Why Resource-Dependent Economies in Africa have more Precarious, Informal Jobs

What is it about?

Why do so many people in Africa work in jobs without the protections that usually come with formal employment, such as legal rights, social security, or reliable benefits? This article looks at an important but often overlooked part of the answer: what countries produce and sell to the rest of the world. Across much of Sub-Saharan Africa, economies depend heavily on exporting raw materials such as oil, minerals, timber, and agricultural products. At the same time, these countries tend to have very high levels of informal work. Informal workers include street vendors, small farmers, domestic workers, casual laborers, and many others whose work falls outside, or largely outside, the protections of formal employment. The article asks whether these two things are connected. Using data from 38 Sub-Saharan African countries, we compare countries that depend more heavily on natural-resource extraction with those that depend less on it. We also take into account other factors that are commonly thought to explain informal work, including national income, education, and government policies that encourage free markets. We find a consistent relationship: countries that depend more heavily on extracting and exporting raw materials tend to have higher levels of informal work. This relationship remains even after accounting for several other possible explanations. The article then explains why this might be the case. Resource-dependent economies often have strong incentives to keep the cost of producing raw materials low. A large workforce of people without secure jobs, legal protections, or social benefits can make this possible. At the same time, economies built around resource extraction can produce governments and economic systems that do relatively little to provide workers with strong protections or social support. In this way, informal work is not simply a sign that a country has weak laws or poorly functioning institutions. It can be part of how a resource-dependent economy works.

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Photo by Dineo Motau on Unsplash

Photo by Dineo Motau on Unsplash

Why is it important?

Informal work is often treated as a problem that can be solved by improving government institutions, expanding access to finance, or making it easier for businesses to operate legally. These things can matter, but our research suggests that they do not tell the whole story. The bigger question is why some economies have so much informal work in the first place. Our findings suggest that we need to look beyond what happens inside individual countries and consider their position in the global economy. Many African economies remain heavily dependent on selling raw materials to wealthier countries and importing more highly processed goods. This creates a difficult situation: countries may generate income from their natural resources without creating enough stable, well-protected employment for their populations. This helps explain why informal work can remain widespread even when governments introduce policies intended to encourage economic development. The problem is not necessarily that people are simply choosing informal work, or that governments have failed to create the right business environment. The structure of the economy itself can encourage the growth of insecure and poorly protected work. This matters because informal workers often carry costs that employers, governments, and consumers would otherwise have to bear. They may have to provide their own health care, retirement support, transportation, tools, and other necessities. In effect, workers and their families absorb some of the costs of maintaining the workforce. The research therefore points toward a different approach to reducing informality. Rather than focusing only on bringing informal businesses into the formal economy, policymakers should also ask whether economies are too dependent on raw-material exports and whether they are creating enough stable, productive employment. Reducing dependence on resource extraction, expanding domestic production, strengthening workers' rights, and building stronger systems of social protection may be just as important as reforming the informal economy itself.