The African Development Bank (AfDB) says the informal sector’s contribution of 24% of gross domestic product (GDP) in Namibia is overshadowed by its operation outside formal systems, which hinders the country’s structural transformation.
The lender said Namibia’s informal economy is also characterised by numerous undocumented, unregulated businesses and employment similar to all other developing countries.
“Namibia’s informal sector has been recorded to be the country’s largest employer and contributes about 24% to the country’s gross domestic product (GDP). Yet, it is not accounted for in formal statistics,” the AfDB noted in a report.
Despite its contribution to the economy, the sector faces significant challenges that limit its potential, such as labour rights, social protection, tax evasion, economic stability and lack of access to finance.
“The absence of labour rights and lack of financing hinder their transition from the informal to the formal sector and a shift of resources from the traditional to modern sectors and from low productive to high productive sectors,” the bank said.
The AfDB said that the absence of labour rights discourages skilled workers from taking up jobs because their rights are not protected.
This comes as the African continent is facing a myriad of challenges in its drive for structural transformation, in particular climate change, informality, capital flight, financing constraints and an estimated US$93 billion per annum infrastructure gap.
Furthermore, inadequate human capital development, and a weak technological base that is not sufficient to support modern manufacturing and improve low agricultural productivity, according to the AfDB.
The AfDB has also identified climate change, financing constraints, and institutional inefficiencies as major obstacles to Namibia’s structural transformation.
Climate change, driven by agriculture, forestry, and land use contributing 24% of global greenhouse gas emissions, has led to droughts and floods that disrupt agricultural productivity, the AfDB noted.
Financing constraints are another hurdle. “Despite a well-developed financial system, 31% of Namibians remain excluded from financial services,” the bank cited, referencing the FinScope consumer survey.
Institutional inefficiencies, including weak governance, tax evasion and improper exemptions, further undermine public revenue and institutional credibility, the AfDB added.
