Powering Malawi’s Growth: Tapping the Potential of the Informal Sector
Key Business Points
- Malawi’s economy is heavily reliant on the informal sector, which employs over 90% of the working population, affecting revenue generation and development.
- The country’s labour force is estimated at 5.3 million, with 91.5% employed in the informal sector, and a significant gap in job creation, with only 4.2 million employed out of the labour force.
- To address the issue, experts recommend that the government should focus on taxation in the informal sector, promoting investments, and supporting micro, small, and medium enterprises to drive economic growth and reduce unemployment.
The latest Malawi Labour Force Survey 2024 reveals a concerning trend in the country’s economy, with a significant dependence on the informal sector. The survey, conducted by the National Statistical Office, estimates that 91.5% of the labour force, approximately 3.9 million people, are employed in the informal sector, while only 8.5% are in the formal sector. This situation is affecting revenue generation and derailing development, as the informal sector is not contributing significantly to the country’s tax base. As Gowokani Chijere Chirwa, associate professor of economics at the University of Malawi, notes, "this calls for the government to constitute studies on how we can make the best out of it because that is where money is."
The survey also highlights a significant gap in job creation, with only 4.2 million people employed out of a labour force of 5.3 million. This means that the economy is failing to create jobs to fill the existing gap, leaving many people without meaningful means to earn a living. Edward Leman, economics lecturer at the University of Malawi, warns that if the trajectory is not reversed, the economic and social burden will only worsen in the coming years. He emphasizes that Malawi has an abundant labour force, which, if productively engaged and supported with adequate capital and skills, could drive the country towards middle-income status.
The situation is a stark reminder that the economy is largely driven by the informal sector, yet there is no effort to get taxation out of it. Experts recommend that the government should focus on promoting investments and supporting micro, small, and medium enterprises to move out of informality. George Khaki, executive director of the Employers Consultative Association of Malawi, acknowledges that the survey results are a sad reflection of the country’s economic performance and emphasizes the need to urgently come up with measures to promote investments and support entrepreneurship. As Chijere Chirwa notes, "experience from other countries is that tax administration in the informal sector is a challenge, but that doesn’t take away from trying." In Chichewa, this can be said as "Kusaka kwa chipongwe" (trying to make the best out of it), which is essential for driving economic growth and reducing unemployment in Malawi.
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