social protection in africa: sharing experience on the informal economy 10-11 march 2011

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THE EXTENSION OF SOCIAL SECURITY COVERAGE TO THE INFORMAL SECTOR EMPLOYEES IN TANZANIA

NAIROBI 10th – 11th MARCH, 2011

Social Protection in Africa: Sharing experience on the informal economy

10-11 March 2011

ebba/lau-eu/11 ebba/lau-eu/11

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AGENDAAGENDAIntroduction (Background).The Informal Sector (IS) in TanzaniaExtension of social security coverage

- Rationale for Extension of Social Security- Strategies for Extension of SS.- Role of Stakeholders in facilitating extension of social security

Challenges of Extending SS CoverageConclusion and recommendations


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1.0 IntroductionAn overview of Social Security System:The Social Security System in Tanzania has been

in existence for more than 60yrs.

The System is fragmented i.e., there are seven Social Security Institutions (SSIs); each covering a defined category of people.

The existing SSIs covers only less than a million people out 41.89 million Tanzanians i.e., The covered population represent 6% of the effective labour force estimated at 20.94 million people.


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1.0 Introduction Cont’d

Similarly Social Security System in EA is fragmented.

The social security coverage is estimated at an average of 8% of the total estimated active labour force of 60.1 million people.

The coverage also represents an average of 3.7% of the estimated total population of 132.3 million people


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Table 1: Table 1: The Social Security Coverage in East The Social Security Coverage in East Africa:Africa:

SNo. Country Estimated Population

Covered members

%age of Total Population

1.

Tanzania

41,892,895 1,256,787

3

2.

Kenya

38,610,097

2,509,656

6.5

3.

Uganda

31,800,000

636,000

2

4.

Rwanda

10,400,000

301,600

2.9

5.

Burundi

9,612,000

278,748

2.9

Total

132,314,992

4,982,791

A Model of Social Security Industry in Tanzania


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Table 2: Table 2: The Social Security Coverage in East The Social Security Coverage in East Africa:Africa:

SNo. Country Estimated Active Labour force

Covered members

Percentage of Labour force (%)

1.

Tanzania

20,946,448

1,256,787

6

2.

Kenya

16,731,042

2,509,656

15

3.

Uganda

10,600,000

636,000

6

4.

Rwanda

5,800,000

301,600

5.2

5.

Burundi

6,059,739

278,748

4.6

Total

60,137,229

4,982,791


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1.0 Introduction Cont’dThe majority continue to be left out of the coverage

of formal social security.

The uncovered population include the self employed and Informal sector employees (ISEs).

The risks facing ISEs include lack of permanent business premises, seasonality of income.

This paper focus on the feasible approaches that can be adopted to extend social security coverage in TZ.


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2.0 THE INFORMAL SECTOR IN TANZANIA

The informal Sector (IS) in Tanzania:

Contributes about 20% of the country’s GDP

Provides employment to 30% of the total active labour force.

Despite this significant contribution, ISEs continue to be excluded from the formal social security coverage.


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2.0 THE INFORMAL SECTOR WORLDWIDETable: Contribution of informal sector to GDP in various regions.

Informal sector (including

agriculture) in % of total GDP

Informal sector (excluding

agriculture) in % of non agricultural

GDP

Informal sector (excluding

agriculture) in % of total GDP

Sub-Saharan Africa 54,7% (60.6) 37,7% (41.1) 23,7% (25.6) North Africa 37,7% 30,4% 26,3%

Asia 23.9% 26,8% 21,5% Latin America 30.6% 25,9% 23,4%

Caribbean 22,2% 21,2% 19,7% Transition economies 21,7% 13,9% 11,8%

Sources: Table based on regional tables in Jacques Charmes’ paper: IRD (2006)


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2.0 Informal Sector Cont’d2.1 Definitions of Informal Sector:

Is economic activity that is neither taxed nor monitored by gov’t

Economic units involved in production of goods and services in order to create jobs and incomes on a small scale, with low level of production and organization

Non-structured sector that has emerged in the urban centers as a result of incapacity of the modern sector to absorb new entrants


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2.1 Definitions Cont’d

Most of the ISEs are mainly engaged in economic activities such as:

cloth making (embroidery, tailoring, tie and dye),

Motor bike and cyclists (Boda Boda)hair dressing salon, handicrafts, petty trading (small shop keeping and

hawking),Informal Construction Workers; and food and fruit processing.

Fig.1: Namanga Group (ICWs)– Aggregate crushers- DSM

1313ebba/lau-eu/11 ebba/lau-eu/11


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2.2 The Vulnerability of ISE

The IS is characterized by:

Seasonality in earning income i.e., irregularity in generating income,

Lack of permanent business premises,

low productivity,

Low incomes.


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2.32.3 The Priority Social Security needs for The Priority Social Security needs for ISEsISEs

The priority social security needs for ISEs are Credit facility, training, access to market, loans and working tools.Table 1: The priority social security needs for the ISE in SMME Type of benefits No. of respondents Percentage (%) Loan/Credit facility 109 49.0 Sponsorship for vocational training 2 0.9 Basic education for children 14 6.3 Reliable market for their products 5 2.3 Housing Loans 5 2.3 Working tools 4 1.8 Same benefits as NSSF 83 37.4 Total 222 100.0

Source: NSSF (2001) “Study Report on the extension of social security”.


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2.4 The Institutions providing social security to ISE

There are two main categories namely; formal and Traditional SSIs.

The Formal SSIs include: GEPF, LAPF, NHIF, NSSF, PPF, PSPF and ZSSF,

The non-formal (including Traditional) SSIs are SACCOS, ROSCAS and ABSs

Others (NGOs, Religious bodies, Micro credit Institutions etc).


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3.03.0 The Extension of Social Security The Extension of Social Security Coverage to ISECoverage to ISE

3.13.1 The Rationale for Extension of Social The Rationale for Extension of Social Security Security Coverage to ISECoverage to ISE

The Social Security Schemes in the developed countries have coverage of over 80%,

The developing countries cover an average of less than 10% of the active population,

The coverage in Tanzania is estimated at 6% of the active population. The majority have limited or lack coverage


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3.1 The Rationale of Covering ISEs Cont’d

Reduces poverty faster through creation of job opportunities

Accelerates growth rates through consolidated savings a source of investment

promotes peace, stability and social cohesion It is an indispensable part of the institutional

framework for an efficient market economyPromotes Flexicurity (covering of other

groups such as Musicians, artists, self employed, house servants etc


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3.2 The Approaches for extension of social security to ISE

There are many approaches but the commonly used are:

universal extension Extension of statutory schemes Special schemes

The approach to be used is largely determined

by national socio-economic realities e.g.,

Rwanda opted for statutory scheme with

government subsidies


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3.33.3 The Strategies for extension social The Strategies for extension social security to ISEsecurity to ISE

The strategies are: Establishment of Partnership between

MCIs/SACCOS, Service providers and SSIs. Promote establishment of SACCOS and

Organized groups (ICWs). Then targeting with SS package.

Establishment of a specific Unit or department within each of the existing SSIs to cater for ISEs; and

Establishment of a specific scheme with a defined regulatory framework to cater for ISEs e.g., Ghana.


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3.43.4 The Roles of Stakeholders in facilitating The Roles of Stakeholders in facilitating extension social security to ISEextension social security to ISE

The Government (TZ- Vision 2025, NSGRP, PBFP)

LGAs & Licensing Authorities (Data base of ISEs and Motor cyclists)

SSIs (Introduce benefits packages that reflect priority social security needs of ISE; and

MCIs/SACCOS – Capacity building, improved micro credit package to include social security component.


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4.0 CHALLENGES ON INFORMAL SECTOR

COVERAGECoverage in general is a problem mostly in

African countries due to the two main issues:

Complex concept where different scholars define it differently

lack of political will and appropriate policies

Perceived associated higher Administrative costs


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5.05.0 Conclusion Conclusion

Tanzania has several social security arrangements, however the majority continue to remain without formal social security protection;

The coverage of 6% out of 20.94million Effective labour force for sure calls for a need to adopt new coverage strategies/approaches,

Promote flexicurity: Targeting already organized groups e.g., Taxi Drivers’ Association, Motor bike riders’ Association (Boda Boda).


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5.05.0 Conclusion Conclusion

The proposal to extend coverage has significant bearing on poverty reduction and socio-economic progress

However, it is not an easy task as it requires strong government commitment

Other key success factors include:

Proper planning

Incentives

Compliance enforcement

strategies

Sensitization


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6.0 Recommendations

For extension of SS to ISEs in Tanzania, it is recommended that:

The SSIs should aim at improving their benefit packages to be responsive to ISEs social security needs;

TZ should emulate the Rwandan experience by targeting organized groups e.g., SACCOS and Motorbike riders and Taxi Drivers’ Associations;

Stakeholders should play an active role in facilitating extension as it leads to poverty reduction and source of revenue

It Can Be Done: Remember that Not Long Ago

There were children working in England’s mines and factories…

……Spanish low class emigrants going to Latin America in search of any job……

… poverty was widespread in the US or South Korea…

……and in South Africa’s apartheid


...Informal Sector provides ...Informal Sector provides great opportunities .great opportunities .But we need to act very fast But we need to act very fast …….…….

Thank You

SOCIAL PROTECTION IS OUR PRIDELET’S GET IT

RIGHT


social protection in africa: sharing experience on the informal economy 10-11 march 2011

Documents

social protection

definitions of informal

informal sector contd2

informal sector employees

informal economy10

modern sector

informal construction

estimated total population