Although most of us are unaware of its importance, the informal economy has a significant impact on the daily lives of Filipinos. It has been ingrained in how we consume, buy, commute and obtain services. The International Labor Organization defines the informal economy as “independent, self-employed, small-scale producers and distributors of goods and services.” This is evident in how we patronize mobile food kiosks in the u-belt, classic mani-pedi house-to-house services, short-distance padyak rides and the ever-present and economical sari-sari stores.
It is estimated that 244 million individuals in Southeast Asia are in informal employment, accounting for 78.6 percent of the region’s workforce. According to the 2018 Informal Sector Survey, the informal sector employs 15.68 million people in the Philippines, accounting for 38 percent of the working population. And its substantial numbers translated into significant contributions to our expanding economy. Citing data from the Philippine Statistical Authority, the informal sector contributed P5.013 trillion to the country’s GDP in 2016.
The term “informal” already has a negative connotation and is frequently associated with unwarranted societal challenges. But in the context of the economy, “informal” has the potential to become an even more powerful tool for essential growth. In recent years, the informal sector has emerged as a significant mover and conduit to a variety of sectors and enterprises.
Sari-sari stores, for example, are traditionally small, but their commercial influence is exponential. Even if we consider them informal, it is impossible to dispute that it has power over purchasing demands in every barangay in the country. In 2016, the retail sales value of sari-sari stores was roughly $26.94 billion. According to the Philippine Institute for Development Studies, the majority of the 17.9 million low-income to lower-middle-income families in 2020 continue to depend on sari-sari stores for their everyday purchases. According to the most recent Kantar survey, this continued support is the primary driver of Fast Moving Consumer Goods (FMCG) sales in 2022. It’s noted that 41 percent of FMCG purchases are done in sari-sari stores due to consumer proximity, and it provided more affordable options to those feeling the economic stresses of inflation. Or has it really?
Our staple food purchases have morphed into the ingenious “takal” system which takes into account real-time consumer price index (i.e. what people can really afford on a daily basis). This has been institutionalized flawlessly by the FMCG companies to what we now refer to as the sachet economy. Ironically, this is supposedly what the majority of Filipinos can afford. But in reality, sachet prices contain a hefty premium priced-in on these daily consumables.
Tourism is another industry that thrives with the support of the informal sector. Prior to the pandemic, the industry contributed 12.8 percent of the country’s GDP in 2019, employing 5.72 million people. Although it is clear that many informal workers who rely on tourism have lost jobs and income as a result of the pandemic, the government is attempting to strengthen the tourism workforce through training and education.
My personal favorite is one of the most well-known informal modes of public transportation: the habal-habal. Because there were few options for efficient transportation in the less developed countryside, habal-habal thrived even in the absence of appropriate rules and guidelines from the local government. Habal-habal existed for many years before any tech platform presented a viable model for its legitimization and professionalization. Today, platforms like Angkas, Lalamove and Foodpanda have shown that empowering the informal sector can be a driver of social and economic growth. Motorcycle-for-hire has long been frowned upon due to safety concerns. But now, it has become a top choice for many people around the country and can bring forth job opportunities to 18 million motorcycle owners, 99 percent coming from low-income family households.
Technology has done wonders to this gig economy and created a marketplace for them to thrive. The key now is for the government to redefine what constitutes a micro and small enterprise, most of whom are already being supported by the tech platforms without needing a piece of paper from the SEC. There is a quasi-regulatory framework that may be adopted where small businesses are empowered by platforms. As they get large enough, they can progress to sole proprietors and corporations. If the government recognizes these informal economies and correctly classifies them as legitimate businesses, they will be able to access proper and humane credit options, adequate insurance plans and other support services.
Today, despite being largely responsible for keeping the economy afloat, the informal sector is treated worse than second-class citizens. In fact, they are not even recognized as anything or anyone who is entitled to the same rights and benefits as any other business owner.
The unfortunate reality is that social and economic injustice is prevalent in the area of informal work. Despite contributing to the economy and the revenue flow of large corporations, they are frequently ignored, forgotten, voiceless and unrepresented. I believe that if we pool this sector, give it the recognition it deserves, empower it with support and place it in a structure where it can be managed and mentored, it will become a powerful engine for the country’s economic success. After all, money and commerce are already being circulated now via a gray and, oftentimes, underground economy.
What technology platforms and other startups did to leverage on the potential of the informal sector should not only be institutionalized, but also replicated, so that we can fully harness their abilities and talents to create a far better work environment, reduce the wage gap and alleviate poverty.