What next for Nepal’s informal economy actors?

The term, informal employment, encapsulates not just workers, in an employment relationship, but also unregistered business owners such as street vendors. The public coverage afforded to the plight of informal economy actors during COVID-19 have made it clear that they were the ones most negatively affected, both in Nepal and elsewhere in the world.

There are two key reasons that make these actors of informal economy more vulnerable to the impact of COVID-19 :

  1. These actors lack access to rights and protection such as social security or
    formal finance, which leave them vulnerable to negative shocks.
  2. Their informal nature precludes them from any relief measures available to
    those in formal employment.

In the case of Nepal, the large scale of the informal employment, there was a special measure announced by the Ministry of Finance that prioritized relief measures for informal workers and enterprises which was followed up by Active labor Market Policies (ALMP) that was targeted towards them. They were rightly targeted towards informal sector as the early impact of COVID-19 affected urban informal actors where the informal sector is concentrated.

These policy initiatives gave real hope however, as is in the past, their potential did not translate into implementation. Few informal actors actually managed to access relief measures despite priority afforded to them by the government.

Relief distribution was left to municipal governments who did not have any procedures to identify who were or were not informal workers. Instead relief was first targeted to municipal residents who were often not informal workers and which contributed to the unsafe outwards movement of informal workers from urban centers. Even recommendations to incorporate informal sector workers
in the Prime Minister’s Employment Programme (PMEP) was not applied in practice as till today one can only register as ‘unemployed’ at Employment Service Centers in municipalities.

Informal enterprises, accounting 50% of Nepal’s total enterprises, were left out from governments refinancing schemes as being unregistered they were excluded from formal finance mechanisms.

Informal employment in Nepal will likely have grown as demand in formal labor market weakens as enterprises recover while supply increased due to rise in returnee migrants and unemployment. There have not been any sustained or transformative measures to actively target and support those in informal employment in practice despite clear evidence that they have been affected. More surprisingly, we have not even seen efforts to prevent in formalization even though deadline for renewal of enterprise registration have now been extended due to a lack of demand. This leaves us back at square one where in the case of a similar shock as provided by COVID-19, informal actors would be as vulnerable as they were on March 2020.

Moving forward

What’s next, could be summarized into three sequential steps:

  1.  Have a collective understanding based commitment to tackling informal employment. ‘Tackling’ should not solely mean to formalize rather to reduce vulnerability of informal actors. This requires pre-requisite of government and other national stakeholders understanding differences in types and needs of those in informal employment.
  2. We need to take measures to prevent in formalization by facilitating easier company renewal which should go with other incentives such as, considerations in social security payments among others.
  3. We have need a longer term strategy to tackling vulnerability of informal economy actors. One that has been owned by the Government of Nepal with buy in of development partners and other agencies.