Challenges of Shrinking Formal Sector in Africa
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Transcript of Challenges of Shrinking Formal Sector in Africa
COMMONWEALTH ASSOCIATION OF POLYTECHNICS IN AFRICA CONFERENCE
REFORMING AND REORIENTING TECHNICAL AND VOCATIONAL EDUCATION AND TRAINING (TVET) FOR
SUSTAINABLE DEVELOPMENT
CHALLENGES OF SHRINKING FORMAL SECTOR IN AFRICA AND THE NEED TO STRENGTHEN
ENTREPRENEURSHIP TRAINING
CASE STUDY OF ZAMBIA
PRESENTED BY
GABRIEL S KONAYUMA
SENIOR TEVET OFFICER
MINISTRY OF SCIENCE, TECHNOLOGY AND
VOCATIONAL TRAINING, ZAMBIA
LIVINGSTONE, ZAMBIA
4 � 9 DECEMBER 2006
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Abstract: A number of African countries that have embraced economic reforms have experienced a shrinking formal sector. This has been due to privatisation of parastatal companies and state-owned companies. Zambia is one of the African countries that has experienced a shrinking formal sector. This has led to the growth of the informal sector. A number of people in the informal sector lack adequate business and technical skills. The Technical Education, Vocational and Entrepreneurship Training (TEVET) sector has been reformed to make it responsive to the changing scenario in the economy. Entrepreneurship training for the formal and informal sector has been introduced in TEVET institutions. A number of organisations have been formed to provide training in skills required in the informal sector. The TEVET Policy aims to improve technical education and vocational training and link it to the requirements of the employment sector. The TEVET policy recognises the following categories of people in our society as the most likely to benefit the country from this training: school leavers (i.e. Grade 7, Grade 9 and Grade 12); employees in the formal sector; entrepreneurs, both in formal and informal sector; the unemployed and underemployed � including employees in the informal sector; women; and retrenches A number of institutions are offering entrepreneurship training. Is this meeting the needs of both the formal and informal sectors? Are trainees becoming employers and starting their own enterprises or most still expect employment? Objectives of the Paper: To contribute to the development of strategic interventions that promote sustainable development in Zambia; To assess how the TEVET Policy has addressed entrepreneurship training in Zambia; To identify what the country hopes to achieve through strengthened entrepreneurship training; Key words: Entrepreneurship; Entrepreneurship training; Formal Sector; Informal Sector; Sustainable Development.
1.0 INTRODUCTION
Country Background
Zambia is located in Central Africa, between latitudes 18°S and 22°S, and landlocked with
eight neighbours (i.e. Angola, Namibia, Botswana, Zimbabwe, Mozambique, Malawi,
Tanzania, and Democratic Republic of Congo). Zambia is divided into nine provinces. The
provinces which serve as administrative divisions are: Central, Copperbelt, Eastern, Luapula,
Lusaka, Northern, North-Western and Southern. The capital city is Lusaka. The country is
further divided into 72 districts. Zambia has a total area of 752, 210 square kilometres. The
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population is 10.8 million (Central Statistical Office, 2003:9). Zambia is a unitary headed by
a Republican President who is elected by universal suffrage for a term of five years.
Zambia has a mixed economy consisting of a modern urban sector that, geographically,
follows the old line of rail and a largely rural agricultural sector. Zambia�s gross domestic
product (GDP) is K1,528,506 (equivalent to US$ 354.90) (Bank of Zambia, 2005:1). The
major tourist attractions are Victoria Falls (one of the 7 natural wonders of the world);
Kariba Dam (one of the largest man-made lake); 19 National Parks and 34 game
management areas as well as 23 million hectares devoted to the conservation of an amazing
variety of wild animals and bird species. The country also holds a number of traditional
ceremonies including the Kuomboka, Ncwala, Likumbi Lyamize, Shimunenga,
Mutomboko. The currency is Kwacha (ZMK) = 100 Ngwee. The exchange rate is market
determined. Average exchange rate is ZMK K3,900= US $1 in 2006.
Many African nations have experienced shrinking formal sectors. This has been due to
embracing economic reforms. These reforms have been characterised by privatisation of
parastatals, reduction of the formal sector through retrenchments. The shrinking formal sector
has led to a growth of the informal sector. This has raised a challenge on whether the
technical education and vocational training is offering relevant training to the informal sector.
Organisation of Presentation
The presentation looks at the challenges of a shrinking formal sector in Africa with particular
emphasis on Zambia and some African nations. This is followed by a consideration of
entrepreneurship training and the need of strengthening entrepreneurship training.
Recommendations and conclusions are given at the end of the presentation.
2.0 CHALLENGES OF SHRINKING FORMAL SECTOR IN AFRICA
Many African nations have experienced shrinking formal sectors. In Zambia, for instance, the
formal sector in 1985 stood at 521,000 out of a population of about 8 million. By 2005 the
number had of formal sector employees had reduced to 436,066 out of a population of about
10.8 million. This has been due to embracing economic reforms. These reforms have been
characterised by privatisation of parastatals, reduction of the formal sector through
retrenchments. The shrinking formal sector has led to a growth of the informal sector. The
growth of informal sector employment has been due to some seeking to supplement existing
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incomes. For others informal sector employment is their only means of livelihood. In the past
most trainees in the technical, vocational, education and training (TVET) sector were assured
of employment after graduation. However, due to downsizing of companies these graduates
cannot be assured of employment in the formal sector. Some of these graduates take up
employment in the informal sector. Other employees in this sector are retrenches, retirees,
widows and orphans. Some of the informal sector operators lack appropriate technical and
vocational skills. This compromises the quality of their products. For some they do not
maximise their business operations and operate at breakeven points or even at a loss.
Specific challenges of a shrinking formal sector in Zambia are:
(a) Reforming and re-orienting TVET: The TVET system needs reforming and re-
orienting the TVET in order for it to offer relevant skills to informal sector operators. For
most African nations after independence TVET was used as a vehicle to prepare technical
staff for the emerging industries in manufacturing, agriculture and mining industries.
However, with the changing economic setups of most African nations due to adopting
economic reforms, TVET systems have been changing their training systems. The challenge
is whether reforms in the TVET sector have been very successful or there are still many bottle
necks that need removal.
(b) Providing Appropriate Training for Informal Sector Operators: The existing
capacity for training for those engaged in the informal sector needs strengthening (Haan,
2002:25). Traditionally informal sector operators were not clients for TVET. However, the
growth of the informal sector and their contribution to the economy can not be taken lightly.
The TVET sector in African nations needs to provide appropriate skills to this emerging force
in the economy. Informal sector operators produce sub-standard goods and services.
(c) Reduction and growth of employment in certain sectors: Sectors such as
agriculture, mining and manufacturing have experienced reduced levels of employment.
Agricultural sector employment which stood at 79,100 in 1985 had reduced to 65,496 in
2005. In mining, employment reduced from 64,500 in 1985 to 32,103 in 2005. The
manufacturing sector experienced a decline of about 30,000 employees in the period under
review.
There has also been reduced employment opportunities for college graduates.
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There are a number of interventions that have been done to address the reality of a shrinking
formal sector. However, it is still relevant to ask �how can the shrinking formal sector be
addressed?� There are lessons to be drawn from within Zambia and other African nations.
This leads us to the next point, namely the need to strengthen entrepreneurship training in the
TVET sector.
3.0 STRENGTHENING ENTREPRENEURSHIP TRAINING
Entrepreneurship training in Zambia has a number of gaps. Some of these are inadequate
trainers, lack of appropriate training materials, lack of appreciation of appropriate training
materials and a poor entrepreneurial culture. Before addressing these gaps, the paper looks at
entrepreneurship development in Zambia and explains key terms.
3.1 Entrepreneurship Development in Zambia
Entrepreneurship in Zambia has arisen due to a number of factors. Some have started
enterprises due to retrenchments as a consequence of privatisation of parastatal firms between
1992 and 1999. Others have become entrepreneurs to supplement their incomes in order to
meet family budget needs. A number of government ministries have policies that support
entrepreneurship development. These include the Technical Education, Vocational and
Entrepreneurship Training Policy, the Youth Policy, the Commercial, Trade and Industrial
Policy and the Labour and Social Security Policy.
Before 1991, small-scale business owners were actively discouraged due to socialist
economic management with the government playing a leading role in stimulating economic
activities. However, a sharp decline in the copper price, Zambia�s most important export
product between 1973 and 1975 coupled with a rise in oil prices and other imports led to a
more active encouragement of small-scale entrepreneurs.
Some of the challenges that entrepreneurship development has had in Zambia include:
entrepreneurs lacking managerial skills, low levels of consumer demand, competition from
low entry barriers given to foreign investors and lack of capital (Frese, 2000:32-33).
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3.2 Explanation of key terms
Before developing this part, it is necessary to explain some key terms used in this paper:
entrepreneurship; entrepreneurship training and informal sector.
3.2.1 Entrepreneurship
Entrepreneurship is the process whereby an individual or a group of individuals uses
organised efforts and means to pursue opportunities to create value and growth by fulfilling
wants and needs through innovation and uniqueness, no matter what resources are currently
controlled (Robbins and Coulter, 2004:43). Entrepreneurship is also defined as the
�assumption of risk and responsibility in designing and implementing a business strategy or
starting a business� (Investor Words, 2005:1).
The first definition highlights the use of organised efforts to pursue opportunities to create
value. In other words these efforts need to be organised in a particular manner so that
opportunities can be seized in the market place. This requires an entrepreneur to have
knowledge, skills and attitudes that create value and growth in the identified opportunities.
This shows the importance of entrepreneurship education for would be and practising
entrepreneurs.
Entrepreneurship plays an important role in the economic development of a nation. It involves
initiating and constituting change in the structure of business and society. This change is
accompanied by growth and increased output, which allows more wealth to be divided by the
various participants (Hisrich, Peters and Shepherd, 2005:15). Zambia needs a steady supply of
entrepreneurs to ensure national economic growth.
3.2.2 Entrepreneurship Training
Entrepreneur training is a relatively new concept. Some people believe that entrepreneurs are
born and that it people cannot be taught to become entrepreneurs. Many entrepreneurs would
argue that to a certain extent this may be true, but many skills, which are needed for success,
can most definitely be learned. Some entrepreneurs may wish that they had been given the
opportunity! Entrepreneurship training is useful in proving tomorrow's employers the training
they need to create new business prospects. Over the past decade entrepreneurship has been
taught as a stand-alone subject in TEVET institutions in Zambia. However, the Technical
Education, Vocational and Entrepreneurship Training Authority (TEVETA) recently
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organised workshops where trainers from TEVET institutions were trained in integrating
entrepreneurship into various training programmes.
3.2.3 Informal Sector
The informal sector comprises the following: home based workers, street traders and street
vendors and seasonal job workers. The informal sector creates the largest number of jobs in
developing countries. It provides the poor with the goods and services that they can afford. It
allows the operators to survive. Informal sector operators face challenges such as: poor
infrastructure, inadequate access to finance and lack of training opportunities.
3.3 TEVET Policy and Entrepreneurship Training in Zambia
The TEVET Policy provides guidelines for entrepreneurship training in the TEVET sector.
The objectives of the policy are:
i) to improve the productivity of the labour force in both the formal and informal sectors;
ii) to promote entrepreneurship and economic participation in both the formal and
informal sectors with the aim of increasing the national economy;
iii) to develop a Zambian society with people that will be versatile, creative, employable,
entrepreneurial and productive;
iv) to promote a rational use of local resources in training and post-training activities of
entrepreneurs;
v) to inculcate a culture of entrepreneurship and promote self-reliance in the Zambian
society.
The target groups for training are school leavers (i.e. Grade 7, Grade 9 and Grade 12),
employees in the formal sector, entrepreneurs (both in the formal and informal sector), the
unemployed and underemployed (including employees in the informal sector), women and
retrenches. The TEVET Policy aims at creating conditions for the development of an
entrepreneurial culture and its related skills in response to the following concerns:
i) unexploited business opportunities in the economy;
ii) under-employment in the informal sector;
iii) unemployment among the youth, women and retrenches;
iv) rural-urban migration; and
v) poverty.
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Zambia has taken steps to address the gaps in Entrepreneurship training. These include:
developing of TEVET Policy and related policies;
Establishing of entrepreneurship development centres (support structures)
Creating Entrepreneurship and Informal Sector Development Unit in TEVETA to co-
ordinate entrepreneurship training.
Developing entrepreneurship curricula
3.4 Entrepreneurship Training Challenges in Zambia
Mainstreaming of entrepreneurship training in Zambia has not been very successful. This is
due to a number of factors. Some of these factors include: inadequate entrepreneurship
trainers, lack of appropriate entrepreneurship training materials, lack of appreciation of
entrepreneurship training and a poor entrepreneurial culture. The government has provided a
policy framework for entrepreneurship training and development for the TEVET sector,
youths, commerce, trade and industry and labour and social security.
3.4.1 Inadequate Entrepreneurship Trainers: TEVETA has made efforts to address the
issue of inadequate trainers in entrepreneurship. This has been by organising training of
trainers workshops at which experts in entrepreneurship have taken participants through
aspects of entrepreneurship training and integration of entrepreneurship into the training
programmes. Some institutions have applied the lessons learnt into their institutions while
others have not yet begun to integrate entrepreneurship training in their programmes. At a
consultative forum held for institutions under the Ministry of Science, Technology and
Vocational Training, it was noted that a number of them were still struggling to implement the
guidelines on entrepreneurship training in the TEVET Policy and TEVET Policy Strategy
Paper.
3.4.2 Lack of Appropriate Training Materials: Though some training providers have
made efforts to develop training materials, there still remains need for learning materials to be
developed that are based on the TEVETA approved curriculum. Some institutions have
bought Entrepreneurship textbooks that TEVETA offered for sale. Currently TEVETA has
advertised for consultants to develop learning materials for trainees in TEVET. It is hoped
that these materials will best suit the needs of trainees and enable them gain a better
understanding of the entrepreneurial competencies in the curricula.
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3.4.3 Lack of Appreciation of Entrepreneurship Training: A number of trainees
undertake vocational training with the belief that they will get employed after graduation. Not
many see themselves becoming self-employed immediately after graduation. Some do not see
the benefits of entrepreneurship training. This is also extended to trainers who feel that
trainees only need technical skills and not entrepreneurship training. In addition, it is not easy
for trainers who are not entrepreneurial to appreciate entrepreneurship training. The same
applies for training providers that are not entrepreneurial. They would not be appropriate role
models for the trainees.
3.4.4 Poor Entrepreneurial Culture
Building an �Entrepreneurial culture� to promote the right kind of entrepreneurship in our
Zambia and Africa as a whole calls for good strategies. Entrepreneurs like any other set of
people thrive most where they are recognized most. The entrepreneurial culture in Zambia is
still growing. This could be attributed to business practices among Zambians before
independence. In the pre-independence days in Zambia, there were a very small number of
businessmen who could be called entrepreneurs. By the time of independence, Zambia did not
have businessmen and women who were experienced in handling complex businesses.
African businesses only started to grow when a cash economy became the standard for
business transactions. Zambia gained its independence with a less than well-developed
African bourgeoisie, ill-equipped to administer the economy (Chipungu, 1992:174-175).
3.5 Strengthening Entrepreneurship Training in TVET
In order to strengthen entrepreneurship training in Zambia and other African countries there is
need to vocationalise general education, set up business incubators in communities, include
aspects of psychology of would be and actual entrepreneurs in entrepreneurship training and
document best practices in entrepreneurship training in Zambia and other African nations.
3.5.1 Vocationalising General Education
Vocational education and entrepreneurship training needs to be introduced in the general
education system. Preferably from primary level. There are plans being made in this direction.
Introducing entrepreneurship training at an early stage is important for those pupils that may
not proceed beyond grades 7, 9 or 12. In addition, entrepreneurship and vocational education
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when studied much earlier will form a good foundation for trainees that enter the TEVET
system at grades 9 or 12.
3.5.2 Establishing Entrepreneurship Development Centres
Trainees need good models for their entrepreneurship training. Entrepreneurship theory needs
the backing of business incubators to offer business support and role models to budding
entrepreneurs. Zambia has had entrepreneurship development centres in the past. Lessons
learnt from the operation of these centres can be used to improve the functioning of the setting
up of new ones. These centres should provide all the moral support, technical and business
support so that a trainee can have a good start in their enterprise. In addition, training
institutions need to be entrepreneurial in their management and how they operate. This acts as
a practical living example to trainees who can relate the entrepreneurship theory to what they
see in the business management of their institution. Twin Palm Fountain College in Southern
Province offers practical business management training to its� trainees. They are provided
with livestock and a garden to grow vegetables which are then sold to the college or the
community. The trainees are able to use the funds realised to subside for their tuition fees.
3.5.3 Teaching Psychology in Entrepreneurship Training
The psychological make-up or mindset of an entrepreneur is important in determining
whether an entrepreneur will succeed or not. Trainees from various family, educational, tribal
and racial backgrounds have different ways of conducting business. As entrepreneurship
involves high levels of risk taking and innovation, trainees need to have their mental capacity
boosted. Hisrich (2005:20) states that the skills required by entrepreneurs can be classified
into three main areas: technical skills, business management skills, and personal
entrepreneurial skills. These skills need to be well and consistently taught in order to develop
a well-rounded entrepreneur.
3.5.4 Documenting Best Practices in Entrepreneurship Training
Documenting best practices in entrepreneurship training is key to ensuring that trainers have
examples that they can emulate.
In Zambia, the Teachers Vocational Training Centre (TVTC) is one of the promising
institutions practicing best practices in entrepreneurship training. The centre trains trainers for
vocational institutions in Zambia. Entrepreneurship at TVTC has been mainstreamed by:
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Integrating entrepreneurship in college�s curricula
Developing a diploma in Entrepreneurship
Designing short tailor-made courses that are both standardized and customized.
TVTC has also converted a conference centre into a fully fledged business centre. The
research and consultancy forms the business wing of the college. This is an example of a
training institution being entrepreneurial. TVTC also has embarked on having some of it�s
trainers undertaking Master�s in Business Administration programme. The college plans to
develop an Entrepreneurship Centre which will be a visible structure for trainees to get
business incubation. Plans are also underway to develop links with relevant stakeholders.
In Uganda, a Business handbook publication has been developed on various businesses that
entrepreneurs can do in the agricultural, services and manufacturing sectors. The handbook
also has sections on �What is Business?�, self-knowledge, marketing, marketing strategy,
resources, structure of businesses, management plans, business plans and start-up checklist.
4.0 CONCLUSION
This paper has discussed the challenges of a shrinking formal sector in Africa with particular
emphasis on Zambia. This was followed by a discussion of how to strengthen
entrepreneurship training in Zambia. Proposals for strengthening entrepreneurship training in
Zambia and other African nations include vocationalising general education, establishing
entrepreneurship development centres, teaching psychology in entrepreneurship training and
documenting best practices in entrepreneurship training. As a branch of education most
concerned with preparing young people and adults for the labour market, it is important that
TVET keeps abreast of the changes taking place in the world of work.
�Young people and adults need life skills that will allow them to engage in sustainable
livelihoods� (Nkinyangi, 2005:1).
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APPENDIX
Role of Entrepreneurship Development Centres
� Provide support structures for Entrepreneurship training.
� Refer trainees to other SME source providers.
� Provide information on business opportunities to trainees opting for business as a
career option.
� Provide guidance & counselling to business start-ups
� Identify training needs of those already working in the informal sector
� Signpost informal sector operators to relevant service providers.
� Provide support structures for Entrepreneurship training.
� Refer trainees to other SME source providers.
� Provide information on business opportunities to trainees opting for business as a
career option.
� Provide guidance & counselling to business start-ups
� Identify training needs of those already working in the informal sector
� Signpost informal sector operators to relevant service providers.
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