Coronavirus Hips Pakistan Hard

Shabbir Ahmad Shaheen is the proprietor of a Lahore-based design and construction company. His business started as a part of informal economy but it is now a firm that regularly pays taxes and has a wide network of labour and skilled workers attached with it. He, too, is worried about the prevailing situation. He says that coronavirus fears had brought the construction sector to a standstill. No new work is being started, and only in-process works are being completed. Moreover, many owners have opted for discontinuing the work due to which he and other people attached with his firm have become jobless.

These thoughts of Mr Ramzan and Mr Shabbir reflect the looming humanitarian crisis that is knocking at our doors in the wake of the coronavirus-forced lockdown. The spread of coronvirus diseases (Covid-19) has a two-fold impact, especially on people whose work falls in the informal sector of the economy. They not only have the fears of contracting Covid-19 but sources of their income too are getting curtailed. They have to work—and earn—daily to buy food and other daily necessities for their dependents. Any drastic change in work prospects and routine life upends their life because their work—be it a daily wage or a regular employment or even a business—does not have social security, i.e. legal, economic and social recognition. Their work does not have any formal registration and record and, hence, is out of the tax net. Due to this, it becomes increasingly harder for the government to provide them with some sort of aid during the time of an emergency or a natural calamity. The Government of Pakistan is also faced with this dilemma. Although the relief package announced by the Prime Minister does contain special measures for employers and employees alike, only time will tell how, and to what extent, it benefits the informal economy. This relief package along with delay in imposing a stricter lockdown seems an attempt to keep the informal economy alive. However, its repeated mention by the premier has raised many questions about this sector of economy: what is informal economy? How is it formed? What is its volume in Pakistan? And, what are its advantages and disadvantages?

In order to understand the informal economy, we need to first understand the term ‘informal work’ which is of two types: self-employment, and jobs. Daily wagers, labourers, masons, at-will workers, self-employed, rickshaw and taxi drivers, vendors, cart pushers, barbers, waiters, domestic workers, waste collectors, shopkeepers, tailors, carpenters, plumbers, mechanics, electricians, cobblers, painters, porters, and other individual service-providers are some forms of informal work or employment which do not have any legal or social protection. Similarly, businesses where people are hired to work on daily or monthly remunerations, either under a contract or at-will, but are not provided with the facilities they are entitled to under the labour laws, especially social security, and where the revenues generated are not documented and hence kept out of the tax net, fall into this category.

Informal economy includes all economic activities – legal as well as illegal – that are kept out of the national record or are not reported in the national income account. Generally, informal economy is considered operating parallel to the formal economy and income generated through it is undocumented and no tax is paid on that. It is, however, not necessary that informal employees be a part of informal economy rather they are found in formal institutions as well, e.g. contract employees in government departments who have no other privilege than salary and some limited leaves. Moreover, many business enterprises that are part of formal or documented economy are increasingly hiring informal employees, e.g. men and women who are hired by manufacturing concerns for packaging work they do while staying at homes. All this is happening in countries where there are stringent labour laws as well as those where laws are a bit lax or have not been revamped over the years. Informal economy is a global trend nowadays because in today’s global economy not enough jobs are being created and even many formal jobs are increasingly falling in informal category. Furthermore, people who do not find a formal, salaried job, enter the market and do whatever they can to earn a livelihood.

Experts suggest that a major factor behind exponential growth of informal economy is heavy tax burden. Most research conducted to examine the link between the taxation levels and the informal economy concludes that with the rise in taxation, the cost of doing business in the formal sector of economy also increases, ergo swelling size of informal economy. Economists believe that rising prices of eatables, low tax-to-GDP ratio, inflation, poverty, down- or right-sizing of employees, geopolitical circumstances and natural calamities add an impetus to the growth of informal economy.

Low economic growth is a direct consequence of ballooning informal economy. Countries with persistently low economic growth have huge informal economies and higher tax evasion ratios. And, where standards of human development are low, the size of informal economy will be quite big.

Another major cause behind a big informal economy in a country is corruption. Those in higher echelons of power take bribes and kickbacks which, in turn, increase the cost of establishing new formal business concerns. This makes informal economy luring for investors. There is a direct link between the size of informal economy and levels of corruption; a technical report titled as “The Informal Economy of Pakistan,” published by Lahore University of Management Sciences (LUMS), suggests that an improvement of one point on Transparency International’s Corruption Perception Index means a reduction of 5.1 percentage points in the size of a country’s informal economy. Ease of doing business is another factor that is adversely impacted by corruption.

Moreover, researchers have also found that the size of informal economy is bigger in those countries that have large youth populations. That’s why informal jobs are going to last in short, medium and long terms. This fact has been aptly depicted by a report entitled “Women and Men in the Informal Economy: A Statistical Brief,” published by International Labour Office (ILO). The report says, “The majority of the world’s global employment aged 15 and above — 61 per cent — are informally employed: a total of 2 billion workers.” It means that according to ILO, six workers out of ten and four out of every five companies are working in the informal sector.

All these factors behind the growth of informal economy are found in Pakistan also. As per ILO report, Pakistan is at 33rd place on the list of countries where the share of informal employment in total employment (excluding agriculture) is higher. Literacy is another factor; as per UNESCO figures, the highest number of out-of-school children in 2018 was in Pakistan, the highest number of illiterate adults of age 15 years and above, in 2017, was also hosted by Pakistan, making the country the fifth largest in terms of low literacy rate of this age bracket. In addition, the literacy rate of people age 10 years and above is 62.3 percent as reported in the Economic Survey of Pakistan 2018-19. In terms of corruption, we are at 120th place among 180 countries on Transparency International’s CPI 2019. Similarly, a high ranking of the World Bank’s Ease of Doing Business Index means the regulatory environment is more conducive to the start and operation of a local firm. Ease of Doing Business Index 2020 has reported that Pakistan is among the top 10 countries with the most improved business climate. Pakistan carried out six reforms that helped in improving its ranking but the country is still on 108th position; which means a lot is still to be done.

Experts also opine that a large youth population is a major factor behind the growth of informal economy. Pakistan has a unique distinction in these terms as well because the United Nations defines persons between the ages of 15 and 24 years as ‘youth’ while the Commonwealth standard, which is followed by Pakistan, sets it between 15 and 29 years. On these standards Pakistan has, respectively, third and fifth largest population of youth in the world. As per the US Census Bureau’s International database, the youth population of Pakistan will be 45.07 million according to the UN standard while that for Commonwealth standard will be 64.05 million by 30th June 2020.

These objective realities are only some factors behind the growth of informal economy. It is reflected by the following figures:

In 2001-02, the ratio of non-agricultural employment in the informal sector was 64.6% but it increased to 72% in 2017-18 — an increase of 7.4 percentage points. Currently, a vast majority of the country’s population is financially dependent on the informal sector of economy. Pakistan Labour Force Survey 2017-18 proves this assertion by reporting that 7 out of 10 non-agricultural jobs are provided by the informal sector — it means nearly 72% of the country’s labour force is attached with informal economy (this ratio is 68.3% in urban areas and 76% in rural areas). Furthermore, according to an IMF report, 36.8% of Pakistan’s total GDP in 2017 came from the informal sector.

Keeping in view these data, here is the most relevant question: Is informal economy advantageous or harmful? This question has divided the world opinion into two groups; those against it assert that with the growth in economic development, the informal economy ebbs away while those who favour it say that informal economy is not only fully functional in many countries of the world but is also thriving. Evidence, however, suggests that some parts of informal economy grow during times of recession while some thrive when there is faster economic growth. For instance, manufacturing of to-be-imported goods gets pace when there is a period of high economic growth. Likewise, during the times of recession or depression, workers who lose regular jobs have to find jobs in the informal sector.

Another criticism made on informal economy is that this sector largely comprises those companies or businesses that try to evade taxes and government regulations. The argument presented to refute this assertion is that most informal businesses are owned and operated by a single person who does not hire people to work for him, and even if they rope in some other people, they are mainly members of their families who are not paid any salary. Some informal workers opt for doing informal jobs due to their needs or because that is their family business. In addition, regulations and codes of conduct are largely irrelevant for them and so they hardly follow those.

The next objection is that informal economy has nothing to do with the formal economy. This objection is overruled by asserting that a large number of informal workers supply what they produce to registered business concerns. Many also give their merchandise to middlemen or such firms who then supply that to registered business concerns. Similarly, most fruit-sellers buy that from main fruit market and some street vendors sell products of different companies on commission basis.

Leaving aside the arguments given for and against informal economy, one undeniable reality is that the informal economy is the source of income and of getting rid of poverty for billions of people worldwide. The more one works hard, the more the opportunities of development. And, this is the hard work that 13.2% of Pakistan’s total population (the chunk of population attached with informal economy) is putting in. When these lines are being written, lockdown at provincial level has been imposed albeit a partial one. But, people are not taking it seriously and are flouting government orders to stay at homes. The government is thus at a crossroads: if it imposes a complete, strict lockdown, millions of people attached with informal economy will find it hard to earn a daily living. It has already said that it does not have enough resources to provide food to every household. On the other hand, if it goes on with partial lockdown, lives of millions of people are under threat. Even the fear of spread of Covid-19 has brought social and economic activities to a standstill, diminishing the opportunities to earn a respectable living for those in the informal sector.

Although the Government of Pakistan has not taken a final decision yet, most countries in the world are adopting the St. Louis model which was introduced by Dr Max C. Starkloff, the Health Commissioner of American city of St. Louis, who closed down the whole city during the 1918 Spanish Influenza pandemic. As soon as the first case of influenza was reported in the city, Dr Starkloff closed down all schools, offices, malls, courts, playgrounds, libraries, churches and cinemas, prohibiting public gatherings of more than 20 people. Traders put up huge protests against this decision but Dr Stalkoff and city’s mayor—Henry W. Kiel—remained firm on this step which was later known as social distancing. On the contrary, situation in Philadelphia remained starkly opposite; in mid-September that year, Spanish Influenza spread like a wildfire through military and navy installations. But, city’s Director Health, Wilmer Krusen, told people that the affected military personnel were suffering from seasonal flu and that will be controlled before it affects the masses. When some cases were reported on 21st of September, doctors suspected that it could be the start of an epidemic, but Krusen and his medical board claimed that by keeping themselves warm and their feet dry, Philadelphians can minimize the danger of catching the flu. The number of affected people kept on rising but Krusen did not budge to the pressure of city’s political administration and decided to go on with the scheduled Liberty Loans Parade in which nearly 200,000 people participated. What happened then was horrific; within 72 hours after the parade, all of city’s 31 hospitals were flooded with patients affected with Spanish Influenza and nearly 2600 people lost their lives by the weekend. Although the city was then closed, it was too late by then. On the contrary, the situation in St. Louis remained under control and very few deaths were reported there.

Whatever may be the decision of the Government of Pakistan, one thing is absolutely clear, that is, it is in the interest of the people and we should believe in that. We must abide by the instructions given by the authorities. Moreover, it is the responsibility of every individual whom Allah Almighty has bestowed with riches and wealth that he should increase his philanthropic activities in these trying times. If you are well-off, please don’t make cuts to your employees’ salaries, help others even before they ask for it, give food to those whose daily living comes from the informal sector of economy as they will be facing severe hardships amidst the lockdown. To defeat the problem that affects us all, we need to be united and be cooperative to others. 

 

The writer can be contacted at: misteratif@yahoo.com