Formality and Informality in Sub-Saharan Africa and the Ghanaian Construction Industry

Divine Kwaku Ahadzie, Yaw Debrah, and George Ofori

Introduction

Academic and policy dialogs often portray the informal economy as illegal, chaotic and unproductive (Feige 1990; Debrah 2007; Chen 2012). Around two-thirds of non-agricultural employment in African economies is attributed to the so-called ‘shadow economy’ which accounts for about half of the continent’s total gross domestic product (Middleton 2015). The bulk of informal employment generated is artisanal (African Development Bank 2013).

Given this significant contribution, there is now a shift toward embracing this segment of the economy in the formulation of policies and strategies for sustainable development (Middleton 2015). A better appreciation is needed of the informal labor market and its impact on the quality and standards of skills development (Charmes 2012; Akorsu 2013; Aikaeli and Mkenda 2014), and an understanding of initiatives that are being implemented is essential in order to improve the human resource base, especially artisanal capacity, for accelerated development.

Using the construction industry in Ghana as its focus, this chapter considers emerging issues in informal construction and initiatives for upscaling skills and technology and improving labor relationships. The chapter is based on a literature review and interviews. The first section presents an overview of informality in sub-Saharan Africa and in African construction. The second section offers an analysis of the Ghanaian economy and demography and the state of informality and formality. The third section deals with the construction industry in Ghana and the nature of employment relations in construction. We then turn to programs for construction skills training and outline case studies on recent initiatives aimed at improving skills development, workers’ welfare and labor relationships. The final section reflects on the way forward in promoting the informal construction sector in sub-Saharan African countries.

Informality in Construction

The construction industry has the highest level of informality in the global economy. Jewell et al. (2005) note that around the world a high percentage of output is produced informally. The reasons for the size of the informal segment (International Labor Organization 2001; Debrah and Ofori 1997) include the low barriers to entry in construction; the large number of distinct activities which require specific skills; labor laws which make it difficult for firms to lay off workers when they are not needed; the small role each trade plays on each project which means that it is expensive for companies to maintain a large pool of workers, given the fixed costs of employment such as holidays and medical coverage, and the convenience and long-standing nature of subcontracting.

The informal sector in construction is not well understood and is difficult to measure, but it is growing both in industrialized and developing countries (Jewell et al. 2005; Wells and Jason 2010). There was a marked increase in informality in many sub-Saharan countries as governments withdrew from investing in construction projects in the era of structural adjustment programs following the 2008 economic crisis (Wells and Jason 2010).

The essence of informality in construction is in the absence of regulation (Wells 2007). Wells highlights four aspects of regulation: regulation of enterprises, the terms and conditions of employment, the process of construction and the product, leading to four interrelated areas of informality - the informal sector of enterprises, informal labor, the informal construction system and informal buildings or settlements. The large number of projects, scattered geographically, makes it difficult to enforce regulations and standards providing a fertile environment for the growth of informality.

Informality in Sub-Saharan Africa

Informality in Africa has been discussed in the literature since the seminal work of Hart (1973) on the urban sub-proletariat in Accra, Ghana (cited in Debrah 2007). The informal sector has been characterized as unregulated, chaotic and unproductive with respect to mainstream economic activities and the sector has been relegated to the background in policy formulation and development programs for several decades (Feige 1990). There is now a paradigm shift toward the integration of the informal segment into the mainstream economy of African countries to engender accelerated development (Middleton 2015). This demonstrates that the informal sector cannot be ignored in the search for a paradigm to drive development in Africa. The United Nations’ 2030 Development Agenda and African Union’s 2063 Urban Agenda seek to use the informal labor market as a major economic resource for sustainable development and poverty reduction while undertaking the necessary infrastructure development (Middleton 2015).

Close to 50 percent of the GDP of sub-Saharan African countries and 80 percent of employment is driven by the informal sector, with artisans forming the largest proportion of this workforce (Osei-Boateng and Ampratwum 2011; African Development Bank 2013). In Table 6.1 data are presented to demonstrate this phenomenon, focusing on five countries: Ghana, Nigeria, Kenya, Tanzania and South Africa These countries reflect the main regional blocks of sub-Saharan African economies: Western, Eastern and Southern Africa; they are amongst the continent’s major players in terms of GDP growth. Table 6.1 indicates that about 70 percent of the active labor force is in employment and about 80 percent of the construction labor force work in the informal sector.

When the data in Table 6.1 are compared with recent literature, it is evident that informality in construction in Africa has stabilized or grown. In 1998 informality in Ghana constituted 80 percent of the active construction workforce (Hormeku 1998) and Table 6.1 shows that the percentage has remained the same. In Kenya, informality constituted 42 percent of construction employment in 2000 (see Mitullah and Wachira 2003), but the table shows that it has witnessed a dramatic increase to 84 percent. The table further reveals that South Africa and Tanzania also have a huge informal presence although South Africa experienced a marginal drop between 1992 and 2002 (QUANTEC 2003; Becker 2004; Saunders 2008) to the current figure of 75 percent. In Nigeria, the largest economy in Africa, close to 90 percent of the construction sector is informal (Table 6.1). Thus, the data show that informality has a huge presence on the continent and governments need to understand and harness its full potential through targeted reforms.

Informality in construction thrives on the African continent because the sector is flexible and self-employed workers are easily able to change their activity (Chen 2012). This includes craftsmanship and artisanal skills. The weaknesses of informal working include income insecurity and lack of protection for the welfare, health and safety of workers (Nyamekye et al. 2009; International Labor Organization 2013). Conditions are unsafe; there are no social benefits such as sick pay, pension and health insurance, or even leave (Aikaeli and Mkenda 2014). Workers are unproductive and uncompetitive as a result of a skills deficit and technological inefficiency (Itasanmi et al. 2019; International Labor Organization 2013).

While in the past informality in Africa could be traced to the low educational level of the workforce, the trend has changed to include a large pool of educated unemployed youths (Nyamekye et al. 2009). It makes economic sense to consider measures to realize the potential of these high caliber skilled workers in the economy and the construction industry.

Country

Population

Active

population

Total

employed

(%)

GDP

(billion)-

US$

GDP per capita US$

Informal share on GDP (%)

Formal construction sector (%)

Informal construction sector (%)

Ghana

30,100,849

14,835,313

67.60

66.98

2,202.10

30

20

80

Nigeria

197,405,820

60,000,000

81.20

448.10

2,229.90

65

13

87

Kenya

51,334,456

19,600,000

62.22

95.50

1,816.50

34

16

84

Tanzania

59,639,627

24,890,000

60.82

63.17

1,122.10

42

18

82

South

Africa

57,605,562

22,190,000

73.30

351.432

6,001.40

35

25

75

Average

69.03

41.20

18.32

81.68

Sources: World Population Review (2018), Trading Economics (2017), Ghana Data Portal (2017), Kenya Statistical Abstract (2018), Statistics South Africa (2019), National Bureau of Statistics, Tanzania (2018), World Bank (2020) and Business a.m. (2020).

Informality is associated with a burdensome business environment, including lack of clarity in regulations, bureaucratic systems, overcentralization of the administration of businesses such as registration, and high taxes. Chen (2012) advocates four policy directions to counter these factors: creation of more formal jobs, regulation of informal jobs, extension of state protection and increasing productivity of both the enterprise and the worker.

 
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