Formalizing the Informa in Rwanda, by An Ansoms

‘Formalizing the informal’ in Rwanda:Interaction between national policy

and local-level entrepreneurship

An Ansoms20 March 2012

Short trailer…

� Off-farm sector as alternative to agriculture

� Successful business environment� Formal sector is thriving but…

� Informal sector: confronted with the push towards formalisation

� Case study: ban on traditional brick and tilekilns

� Which model for development?

A model for development ?

Off-farm sector

Small-scalefarmer

Not professional- focus subsistance

To be replaced by Large-scale

initiatives Fiscal revenues

Employment

Redistribution by the state

Target for 2020 : reduceagriculture-dependent

population to 50%

The Rwandanmodel: Post-conflict ‘rennaissance’

� private investment in 2011 six times more than 1 decade ago (>12% of GDP)

� In top 30% best performing countries control of corruption

� In top 50% best performing countries governmenteffectiveness

� Steady improvementssince 2005 in WB governance indicators

� In top 45 of World Bank’sDoing Business report� Reforms in commercial law� Easier access to credit� Measures to speed up trade and

property registration

GENERAL OBJECTIVES� Diversification – stimulate emergence of off-farm

economy – create economic growth� Involve private sector into the growth process� Absorbe labour force pushed off the land

The off-farmsector : policy priorities

STRATEGIES� Improve business climate � Introduction of modern tools (online registration, …)� Formalisation of the economy=> Facilitation of large-scale capital- intensive initiatives at

the expense of small-scale informal activities

The off-farmsector in Rwanda: actors operating in the formal economy� High economic concentration among large

enterprises in formal sector� Dominated by few privatised enterprises +

state-owned in joint venture arrangements with private investors ~ RPF

� Tax exemptions to large investors <-> Small and micro enterprises confronted with high taxrates

� Employment creation in formal sector islimited� <45.000 jobs between 2006-2010 much less

than 100.000 – 125.000 jobs needed (WB)

The formal sector in Rwanda: actorsoperating in the informal economy

� Confronted with new sets of regulation, taxation and formal requirements� Prohibition on street vending in Kigali� Prohibition to use bicycles on asphalt roads� Prohibition on poluting activities (stone mines,

traditional brick and tile kilns, plastic bags)� Tax on market transactions=> Euphoric messages on Rwandan Revenue

Authority’s efficiency in generating significantincome <-> extracted from poor people

� All informal has to be transformed into formal

The traditional brick and tilebusiness

The traditional brick and tilebusiness: Wages

300 – 500 frwper day

Unskilled agrlabourer

Around 1000 frwper day

100 frwper day

Unskilled labour (aide-maçon)



Skilled labour (maçon)

800 frwper 1000 bricks


Transportation

2-3 frw1500 – 2250 frw

0,5 frw375 frw per day

Price per driedbrick

587(2005)

100 (1985)

Consumer priceindex

Around2005

1980sCategory of labour



� Ban in 2006-2007, again in 2010� Confiscation of bricks, people put in prison� Sentence on large traditional kiln exploitation:

2-5 years in prison + 500.000 frw fine = 700E� Sentence on small kiln within compound of

house: 50.000 frw (7E)� Fine for cutting and transporting wood: 50.000

frw = 7E

� Modern ovens

The ‘modern’ brick and tilebusiness

Cost: 3 million frw(over 4000E)

The ‘modern’ brick and tilebusiness

� More control and less polution� Permission from ministry of environment + local level

authorities -> taxed� Less environmentally poluting (coffee rusks / sawdust

� Operation modalities� Entrance fee into cooperative: 450.000 frw - Cost of

modern kiln 3 million frw - Need of technical know-how

� In terms of labour� Less is needed� Wages not increased despite increased prices� Investors come from elsewhere -> few links with local

social tisse => hire labour from own region

The modern tileand brick business: Wages



Unskilled agrlabourer


Around 1000 frwper day

100 frwper day

Unskilled labour (aide-maçon)

2500 frwper day



Skilled labour (maçon)

600 – 1000 frwper 1000 bricks

800 frwper 1000 brickes


Transportation

2-3 frw1500 – 2250 frw

2-3 frw1500 – 2250 frw

0,5 frw375 frw per day

Price per driedbrick

909(2010)

587(2005)

100 (1985)

Consumer priceindex

2011Around2005

1980sCategory of labour

Indirect effects

� Deconstruction of complex system of socio-economic interdependencies

B 1,8%

C 20,9%

D 53,6%

A 0,9%

E 20,4%

F 2,3%

Small-scale

Large / medium-

scale

Farmer

Non-Farmer?

RWANDAN CASE Were rarely physically capable to work in the brick sector

Were able to make a decent living in the brick business, worked as unskilled labour force, transporters (mostly for youth), or brick makers and earned salaries twice as high as they would have as agricultural labourer

Used to work in brick- and tile-making as labour force (brick making, or as aide maçon)In some cases, they rented kilns with a couple of friends to work ‘on their own’

Used to be small-scale investors in the brick- and tile-business, often with the help of a few labourersMost maçons (skilled ‘kiln builders’ employed by abakungu) belonged to this category

Often had the role of pure investor, and did not work together with their labour force

Only ones who have the financial capacity to buy themselves into the modern kiln cooperative

Indirect effects


� Increase of tile price + villagisation policy

Indirect effects


� Increase of tile price + villagisation policy

=> young people can not start their adult life

OK


Small-scaleentrepreneur

Not professionalInformal sector

To be replaced byProfessional

Formal sector

Fiscal revenues

Employment

Small-scalefarmer




Employment

Redistribution by the state




To be replaced byProfessional

Formal sector

Fiscal revenues

Employment

Small-scalefarmer




Employment

Redistribution by the state???




Employment

Small-scalefarmer


Employment

???

Which economicsector will absorbthis labour force ?

Which income-generating strategies

to secure theirpurchasing power ?

Interested in the paper? Contact me at [email protected]

Formalizing the Informa in Rwanda, by An Ansoms

Documents

socioeconomic

scale farmer

professional

farm sector

labour force

focus subsistance

scale entrepreneur

complex system