Discuss how second economy influences Socio-economic development in Tanzania.(Hi360)

The concept of Second economy is used to imply the part of an economy that is neither taxed, nor monitored by any form of government. Unlike the formal economy, activities of the informal economy are not included in the gross national product (GNP) and gross domestic product (GDP) of a country.

According to ILO popularized the concept of second economy to describe all activities that operate largely outside the system of government benefit and regulation. All transaction that escape from taxation and are not measured in Official statistic Bureau.[1]

In Tanzania official quarters, the concept of Ulanguzi which is an aspect of second economy activities is interpreted as being synonymous with the illegal and legal goods and services such as dangerous drugs, pornography,  poaching, illegal mining, current trafficking, commodity hoarding, smuggling of commodities just to mention a few.[2]

The origin use of the term ‘second economy’ is attributed to the Economic Development Model put forward by Sir W. Arthur Lewis, Used to describe employment or livelihood generation primarily within the developing world.  At Early it was used to describe a type of employment that was viewed as falling outside of the modern Industrial sector. An alternative definition uses job security as the measure of formality, defining participants in the second economy as those 'who do not have employment security, work security and social security” While both of these definitions imply a lack of choice or agency in involvement with the informal economy, participation may also be driven by a wish to avoid regulation or taxation. This may manifest as unreported employment, hidden from the state for tax, social security or labor law purposes, but legal in all other Aspects.

According to M.S.D.Bagachwa & T.L. Maliyamkono. (The Second Economy in Tanzania)  Second economy has two  levels; Aggregate level or macro-level concerned with the size, trend, causes, and overall impacts of the second economy  and another being Disaggregate or micro level which is concerned with nature of roles played by different  economic agents that is institutional and other occupational groups, classes and Gender.

Also categorized into two groups; Production and distribution of market and non-market goods and services that  according  to social conventions are considered as legal in themselves but have not been included in official estimate of National income data, Including, household or broadly informal sector activities, batter exchanges, moonlighting, just to mention a few. And also Production and distribution of goods and services that are inherently illegal and strictly forbidden by government policies, including Drugs dealers, illegal transfers; bribes and theft.

Reasons to why these activities are omitted from the National Income Data and  not included in the national bureau of statistics are as follows; Omission from the national Accounts, deficiencies in estimation methods especial in the informal sectors, difficulties in data collection particularly where activities are not easy accessible and risk, the required information is deliberately concealed from public  Authority  either because the Agents are involves in forbidden illegal activities, deliberate intention to avoid paying taxes, to evade price control or paying social security and medical insurance contributions. It is difficult to provide accurate estimates from the informal sector mainly because it is unregistered, Some social scientist view activities in the second economy as reflecting moral decay or integration of standards of proper behavior.[3]

The second economy influences socio-economic development in Tanzania by the followings ways:

Mechanization of Agricultural activities. Various manifestation of second economy influence on agriculture are based on pricing, procurement, and crops distribution systems well as to overall production and consumption patterns. Following the expansion of second economy farmers not depending much on cooperative unions and national milling corporation-NMCs channels and at what price and how much marketed-through, from the government rather are able to search for individual market especial to those hitherto areas where government policy on pricing and consumption patterns were almost passively implemented and this hindered smooth pricing of crops and access to market to the so called Walanguzi who goes direct to interior with their own transport facilities. Therefor second economy has improved farmers intern of price fixing on their own, accessibility to the market in time as well as reduction of  production cost since farmer are not paying direct taxes and obligatory deduction.[4]

 Mobilization of otherwise idle domestic resources through provision of additional employment opportunity both rural and urban areas and utilizing economic resources productively. Since   Second economy has easy entry meaning anyone who wishes to join the sector can find some sort of work which will result in cash earnings depending on the amount  ones capital  possess as it does not need  entry bill or any kind of social security contribution and obligatory deduction. The second economy create to about 41% in 2000 according to the official Growth National Income (GNI) metric. A national wide example survey of Tanzania’s and Zanzibar island revealed that Informal sector employed 39% of total estimated (320,030) labor force in 1990, while in mainland Tanzania results of country wide survey shows that in 1991 informal sector employed 23% of total estimated 10.3millions labor force.[5]

Creation of the truly sense of innovative and self-reliance schemes. Through these schemes people are striving to meet their basic need of daily life. Most of informal activities represents mainly legitimate survival strategies in the face of declining income, growing unemployment ‘and under-employment in the developing world particularly Tanzania Self-employed famous known as Machinga and Mamantilie. They explain one important motives people have in engaging in second economy activities. It has promoted a sense of innovation through simple technologies applied by those who engage with the activities most of whom being disadvantaged group the landless have got land, jobless got jobs to do, home women are self-employed, in short it has Increasing number of informal primary industries like simple textile, shoes makers factories, soft drinks, alcohol and bakery. It has increased an opportunities for poor’s’ ability to gain and secure assets; like houses, land and transportation facilities.

Changes in trade, politics and legal regulations. Workers in the informal economy lack a significant voice in government policy. Not only is the political power of informal workers limited, but the existence of the informal economy creates challenges for other politically influential actors. For example, the informal workforce is not a part of any trade union, nor does there seem a push or inclination to change that status. Yet the informal economy negatively affects membership and investment in the trade unions. Laborers who might be formally employed and join a union for protection may choose to branch out on their own instead. As a result, trade unions are inclined to oppose the informal sector, highlighting the costs and disadvantages of the system. Producers in the formal sector can similarly feel threatened by the informal economy. The nature of the informal economy is largely anti-regulation and free of standard taxes, which diminishes the material and political power of government agents. Whatever the significance of these concerns are. For example, the government of Tanzania has initiated policies and strategies on how informal sectors can be legally register, and workers in second economy being registered in social security and medical insurance contribution as well as creation of job contraction.

Women Empowerment. Women tend to make up the greatest portion of the second economy sectors, often ending up in the most erratic and corrupt segments of the sector. 60% of female workers in developing countries are employed by the informal sector. A vast majority of women are employed from their homes. most likely due to the large number of women who are involved in care work or are street vendors, which both are classified in the informal sector. Female representation in the informal sector is attributed to a variety of factors. One such factor is the fact that employment in the informal sector is the source of employment that is most readily available to women. A 2011 study of poverty in East Africa noted that cultural norms, religious seclusion, and illiteracy among women in many developing countries, along with a greater commitment to family responsibilities, prevent women from entering the formal sector. Therefore second economy gives chances to women evolves in societal production and gender equilibrium however not formal.

Rise of an individual income generation. To those employed in informal sector, A more detailed breakdown reveals that in 1986, an average full time employed person earned a monthly income of Tsh 7,300, An average full time formal wages earned received Tsh 20,000 per month while a full time wage earner also involved in part time informal activity earned about Tsh 4,500 per month. This stipulates majority of individuals were attracted in informal sector. The monthly wage of Tsh 20,000 could hardly meet minimum monthly expenses.  At most the formal wage could only keep the family going for 12 out of 30days in the month, consequently supplementary income from second economy activities had of necessary to be resorted if massive starvation was to be averted[6]

Narrowing rural- urban development gap. ‘The study of ILO which takes into consideration subsistence consumption for both farmer and urban workers argues that rural-urban gap is narrowing. The study divides farmer and worker income into food and non-food items. For wages earners, price are assumed to affect entire food and non-food consumptions while  for farmer, price affects mainly non-food items since they produce and consume their own food on this basis it is estimated that real income of farmers increased by 9% between 1973-1980 as the result wages earner dropped by 50% between 1973-1980s.’this is consistent with general migration trend in  Tanzania which shows the highest rate of rural-urban migration in 1960s and 1970s with sharp decline in the 1980s. With such a sharp decline in migration one would have expected contraction in the informal sector activity. That this did not happen suggest that there are other factors behind the expansion of the informal sector.[7]

Expansion of market. Second economy activities gives alternative for marketing rather than depending on formal market organized by a central authority. Due to second economy activities different market which gives high values of products emerged such as shuttle food market, tradition market, inter-region food market and export markets emerged, availability of many market ensured balance of supply and demand of goods and services particularly to small traders known as street vendors famously known as Machinga.

The dysfunctional view of the second economy was shared by Tanzania government until the mid of 1980s. All along the strong believed that are of fundamental problems arising from the second economy is that;

It does not add directly to productivity, rather it is merely exploitative adding a surcharge to good and services produced by official economy. For example most of goods exchanged in second economy are the products of informal activities but evades from the Authorized market by the Walanguzi and some of government official agents who are involved in one way or other and possess loss to the government revenue and difficulties in data collection and recordings.

Second economy distort societal objectives. An Egalitarian society is characterized by small disparity among its workers and peasant. And Tanzania has succeeded relatively well in closing known as legal nominal income gap with in its labor force But following the speedy spread of second economy it has becoming difficult to retain an Egalitarian society.

Threatening Tanzania desire for classless society. In Tanzania like any other poor countries, those in power, politician and bureaucratic belongs to a class not homogeneous but different from workers and peasants who are majority. The second economy increases the numbers of those in powerful class and worse still creates a different types class one which owes no allegiance to the goals of the society. The Walanguzi or Marketers, buy corruption using their economic power to purchase the co-operation of parastatal managers who divert goods from the official economy; customer officers who allows smuggled goods in the country and polices who look the other way so that the second economy succeed. It is believed that second economy activity interferes with the country`s legal system and encourage tax evasion.

Generally second economy, as an aspect of Informal sector It fosters Center –periphery type of relationship by encouraging some sosphicated Tanzanian residents to join with overseas business partnership in carrying out foreign currency transaction and transfers goods then in one way or another cheat the Tanzania government and the Tanzanian people for instance importation of goods via Unauthorized harbors in Tanga and Mtwara.

                                          

                                                                                      

                                             REFERENCE

Kwame. A (1991) The Informal sector in Ghana’s political Economy. Freedom publication, Accra.

M.S.D. Bagachwa & A.Naho (1998). A Review of recent Development in the second economy in Tanzania, University press. Dar Es Salaam.

T.L.Maliyamkono & M.S.D Bagachwa (1990).The second economy in Tanzania, Heinemann. Nairobi.

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