The Role of Egypt’s Informal Economy in National Growth

When discussing economic growth and considering new solutions, it is crucial to explore innovative avenues that can rejuvenate the national treasury, thereby enabling the state to fulfill its responsibilities towards its citizens. The informal economy represents a significant segment of the overall economy, although it is often seen as a missing piece, classified under unregulated and unofficial economies. Despite its classification, the informal economy plays a vital role, particularly with the state’s numerous efforts to integrate and benefit from it. According to the latest reports from the Ministry of Planning at the end of 2022, the informal economy in Egypt constitutes approximately 50% of the Gross Domestic Product (GDP), meaning half of the country’s goods and services production comes from this sector.

The State of the Informal Economy in Egypt

The informal economy’s contribution to Egypt’s GDP underscores its significance, with the International Labor Organization (ILO) estimating that over 60% of the population works within this sector, predominantly in developing countries. Between 1990 and 2015, informal economies accounted for about 40% of the GDP in these regions.

Statistical Insights and Economic Studies

Various economic studies highlight the substantial role of the informal sector. During 2017-2018, the informal sector’s contribution approached 50% of all economic activities. In specific sectors like agriculture and fisheries, it dominated nearly 70%, while in waste management and water supply, it exceeded 60%. Conversely, the informal economy was nearly absent in sectors such as gas and electricity supply, financial markets, and insurance.

Governmental Approach to Integrating the Informal Economy

To stimulate the informal economy, the state has implemented several frameworks:

• The Law on the Development of Medium, Small, and Micro Enterprises (2020): This law offers guarantees to improve the production efficiency and sustainability of these enterprises, with significant tax relief measures. It introduces a progressive tax system, where annual revenues determine the tax rate, ranging from a fixed amount for lower revenues to a percentage of revenues for higher earnings.
• Tax Exemptions and Credit Facilities: These include progressive tax simplifications and exemptions from documentation fees, credit facility contracts, construction fees, and capital gains taxes, all subject to specific conditions and procedures.
• Work Permits and Social Insurance: The government has provided permits and insurance schemes to secure the operations and workers within the informal economy.

Importance of Integrating the Informal Economy

Incorporating the informal economy has been a key developmental target for Egypt’s 2030 agenda. Egypt has organized numerous forums to discuss developmental goals, with a strong emphasis on integrating the informal economy due to its direct impact on development. The incentives and facilitation include reduced interest rates, grants, land allocations, and industrial zones tailored for various activities, all aimed at encouraging entrepreneurs.

Drivers and Implications of the Informal Economy

The expansion of the informal economy is driven by several factors, including:

• Complex Bureaucratic Procedures and Tax Systems: These factors push entrepreneurs towards informal operations.
• Economic Marginalization: Entire segments of the population suffer from economic marginalization and lack of societal benefits.
• Modest Capital and Low Educational Levels: Many informal businesses operate with limited capital and low levels of education and professional training.
• Economic Conditions: Global economic crises and shifts towards privatization and capitalism have exacerbated the growth of the informal economy.

Benefits and Challenges of Integrating the Informal Economy

While the informal economy has negatively impacted the state budget by using resources without contributing to official revenues, it also offers significant benefits:

• Market Vitality: The informal economy provides competitive goods and services, stimulating market activity.
• Dynamic and Quick Market Penetration: It can rapidly respond to market needs, catering especially to lower-income segments.
• Recycling and Flexibility: The informal economy’s ability to recycle and its high adaptability make it an essential component of the broader economy.

Strategies for Integrating the Informal Economy

A phased and comprehensive approach is necessary for integrating the informal economy:

• Assessing the Impact: Conduct studies to determine the contributions and potential effects of the informal economy.
• Dedicated Supervisory Bodies: Establish agencies responsible for overseeing and facilitating the integration process, ensuring seamless and effective integration.

Conclusion

Integrating the informal economy is essential for achieving economic growth and national stability. The state must adopt flexible policies and provide necessary incentives to support this sector, ensuring comprehensive economic benefits. By following an inclusive and systematic approach, Egypt can turn challenges into growth opportunities, achieving sustainable development for all community segments.

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