In an article published in The New Times recently quoting a statement by the Rwanda Senate expressing concern over some missing items in the 2010/11 fiscal year budget, it echoed the need to focus on the informal sector in a bid to create more employment opportunities in Rwanda. Although the Senate’s concern is clearly on Informal sector, it is quite specific on Small and Medium Enterprises (SMEs): “.....less funds were committed to the development of SMEs”, quotes The New Times Writer.
However, there’s an oversight of a more important part of the informal sector—the House Hold Enterprises (HEs). First of all, it is important to draw a clear distinction between the two; HEs and SMEs.
Household enterprises are owner operated businesses that provide off- farm employment for the operator and possibly members of his/her family. Whereas an SME is an enterprise that basically has regular paid employee (s) and generating enough to become eligible for paying taxes.
Nonetheless, evidence shows that Household Enterprises are not necessarily eligible taxpayers and little consideration seems to have been given to providing support for HEs which are clearly very different from small and medium enterprises (SMEs).
Senate concerns are inline with the preliminary findings of an on going Study about “Rwanda Household Enterprises” by the Institute of Policy Analysis and Research which has been commissioned by the World Bank.
The study will support the government in the development of a national strategy for increasing the productivity of household enterprises. As part of this ongoing research, on Friday the 25th June, IPAR presented findings on the informal sector and job creation in Rwanda to a workshop of stakeholders including government officials.
Referring to vision 2020, “The development of Rwanda’s private sector will not limit itself to the formal sector. The informal sector will also be developed in such areas as retail, repair workshops and garages, handicrafts and metal works”.
These are examples of off-farm businesses which are typical Household Enterprises and are smaller businesses than SMEs.
While Vision 2020 advocates for the promotion of off-farm enterprises, the government seem to have not established a specific policy to support Housed hold enterprises yet they provide significantly more employment opportunities than SMEs.
The Rwanda Poverty and Household Living Conditions Survey found that there were 615,108 off-farm household enterprises in Rwanda in 2006, employing about 706,473 people. Based on these figures, we can estimate that this group could have increased to about one million people today.
The preliminary findings of the IPAR study show that the informal sector and especially off-farm household enterprises are important for creating off-farm employment. However, the government policies seem silent of the needs of this sector. Yet these enterprises provide employment for the growing numbers of unemployed and underemployed youth in rural and urban areas.
There is therefore need for the Government to focus more on supporting the start up and sustainability of HEs. .
The IPAR research also found that HEs are important in reducing poverty and provide employment for ‘surplus’ labour in rural as well as urban areas.
With majorly of the population living in the countryside, developing household enterprises could reduce rural-urban migration. Considering the large number of young people coming into the labour market in the next few years household enterprises will play a vital role in job creation.
It is equally important that HEs are supported to raise their productivity and provide a decent living for owners. Supporting HEs will support economic growth; for every successful HE, at least two more jobs are likely to be created. HEs or self employment is a normal part of the labour market and successful HEs earn enough to pay taxes and move out of the informal sector.
Over the next couple of months, IPAR will be engaged in further research and information gathering through various consultative engagements and field data work in order to provide evidenced based recommendations to the World Bank and Government of Rwanda on how to improve the productivity of house hold enterprises.
A vital part of this will be talking to people who operate a house hold enterprise so that their perspectives can form part of the recommendations. We need to listen to the ‘voice’ of those who have the knowledge and understanding of how they can at least be supported to run successful enterprises.
The IPAR Research Team is currently working on the Rwanda Household Enterprise Study.
For more information contact IPAR at: email@example.com