Challenges of Shrinking Formal Sector in Africa

COMMONWEALTH ASSOCIATION OF POLYTECHNICS IN AFRICA CONFERENCE

REFORMING AND REORIENTING TECHNICAL AND VOCATIONAL EDUCATION AND TRAINING (TVET) FOR

SUSTAINABLE DEVELOPMENT

CHALLENGES OF SHRINKING FORMAL SECTOR IN AFRICA AND THE NEED TO STRENGTHEN

ENTREPRENEURSHIP TRAINING

CASE STUDY OF ZAMBIA

PRESENTED BY

GABRIEL S KONAYUMA

SENIOR TEVET OFFICER

MINISTRY OF SCIENCE, TECHNOLOGY AND

VOCATIONAL TRAINING, ZAMBIA

LIVINGSTONE, ZAMBIA

4 � 9 DECEMBER 2006

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Abstract: A number of African countries that have embraced economic reforms have experienced a shrinking formal sector. This has been due to privatisation of parastatal companies and state-owned companies. Zambia is one of the African countries that has experienced a shrinking formal sector. This has led to the growth of the informal sector. A number of people in the informal sector lack adequate business and technical skills. The Technical Education, Vocational and Entrepreneurship Training (TEVET) sector has been reformed to make it responsive to the changing scenario in the economy. Entrepreneurship training for the formal and informal sector has been introduced in TEVET institutions. A number of organisations have been formed to provide training in skills required in the informal sector. The TEVET Policy aims to improve technical education and vocational training and link it to the requirements of the employment sector. The TEVET policy recognises the following categories of people in our society as the most likely to benefit the country from this training: school leavers (i.e. Grade 7, Grade 9 and Grade 12); employees in the formal sector; entrepreneurs, both in formal and informal sector; the unemployed and underemployed � including employees in the informal sector; women; and retrenches A number of institutions are offering entrepreneurship training. Is this meeting the needs of both the formal and informal sectors? Are trainees becoming employers and starting their own enterprises or most still expect employment? Objectives of the Paper: To contribute to the development of strategic interventions that promote sustainable development in Zambia; To assess how the TEVET Policy has addressed entrepreneurship training in Zambia; To identify what the country hopes to achieve through strengthened entrepreneurship training; Key words: Entrepreneurship; Entrepreneurship training; Formal Sector; Informal Sector; Sustainable Development.

1.0 INTRODUCTION

Country Background

Zambia is located in Central Africa, between latitudes 18°S and 22°S, and landlocked with

eight neighbours (i.e. Angola, Namibia, Botswana, Zimbabwe, Mozambique, Malawi,

Tanzania, and Democratic Republic of Congo). Zambia is divided into nine provinces. The

provinces which serve as administrative divisions are: Central, Copperbelt, Eastern, Luapula,

Lusaka, Northern, North-Western and Southern. The capital city is Lusaka. The country is

further divided into 72 districts. Zambia has a total area of 752, 210 square kilometres. The



population is 10.8 million (Central Statistical Office, 2003:9). Zambia is a unitary headed by

a Republican President who is elected by universal suffrage for a term of five years.

Zambia has a mixed economy consisting of a modern urban sector that, geographically,

follows the old line of rail and a largely rural agricultural sector. Zambia�s gross domestic

product (GDP) is K1,528,506 (equivalent to US$ 354.90) (Bank of Zambia, 2005:1). The

major tourist attractions are Victoria Falls (one of the 7 natural wonders of the world);

Kariba Dam (one of the largest man-made lake); 19 National Parks and 34 game

management areas as well as 23 million hectares devoted to the conservation of an amazing

variety of wild animals and bird species. The country also holds a number of traditional

ceremonies including the Kuomboka, Ncwala, Likumbi Lyamize, Shimunenga,

Mutomboko. The currency is Kwacha (ZMK) = 100 Ngwee. The exchange rate is market

determined. Average exchange rate is ZMK K3,900= US $1 in 2006.

Many African nations have experienced shrinking formal sectors. This has been due to

embracing economic reforms. These reforms have been characterised by privatisation of

parastatals, reduction of the formal sector through retrenchments. The shrinking formal sector

has led to a growth of the informal sector. This has raised a challenge on whether the

technical education and vocational training is offering relevant training to the informal sector.

Organisation of Presentation

The presentation looks at the challenges of a shrinking formal sector in Africa with particular

emphasis on Zambia and some African nations. This is followed by a consideration of

entrepreneurship training and the need of strengthening entrepreneurship training.

Recommendations and conclusions are given at the end of the presentation.

2.0 CHALLENGES OF SHRINKING FORMAL SECTOR IN AFRICA

Many African nations have experienced shrinking formal sectors. In Zambia, for instance, the

formal sector in 1985 stood at 521,000 out of a population of about 8 million. By 2005 the

number had of formal sector employees had reduced to 436,066 out of a population of about

10.8 million. This has been due to embracing economic reforms. These reforms have been

characterised by privatisation of parastatals, reduction of the formal sector through

retrenchments. The shrinking formal sector has led to a growth of the informal sector. The

growth of informal sector employment has been due to some seeking to supplement existing



incomes. For others informal sector employment is their only means of livelihood. In the past

most trainees in the technical, vocational, education and training (TVET) sector were assured

of employment after graduation. However, due to downsizing of companies these graduates

cannot be assured of employment in the formal sector. Some of these graduates take up

employment in the informal sector. Other employees in this sector are retrenches, retirees,

widows and orphans. Some of the informal sector operators lack appropriate technical and

vocational skills. This compromises the quality of their products. For some they do not

maximise their business operations and operate at breakeven points or even at a loss.

Specific challenges of a shrinking formal sector in Zambia are:

(a) Reforming and re-orienting TVET: The TVET system needs reforming and re-

orienting the TVET in order for it to offer relevant skills to informal sector operators. For

most African nations after independence TVET was used as a vehicle to prepare technical

staff for the emerging industries in manufacturing, agriculture and mining industries.

However, with the changing economic setups of most African nations due to adopting

economic reforms, TVET systems have been changing their training systems. The challenge

is whether reforms in the TVET sector have been very successful or there are still many bottle

necks that need removal.

(b) Providing Appropriate Training for Informal Sector Operators: The existing

capacity for training for those engaged in the informal sector needs strengthening (Haan,

2002:25). Traditionally informal sector operators were not clients for TVET. However, the

growth of the informal sector and their contribution to the economy can not be taken lightly.

The TVET sector in African nations needs to provide appropriate skills to this emerging force

in the economy. Informal sector operators produce sub-standard goods and services.

(c) Reduction and growth of employment in certain sectors: Sectors such as

agriculture, mining and manufacturing have experienced reduced levels of employment.

Agricultural sector employment which stood at 79,100 in 1985 had reduced to 65,496 in

2005. In mining, employment reduced from 64,500 in 1985 to 32,103 in 2005. The

manufacturing sector experienced a decline of about 30,000 employees in the period under

review.

There has also been reduced employment opportunities for college graduates.



There are a number of interventions that have been done to address the reality of a shrinking

formal sector. However, it is still relevant to ask �how can the shrinking formal sector be

addressed?� There are lessons to be drawn from within Zambia and other African nations.

This leads us to the next point, namely the need to strengthen entrepreneurship training in the

TVET sector.

3.0 STRENGTHENING ENTREPRENEURSHIP TRAINING

Entrepreneurship training in Zambia has a number of gaps. Some of these are inadequate

trainers, lack of appropriate training materials, lack of appreciation of appropriate training

materials and a poor entrepreneurial culture. Before addressing these gaps, the paper looks at

entrepreneurship development in Zambia and explains key terms.

3.1 Entrepreneurship Development in Zambia

Entrepreneurship in Zambia has arisen due to a number of factors. Some have started

enterprises due to retrenchments as a consequence of privatisation of parastatal firms between

1992 and 1999. Others have become entrepreneurs to supplement their incomes in order to

meet family budget needs. A number of government ministries have policies that support

entrepreneurship development. These include the Technical Education, Vocational and

Entrepreneurship Training Policy, the Youth Policy, the Commercial, Trade and Industrial

Policy and the Labour and Social Security Policy.

Before 1991, small-scale business owners were actively discouraged due to socialist

economic management with the government playing a leading role in stimulating economic

activities. However, a sharp decline in the copper price, Zambia�s most important export

product between 1973 and 1975 coupled with a rise in oil prices and other imports led to a

more active encouragement of small-scale entrepreneurs.

Some of the challenges that entrepreneurship development has had in Zambia include:

entrepreneurs lacking managerial skills, low levels of consumer demand, competition from

low entry barriers given to foreign investors and lack of capital (Frese, 2000:32-33).



3.2 Explanation of key terms

Before developing this part, it is necessary to explain some key terms used in this paper:

entrepreneurship; entrepreneurship training and informal sector.

3.2.1 Entrepreneurship

Entrepreneurship is the process whereby an individual or a group of individuals uses

organised efforts and means to pursue opportunities to create value and growth by fulfilling

wants and needs through innovation and uniqueness, no matter what resources are currently

controlled (Robbins and Coulter, 2004:43). Entrepreneurship is also defined as the

�assumption of risk and responsibility in designing and implementing a business strategy or

starting a business� (Investor Words, 2005:1).

The first definition highlights the use of organised efforts to pursue opportunities to create

value. In other words these efforts need to be organised in a particular manner so that

opportunities can be seized in the market place. This requires an entrepreneur to have

knowledge, skills and attitudes that create value and growth in the identified opportunities.

This shows the importance of entrepreneurship education for would be and practising

entrepreneurs.

Entrepreneurship plays an important role in the economic development of a nation. It involves

initiating and constituting change in the structure of business and society. This change is

accompanied by growth and increased output, which allows more wealth to be divided by the

various participants (Hisrich, Peters and Shepherd, 2005:15). Zambia needs a steady supply of

entrepreneurs to ensure national economic growth.

3.2.2 Entrepreneurship Training

Entrepreneur training is a relatively new concept. Some people believe that entrepreneurs are

born and that it people cannot be taught to become entrepreneurs. Many entrepreneurs would

argue that to a certain extent this may be true, but many skills, which are needed for success,

can most definitely be learned. Some entrepreneurs may wish that they had been given the

opportunity! Entrepreneurship training is useful in proving tomorrow's employers the training

they need to create new business prospects. Over the past decade entrepreneurship has been

taught as a stand-alone subject in TEVET institutions in Zambia. However, the Technical

Education, Vocational and Entrepreneurship Training Authority (TEVETA) recently



organised workshops where trainers from TEVET institutions were trained in integrating

entrepreneurship into various training programmes.

3.2.3 Informal Sector

The informal sector comprises the following: home based workers, street traders and street

vendors and seasonal job workers. The informal sector creates the largest number of jobs in

developing countries. It provides the poor with the goods and services that they can afford. It

allows the operators to survive. Informal sector operators face challenges such as: poor

infrastructure, inadequate access to finance and lack of training opportunities.

3.3 TEVET Policy and Entrepreneurship Training in Zambia

The TEVET Policy provides guidelines for entrepreneurship training in the TEVET sector.

The objectives of the policy are:

i) to improve the productivity of the labour force in both the formal and informal sectors;

ii) to promote entrepreneurship and economic participation in both the formal and

informal sectors with the aim of increasing the national economy;

iii) to develop a Zambian society with people that will be versatile, creative, employable,

entrepreneurial and productive;

iv) to promote a rational use of local resources in training and post-training activities of

entrepreneurs;

v) to inculcate a culture of entrepreneurship and promote self-reliance in the Zambian

society.

The target groups for training are school leavers (i.e. Grade 7, Grade 9 and Grade 12),

employees in the formal sector, entrepreneurs (both in the formal and informal sector), the

unemployed and underemployed (including employees in the informal sector), women and

retrenches. The TEVET Policy aims at creating conditions for the development of an

entrepreneurial culture and its related skills in response to the following concerns:

i) unexploited business opportunities in the economy;

ii) under-employment in the informal sector;

iii) unemployment among the youth, women and retrenches;

iv) rural-urban migration; and

v) poverty.



Zambia has taken steps to address the gaps in Entrepreneurship training. These include:

developing of TEVET Policy and related policies;

Establishing of entrepreneurship development centres (support structures)

Creating Entrepreneurship and Informal Sector Development Unit in TEVETA to co-

ordinate entrepreneurship training.

Developing entrepreneurship curricula

3.4 Entrepreneurship Training Challenges in Zambia

Mainstreaming of entrepreneurship training in Zambia has not been very successful. This is

due to a number of factors. Some of these factors include: inadequate entrepreneurship

trainers, lack of appropriate entrepreneurship training materials, lack of appreciation of

entrepreneurship training and a poor entrepreneurial culture. The government has provided a

policy framework for entrepreneurship training and development for the TEVET sector,

youths, commerce, trade and industry and labour and social security.

3.4.1 Inadequate Entrepreneurship Trainers: TEVETA has made efforts to address the

issue of inadequate trainers in entrepreneurship. This has been by organising training of

trainers workshops at which experts in entrepreneurship have taken participants through

aspects of entrepreneurship training and integration of entrepreneurship into the training

programmes. Some institutions have applied the lessons learnt into their institutions while

others have not yet begun to integrate entrepreneurship training in their programmes. At a

consultative forum held for institutions under the Ministry of Science, Technology and

Vocational Training, it was noted that a number of them were still struggling to implement the

guidelines on entrepreneurship training in the TEVET Policy and TEVET Policy Strategy

Paper.

3.4.2 Lack of Appropriate Training Materials: Though some training providers have

made efforts to develop training materials, there still remains need for learning materials to be

developed that are based on the TEVETA approved curriculum. Some institutions have

bought Entrepreneurship textbooks that TEVETA offered for sale. Currently TEVETA has

advertised for consultants to develop learning materials for trainees in TEVET. It is hoped

that these materials will best suit the needs of trainees and enable them gain a better

understanding of the entrepreneurial competencies in the curricula.



3.4.3 Lack of Appreciation of Entrepreneurship Training: A number of trainees

undertake vocational training with the belief that they will get employed after graduation. Not

many see themselves becoming self-employed immediately after graduation. Some do not see

the benefits of entrepreneurship training. This is also extended to trainers who feel that

trainees only need technical skills and not entrepreneurship training. In addition, it is not easy

for trainers who are not entrepreneurial to appreciate entrepreneurship training. The same

applies for training providers that are not entrepreneurial. They would not be appropriate role

models for the trainees.

3.4.4 Poor Entrepreneurial Culture

Building an �Entrepreneurial culture� to promote the right kind of entrepreneurship in our

Zambia and Africa as a whole calls for good strategies. Entrepreneurs like any other set of

people thrive most where they are recognized most. The entrepreneurial culture in Zambia is

still growing. This could be attributed to business practices among Zambians before

independence. In the pre-independence days in Zambia, there were a very small number of

businessmen who could be called entrepreneurs. By the time of independence, Zambia did not

have businessmen and women who were experienced in handling complex businesses.

African businesses only started to grow when a cash economy became the standard for

business transactions. Zambia gained its independence with a less than well-developed

African bourgeoisie, ill-equipped to administer the economy (Chipungu, 1992:174-175).

3.5 Strengthening Entrepreneurship Training in TVET

In order to strengthen entrepreneurship training in Zambia and other African countries there is

need to vocationalise general education, set up business incubators in communities, include

aspects of psychology of would be and actual entrepreneurs in entrepreneurship training and

document best practices in entrepreneurship training in Zambia and other African nations.

3.5.1 Vocationalising General Education

Vocational education and entrepreneurship training needs to be introduced in the general

education system. Preferably from primary level. There are plans being made in this direction.

Introducing entrepreneurship training at an early stage is important for those pupils that may

not proceed beyond grades 7, 9 or 12. In addition, entrepreneurship and vocational education



when studied much earlier will form a good foundation for trainees that enter the TEVET

system at grades 9 or 12.

3.5.2 Establishing Entrepreneurship Development Centres

Trainees need good models for their entrepreneurship training. Entrepreneurship theory needs

the backing of business incubators to offer business support and role models to budding

entrepreneurs. Zambia has had entrepreneurship development centres in the past. Lessons

learnt from the operation of these centres can be used to improve the functioning of the setting

up of new ones. These centres should provide all the moral support, technical and business

support so that a trainee can have a good start in their enterprise. In addition, training

institutions need to be entrepreneurial in their management and how they operate. This acts as

a practical living example to trainees who can relate the entrepreneurship theory to what they

see in the business management of their institution. Twin Palm Fountain College in Southern

Province offers practical business management training to its� trainees. They are provided

with livestock and a garden to grow vegetables which are then sold to the college or the

community. The trainees are able to use the funds realised to subside for their tuition fees.

3.5.3 Teaching Psychology in Entrepreneurship Training

The psychological make-up or mindset of an entrepreneur is important in determining

whether an entrepreneur will succeed or not. Trainees from various family, educational, tribal

and racial backgrounds have different ways of conducting business. As entrepreneurship

involves high levels of risk taking and innovation, trainees need to have their mental capacity

boosted. Hisrich (2005:20) states that the skills required by entrepreneurs can be classified

into three main areas: technical skills, business management skills, and personal

entrepreneurial skills. These skills need to be well and consistently taught in order to develop

a well-rounded entrepreneur.

3.5.4 Documenting Best Practices in Entrepreneurship Training

Documenting best practices in entrepreneurship training is key to ensuring that trainers have

examples that they can emulate.

In Zambia, the Teachers Vocational Training Centre (TVTC) is one of the promising

institutions practicing best practices in entrepreneurship training. The centre trains trainers for

vocational institutions in Zambia. Entrepreneurship at TVTC has been mainstreamed by:



Integrating entrepreneurship in college�s curricula

Developing a diploma in Entrepreneurship

Designing short tailor-made courses that are both standardized and customized.

TVTC has also converted a conference centre into a fully fledged business centre. The

research and consultancy forms the business wing of the college. This is an example of a

training institution being entrepreneurial. TVTC also has embarked on having some of it�s

trainers undertaking Master�s in Business Administration programme. The college plans to

develop an Entrepreneurship Centre which will be a visible structure for trainees to get

business incubation. Plans are also underway to develop links with relevant stakeholders.

In Uganda, a Business handbook publication has been developed on various businesses that

entrepreneurs can do in the agricultural, services and manufacturing sectors. The handbook

also has sections on �What is Business?�, self-knowledge, marketing, marketing strategy,

resources, structure of businesses, management plans, business plans and start-up checklist.

4.0 CONCLUSION

This paper has discussed the challenges of a shrinking formal sector in Africa with particular

emphasis on Zambia. This was followed by a discussion of how to strengthen

entrepreneurship training in Zambia. Proposals for strengthening entrepreneurship training in

Zambia and other African nations include vocationalising general education, establishing

entrepreneurship development centres, teaching psychology in entrepreneurship training and

documenting best practices in entrepreneurship training. As a branch of education most

concerned with preparing young people and adults for the labour market, it is important that

TVET keeps abreast of the changes taking place in the world of work.

�Young people and adults need life skills that will allow them to engage in sustainable

livelihoods� (Nkinyangi, 2005:1).



APPENDIX

Role of Entrepreneurship Development Centres

� Provide support structures for Entrepreneurship training.

� Refer trainees to other SME source providers.

� Provide information on business opportunities to trainees opting for business as a

career option.

� Provide guidance & counselling to business start-ups

� Identify training needs of those already working in the informal sector

� Signpost informal sector operators to relevant service providers.

� Provide support structures for Entrepreneurship training.

� Refer trainees to other SME source providers.

� Provide information on business opportunities to trainees opting for business as a

career option.

� Provide guidance & counselling to business start-ups

� Identify training needs of those already working in the informal sector

� Signpost informal sector operators to relevant service providers.



REFERENCES

Central Statistical Office (2004) Living Conditions Monitoring Survey Report, 2002-2003. Lusaka: Central Statistical Office.

Central Statistical Office (2006) Employment Trends in Figures [online]. Lusaka: Central Statistical Office. Available from http://www.zamstats.gov.zm. Accessed on 3 December 2006. Chipungu, S. N. (ed.) (1992) Guardians in their Time. London: Macmillan Press Limited.

Haan, H. C. (2002) Training for Work in the Informal Sector: New Evidence from Eastern

and Southern Africa. Turin: International Labour Organisation.

Hisrich, R. D., Peters, M. P. and Shepherd, D. A. (2005) Entrepreneurship. 6th Edition. New York: McGraw-Hill. Investor Words (2005) Entrepreneurship definition [online]. Annandale: Investor Words. Available from: http://www.investorwords.com/5548/entrepreneurship.html [Accessed on 17 November 2006]. Ministry of Science, Technology and Vocational Training (1998) Technical Education, Vocational and Entrepreneurship Training Policy. Lusaka: Ministry of Science, Technology and Vocational Training. Robbins, S. P. and Coulter, M. (2004) Management. 7th Edition. New Delhi: Pearson Education.

http://www.zamstats.gov.zm

http://www.investorwords.com/5548/entrepreneurship.html

Challenges of Shrinking Formal Sector in Africa

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