Measuring Informal Economy Through Household Surveys

MEASURING INFORMAL ECONOMY THROUGH HOUSEHOLD SURVEYS

A paper presented by

Nelson Taruvinga,

Director, Income Analysis Division

Zimbabwe National Statistics Agency

Zimbabwe

I. Introduction

In Zimbabwe, the informal sector was insignificant in the 1980s. However, informal activities increased in the 1990s. Furthermore, the economy started declining around 2000 up to the peak of hyperinflation in 2008 and this battered the formal sector leading to increased mushrooming of informal sector business.

People who lost jobs and those who could not be absorbed by the formal sector all embarked on the informal sector and they continue to earn a living from the informal sector. Many people who are college leavers continue to be churned out and these will depend on the informal sector. All this means that the informal sector will continue to grow and hence it is very important to measure the size of the informal sector and account for it in Gross Domestic Product (GDP). The informal sector covers establishments which are not registered with the authority like the Registrar of Companies.

II. Lessons from Zimbabwe

The paper will examine the period from the 1990s when the informal sector activities started to become increasingly significant in Zimbabwe. It is the period when economic structural adjustment programme (ESAP) was introduced and many retrenchments took place. The paper also covers the decade of hyperinflation from around 2000 to 2008 and the post hyperinflation period from 2009 up to date.

The methods used involve informal sector data collected through household surveys particularly the Poverty Income Consumption and Expenditure Survey complemented by the Labour Force Survey and the Population Census.

The size of the Poverty Income Consumption and Expenditure Survey (PICES) is 33000 households. The sample is drawn from the Zimbabwe Master Sample using sampling with Probability Proportional to Size (PPS) sampling. Variables like employment, output, inputs, etc are covered.

III. The method used to analyze data involves analyzing the National Accounts module collecting output data, input data , etc on household enterprises to come up with value added for the informal sector.

This also involves employment data on the informal sector collected through questions in the Labour Force Survey questionnaire.

This also entails applying the labour input method i.e. comparing data from the household surveys and data from the enterprise based surveys i.e. the Census of Industrial Production (CIP) and the Quarterly Employment Inquiry (QEI).

Questionnaires are administered by enumerators. Data is checked by Team leaders and Provincial supervisor and Head Office supervisors. After coding and editing, data is entered in the computer using CSPRO. Analysis is done using SAS Software.

Sampling with probability proportional to size (PPS sampling) is used. There is no cut-off point for the informal sector as there is no separate sampling frame for the informal sector. The idea is to get a sample based on the population census and blow up the results to the total informal sector figures using PPS sampling techniques.

In 2012 an exercise was undertaken to incorporate the informal sector in the GDP estimates. The Value-added of the household sector enterprises was captured through a national accounts questionnaire as a PICES module which captured their incomes and expenditures. One of the objectives of the Poverty, Income, Consumption and Expenditure Survey (PICES 2011/12) was to come up with the contribution of the informal sector to GDP. The informal sector contributed 19.5 % according to PICES 2011/12. The labour input method was also used and this was based on comparing the numbers of employees in the formal sector by kind of economic activity from the PICES with those from the establishment based surveys. The differences indicated under coverage by the establishment based surveys. This difference was multiplied by the gross value added per worker (GVAPW) for each kind of activity to estimate the under estimation of value added in the formal sector for that kind of activity. The informal sector estimate was then added to come up with a more exhaustive estimate of GDP.

The above-mentioned two methods were used to revise the GDP estimates backwards to 2009.

IV. Results

The most important findings are that the informal sector contribution to GDP became more significant in the 1990s.

The size of the informal sector increased tremendously during the period of hyperinflation in the 2000s.

After the period of hyperinflation, the informal sector continues to play an important role in the economy.

Data on the informal sector on financial inclusion and financial exclusion showed that at some point in time more money was circulating outside the banking sector with a significant bearing on GDP measurement.

Agriculture continues to play an important role in the informal sector.

The overall change to GDP as a result of revisions was 41%.

V. Discussion The larger implication of the study is

a. A large percentage of the GDP comes from the informal sector. The Zimbabwe Revenue Authority which used to focus on tax collection on the formal sector started looking at ways of raising money from the informal sector to widen the tax base.

b. The contribution of the informal sector is so large that without fully accounting for the informal sector in GDP the National Accounts of the country would not be complete.

c. Growth in the informal sector is a continuing phenomenon and measurement of value added in the sector is important.

d. Regular measurement of the informal sector and its contribution to National Accounts are critical.

The last PICES Survey was carried out in 2011 / 2012 and the newest one will be conducted in 2016 / 2017. The last Labour Force Survey was carried out in 2011 and in 2014. There are plans for more frequent data collection on the informal sector.

VI Method used to extrapolate benchmark estimate

A constant percentage of 19.5 % is used to extrapolate backwards and forwards

19.5 % is the percentage of the value added of the formal sector to GDP calculated using PICES 2011/12 data.

VII. Current/ future method to estimate under reporting of the

a) Formal establishments The Labour input method will be used to compare reporting for establishment based surveys and correction for underreporting will be made where appropriate.

b) Informal Establishments Use of Poverty, Income, Consumption and Expenditure Survey (PICES) on a regular basis to estimate the size of the Informal Sector will be used to correct for the underreporting in the Household Sector c) Illegal Activities Police reports will be used to check for underreporting on illegal activities.

Use of trade mirror data from trading partners will also be used to check on underreporting in terms of trade data.

Detailed Results

Production and employment in the informal sector

The total value added for the informal non-farm activities in Zimbabwe is US$810.0 million. The value added from households engaged in agricultural activities is US$921.4 million. This gives a total of US$1,731.4 million as the total value added contributed by the informal sector in Zimbabwe. When expressed as a percentage of the Gross Domestic Product (GDP) for 2011 the contribution of the informal sector in Zimbabwe is 19.5 percent of GDP.

Value of Output and Inputs of the Informal Sector in Zimbabwe, PICES 2011, US$

Informal sector activities Value in US$ Percent contribution

Agricultural activities

Household agriculture output 1,194,192,083 100.00

Total household inputs 272,771,761 22.84

Household agriculture value added 921,420,322 77.16

Non-agricultural activities

Household non farm output 2,060,297,806 100.00

Total household inputs 1,250,274,186 60.68

Household non-farm value added 810,023,619 39.32

Total informal activities

Output 3,254,489,889 100.00

Total inputs 1,523,045,947 46.80 Total value added 1,731,443,941 53.20

GDP in 2011 8,865,427,917

Contribution of informal sector to GDP in 2011 19.5%

The total value of non-farm output of the informal sector is US$2,060.3 million while the costs of production excluding wages and salaries amounts to US$1,250.3 million. This translates into a value added of US$810.0 million as previously pointed out.

Value of Revenue and Cost of the Non-Farm Informal Sector in Zimbabwe, PICES 2011 US$

Receipts Value in US $

Resale of purchased goods 1,186,031,824

Sale of goods produced or processed 357,549,585

Home consumption of goods produced or processed 1,850,478

Value of products received for services rendered or work done (in kind) 27,232,306

Value of own products used in household enterprises 775,559

Value of products received in exchange or barter not incl. in sale or own 1,185,376 consumption

Income received for services rendered or work done (cash) 456,041,598

Other business receipts 29,631,082

Total value of output 2,060,297,806

Operating costs

Own products used in household enterprise 6,935,521

Material inputs 182,041,989

Goods bought for resale 829,764,692

Rentals 39,777,956 Fuel ,electricity, water etc charges 74,498,166

Hire and repair of equipment, transport charges paid and other related expenses 80,388,824

Repairs of buildings and other maintenance charges 2,564,521

Goods ,exchanged or battered or donated 411,548

Business taxes, licenses 4,023,237

Accountants fees and other service charges 444,683

Interest paid on business loans 93,742

Miscellaneous business supplies 1,183,334

Communication charges 6,121,513

Other operating costs 22,024,460

Total value of inputs 1,250,274,186

Value added (output less inputs) 810,023,619

Less wages and salaries

Wages and salaries paid in cash 59,936,410

Wages and salaries paid in kind 1,430,239

Total wages and salaries 61,366,649

Mixed income 748,656,971

The majority of the household enterprises (35.3 percent) in Zimbabwe are engaged in wholesale and retail trade including repair of motor vehicles and motorcycles. About 16 percent of the household enterprises are engaged in manufacturing while another 13.0 percent of the households are involved in construction. About 5 percent of the household enterprises are involved in agriculture related activities such as poultry rearing for sale or resale of agricultural produce in markets.

Value Added of Non-Farm Household Enterprises (Informal Sector) by Industry; PICES 2011 US$ Industry Value added US$ Percent

Agriculture, forestry, hunting and fishing 38,807,490 4.8

Mining and quarrying 27,668,044 3.4

Manufacturing 128,641,462 15.9

Electricity, gas, steam and air conditioning supply 6,432,858 0.8

Construction 105,175,676 13.0

Wholesale and retail trade, repair of motor vehicles and 286,068,255 motorcycles 35.3

Transportation and storage 41,595,355 5.1

Accommodation and food service activities 26,162,795 3.2

Information and communication 1,685,238 0.2

Financial and insurance activities 4,095,183 0.5

Real Estate activities 828,919 0.1

Professional, scientific and technical activities 33,687,992 4.2

Administrative and support activities 8,340,389 1.0

Education 1,790,243 0.2

Arts, entertainment and recreation 2,418,248 0.3

Other activities 96,625,471 11.9

National total 810,023,619 100.0

The PICES 2011/12 survey reveals that about 3.7 million people in Zimbabwe are involved in informal sector activities. The majority of households and people engaged in informal sector activities are in Manicaland province being 18.4 percent and 18.5 percent respectively out of the total in Zimbabwe. In Harare 9.4 percent of the households are engaged in informal sector activities while 5.6 percent of the people of Harare are engaged in informal sector activities.

Number of Households and Persons Employed in the Informal Sector by Province Province Households Percent Persons Percent

Bulawayo 62,106 3.4 78,496 2.1

Manicaland 334,001 18.4 692,646 18.5

Mashonaland Central 186,358 10.2 427,659 11.4

Mashonaland East 179,366 9.9 360,849 9.7

Mashonaland West 198,197 10.9 422,367 11.3

Matabeleland North 96,513 5.3 228,525 6.1

Matabeleland South 109,228 6.0 263,466 7.0

Midlands 244,563 13.4 555,504 14.9

Masvingo 238,576 13.1 500,187 13.4

Harare 170,843 9.4 208,649 5.6

National total 1,819,750 100.0 3,738,348 100.0

Number of Persons Employed in the Informal Sector by Sex and by Province

Province Male Female Both sexes

Number of Number of persons Number of persons persons

Bulawayo 35,195 43,301 78,496

Manicaland 297,873 394,773 692,646

Mashonaland 209,373 218,286 427,659 Central

Mashonaland East 160,923 199,925 360,849

Mashonaland West 208,598 213,769 422,367

Matabeleland North 100,580 127,944 228,525

Matabeleland South 117,487 145,979 263,466 Midlands 253,785 301,719 555,504

Masvingo 198,149 302,038 500,187

Harare 114,731 93,919 208,649

National total 1,696,695 2,041,653 3,738,348

Evidence from the PICES 2011 data shows that more females 54.6 percent than males 45.4 percent are employed in the informal sector, see figure 6.1. The same pattern is observed across provinces in Harare where more males 55.0 percent compared to females 45 percent are employed in the informal sector. Masvingo province has the highest proportion of females employed in the informal sector compared to other provinces.

Percent Number of Persons Employed in the Informal Sector by Sex and by Province

Evidence from the PICES survey shows that 50.5 percent of the people employed in the informal sector in Zimbabwe are aged between 15 to 34 years, see table 6.6. Further, evidence shows that out of the total number of males employed in the informal sector 53.2 percent are in the 15-34 year age group range. In addition, out of the total number of females employed in the informal sector in Zimbabwe 48.3 percent are in the 15-34 year age group range. This evidence depicts the role played by the informal sector in Zimbabwe in generating employment for the younger generations following the company closures and retrenchments that occurred during the decade of economic difficulties in Zimbabwe.

Number of Persons Employed in the Informal Sector by Age and Sex

Age group Male Male Female Female Both sexes Both sexes

number Percent Number percent Number percent

10-14 65,334 3.9 49,616 2.4 114,949 3.1

15 – 19 237,655 14.0 224,573 11.0 462,228 12.4

20 – 24 244,951 14.4 267,936 13.1 512,887 13.7

25 – 29 230,309 13.6 268,859 13.2 499,169 13.4

30 – 34 190,241 11.2 224,470 11.0 414,711 11.1 35 – 39 170,621 10.1 197,834 9.7 368,455 9.9

40 – 44 109,472 6.5 131,755 6.5 241,227 6.5

45 – 49 75,598 4.5 130,575 6.4 206,173 5.5

50 – 54 74,004 4.4 135,397 6.6 209,401 5.6

55 – 59 71,644 4.2 123,026 6.0 194,670 5.2

60 – 64 65,312 3.8 98,928 4.8 164,240 4.4

65 – 69 54,178 3.2 69,908 3.4 124,086 3.3

70 – 74 43,193 2.5 51,257 2.5 94,449 2.5

75+ 63,947 3.8 67,432 3.3 131,379 3.5

Not stated 235 0.0 88 0.0 323 0.0

National 1,696,695 100.0 2,041,65 100.0 3,738,348 100.0 total 3

Summary

The total value added for the informal non-farm activities in Zimbabwe is US$810.0 million. The value added from households engaged in agricultural activities is US$921.4 million. This gives a total of US$1,731.4 million as the total value added contributed by the informal sector in Zimbabwe. The contribution of the informal sector in Zimbabwe is 19.5 percent of GDP for the year 2011. The PICES 2011/12 survey has revealed that about 3.7 million people in Zimbabwe are involved in informal sector activities. About 54.6 percent of the people employed in the informal sector in Zimbabwe are females.

The overall change to GDP as a result of revisions covering the informal sector and labour input method adjustments was 41%.