for­mal sec­tor in­volve many dis­ci­plines and have pro­duced a va­ri­ety of names for this sec­tor, such as hid­den, shadow, un­der­ground, un­of­fi­cial, and black, among oth­ers.

The sec­tor in­cludes small busi­nesses, mi­cro en­ter­prises, self-em­ployed in­di­vid­u­als, and par­tic­i­pants in drug-trad­ing and other il­le­gal ac­tiv­i­ties. The broad range of ac­tiv­i­ties con­ducted in the in­for­mal sec­tor can be con­densed to iden­tify sev­eral com­mon char­ac­ter­is­tics in­clud­ing all em­ploy­ment that is not bound by con­tract or other le­gal reg­u­la­tions, small-scale op­er­a­tions, un­reg­is­tered busi­nesses, and all ac­tiv­i­ties which gen­er­ate rev­enue that is not re­ported to tax author­i­ties.

Fi­nan­cial an­a­lyst and mem­ber of the Eco­nomic Pro­gramme Over­sight Com­mit­tee Ral­ston Hy­man be­lieves it is ur­gent that those in the in­for­mal econ­omy be brought on board.

“If we were to be able to bring that seg­ment of the econ­omy in, then all of a sud­den, our ra­tios would start look­ing bet­ter, for ex­am­ple, the debt to GDP. With that we could at­tract bet­ter deals on the money mar­ket, bet­ter in­ter­est rates and the over­all tax col­lec­tion pic­ture would be bet­ter,” Hy­man said.

IN­FOR­MAL SEC­TOR

The in­for­mal sec­tor in­cludes in­di­vid­ual work­ers such as small-farm work­ers, re­tail sales peo­ple, street ven­dors, do­mes­tic helpers, taxi driv­ers and own­ers of small busi­nesses and mi­croen­ter­prises. There are low en­try bar­ri­ers into the in­for­mal sec­tor in terms of skill, cap­i­tal, and or­gan­i­sa­tion. Work­ers on small farms are gen­er­ally self­em­ployed or un­re­mu­ner­ated em­ploy­ees of fam­ily farm op­er­a­tions; their pro­duce is used for per­sonal and fam­ily A road­side shop in Mavis Bank, St An­drew. A Bike taxi trans­port a Woman and her goods to Rocky Point in St Thomas on Satur­day. con­sump­tion, or sold in lo­cal mar­ket­places. Re­tail sales­per­sons pur­chase goods whole­sale in mar­kets, im­port them into Ja­maica as per­sonal prop­erty, and sell these prod­ucts in un­reg­is­tered shops, mar­ket stalls, or to tourists di­rectly on the streets and beaches; their ac­tiv­i­ties, and their rev­enues, are un­re­ported, un­reg­u­lated and un­taxed. Do­mes­tic helpers, in­clud­ing house­keep­ers, cooks, and gar­den­ers are com­monly paid in cash with no in­come taxes de­ducted from their pay. Fi­nally, drug deal­ers, pro­duc­ers and trans­porters must be in­cluded in con­sid­er­a­tion of in­for­mal econ­omy rev­enues. Hy­man feels if all of these are ac­counted for, then ev­ery­one would ben­e­fit.

“It would be a win-win sit­u­a­tion for ev­ery­body in terms of rev­enue col­lec­tions, macroe­co­nomic ra­tios and in terms of ac­cel­er­ated eco­nomic growth. Ad­di­tion­ally, it would help us to deal with the crime prob­lem be­cause many of the ar­eas in the in­for­mal econ­omy are crime re­lated. This would also have a pos­i­tive stim­u­la­tive This 2015 file photo shows Dor­rette McLeish sell­ing salt­fish to a cus­tomer.

ef­fect on the econ­omy be­cause crime ac­counts for about 5.8 per cent of GDP,” Hy­man said.

The World Eco­nomic Fo­rum’s Global Com­pet­i­tive­ness Re­port, 2013-14 cited the in­ef­fi­cient gov­ern­ment bu­reau­cracy and crime as the most im­por­tant chal­lenges of do­ing busi­ness in Ja­maica. Avoid­ance of the costs of the bu­reau­cracy is per­haps the main mo­ti­vat­ing factor for en­ter­prises to re­main in­for­mal.

LOSS OF TAX REV­ENUES

The size and ef­fect of the in­for­mal econ­omy has been a headache for pol­i­cy­mak­ers. They have been pri­mar­ily con­cerned with the loss of tax rev­enue from un­reg­is­tered busi­nesses. The Bud­get Me­moran­dum for 2012-13 notes that: “Ad­di­tion­ally, a spe­cial Pub­lic Re­la­tions cam­paign aimed at re­duc­ing tol­er­ance of the ‘shadow econ­omy’ will be launched. The neg­a­tive ef­fect of tax eva­sion and the role of taxes in pro­vid­ing pub­lic ser­vices will be em­pha­sised.” In­creas­ing tax

com­pli­ance to en­hance the Gov­ern­ment’s fis­cal ca­pa­bil­i­ties is a cen­tral theme of the cur­rent Ex­tended Fund Fa­cil­ity with the In­ter­na­tional Mone­tary Fund.

Hy­man es­ti­mates that if the author­i­ties were to bring those in the dark­ness of the in­for­mal econ­omy into the light then it would show a to­tally dif­fer­ent pic­ture.

“Us­ing a num­ber of say 60 per cent of the for­mal econ­omy then we’ll be look­ing at a fig­ure of about $800 bil­lion in nom­i­nal terms be­cause the size of the for­mal econ­omy is $1.77 tril­lion,” Hy­man es­ti­mates.

He says that the fact that so many of our eco­nomic sta­tis­tics are ad­verse and the county is not fall­ing apart is di­rectly at­trib­ut­able to the in­for­mal econ­omy, sim­ply be­cause peo­ple can get by us­ing in­for­mal ac­tiv­ity. Economist Michael Wit­ter has fa­mously ar­gued that in Ja­maica it is pos­si­ble to move from the womb to the tomb without ever com­ing in con­tact with the for­mal sys­tem.

IAN ALLEN/STAFF PHO­TOG­RA­PHER

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