Informal economic activity is a fundamental pillar of the Egyptian economy, with sectors such as informal waste management and informal plastic manufacturing playing a crucial role in the day-to-day functioning of the country. However, they are not sufficiently integrated in national strategies or policies as Egypt slowly attempts to move away from all informal activity towards a more formalized economy. This lack of integration of informal sector activity in strategic planning will prove to make formalization and the shift towards a more circular economy only tougher.&nbsp;
The importance of formalization revolves around the following key points:&nbsp;
<ul style="text-align: justify;">
<li>Recognition of the workforce, which allows for the addition of legally required employee benefits</li>
<li>Regulation of the sector&rsquo;s activity, including working hours and insurance requirements</li>
<li>Taxation and monetary regulation of the sector&nbsp;</li>
</ul>
Informal sectors on the other hand do not abide by any legal requirements nor are they regulated to any extent. Workers in the informal sector do not receive any benefits nor is their activity taxed. Informal sectors are autonomous and fundamentally are known to house a large number of illegal activities. For example, there is known to be overexploitation of child labour in informal sectors due to the lack of regulation.&nbsp;
<h3>Informal plastic manufacturing sector&nbsp;</h3>
Informal plastic manufacturing is a large industry in Egypt, primarily focused on the manufacturing of plastic bags and plastic packaging. There are over 550,000 people employed formally (with possibly the same amount employed informally) in the plastic manufacturing sector in Egypt, where it is considered to be the largest polymer market in Africa providing 20% of continental demand in 2017 (PLASTEX, n.d.). The manufacturing of plastic packaging, including that of single-use plastic bags, is known to dominate the informal plastic manufacturing sector (Farag &amp; Korachy, 2017). This is due to the ease of developing a small production line, usually requiring a small workshop space. There are specific hotspots across the country that attract this activity, such as Imbaba in Greater Cairo and Qaliubeya Governorate, areas where operating informally without any form of regulation is usually much easier than in more developed or regulated areas such as Dokki and Madinat Nasr.&nbsp;
There are numerous reasons why informal plastic manufacturers choose to remain informal, including aspects related to the operational expenditure (OPEX) margin between a formal process and an informal process. Managing a formal plastic manufacturing entity requires a large operational budget for costs such as rental spaces and energy provision, while informal sector activity can sometimes obtain its energy through illegal methods from the power grid to largely reduce operational expenditure.
While there have been attempts to collect data on the sector&rsquo;s operations, nothing has been achieved close to an acceptable benchmark. This means that this sector&rsquo;s activity is largely overlooked from the Egyptian economy&rsquo;s monetary or fiscal policies and initiatives. Collecting such data requires monitoring by the Ministry of Planning and Economic Development (MoPED) or the Ministry of Industry, Trade and Small Industries (MoTI). However, this isn&rsquo;t achievable when there is no data nor registry of businesses/operations from the informal sector. This is a major barrier, economically speaking, that informal plastic manufacturing faces when it comes to formalization.&nbsp;
The Egyptian government in recent years has realized the importance of tackling the problems related to plastic waste and is in the process of developing strategies to tackle plastic manufacturing and primarily plastic waste management (State Information Service, 2021). However, these strategies overlook informal sector key stakeholders who oppose formalization as it brings a level of regulation that is bound to reduce their control and power of their production and profit margins. It also largely dehumanizes the people who work in this informal sector, since they are viewed as a problem rather than being the result of a problem (that being the lack of incentives and tools for establishing formalized microenterprises). Regulation is accompanied with requirements, rules and taxes. Informal entities would be required to avoid using certain raw materials that are considered hazardous or unsafe for workers, meaning their manufacturing costs would largely increase. They would also be required to abide by rules regarding wages, employment and registration, all which bring additional costs to their operations.&nbsp;
The extent policymakers and government in Egypt are willing to compromise for the integration and formalization of the informal sector, never matches how much autonomy the informal sector is willing to concede. However, if Egypt is ever to transition towards a more circular economy, then the formalization of the informal plastic manufacturing sector is inevitable.&nbsp;
<h3>The way forward</h3>
The fact that most informal sectors are built on incredibly fragile, unsustainable models and that informal sector entities do not take responsibility for any of their environmental costs, are the two primary reasons why formalization of the informal sector is pivotal for a transition towards a circular economy model. Without sufficient environmental or material/energy consumption regulation, the informal sector will never have an obligation to be &ldquo;more sustainable&rdquo; or &ldquo;zero waste&rdquo;.&nbsp;
Thus, a formalization policy and subsequent strategy with clear and tangible goals is necessary, for which the following actions are recommended:
<ol>
<li style="text-align: justify;">An agency under the responsibility of the MoTi must be developed for the policy&rsquo;s execution.</li>
<li style="text-align: justify;">Within this agency, a committee should be formed for the policy&rsquo;s formulation, including representatives from various ministries including but not limited to the MoTI, MoPED, Ministry of Manpower and Ministry of Environment.</li>
<li style="text-align: justify;">A mapping of the informal sector activity must be conducted by the agency, in cooperation with numerous key players in informal plastic manufacturing . This must be done at a national level and entail collecting quantitative data such as manufacturing costs, transportation costs and size of operations that can aid decision making.</li>
<li style="text-align: justify;">A stakeholder engagement plan must be developed for the policy development process, that can include public sector entities (governorate or city officials), private sector entities and stakeholders from the informal sector. It is important to try and capture most direct stakeholders and ensure they are appropriately consulted and engaged with during the policy formulation process. The aforementioned agency would be responsible for this process, possibly in cooperation with an assigned social consulting company and the Central Agency for Public Mobilization and Statistics (CAPMAS).</li>
</ol>
<h3>Formalization through policymaking</h3>
Developing a formalization policy must be revolved around two key elements, incentivization and concession. Both must be based on dialogue. First, a mapping of the informal sector must be done to understand its activity. The intention of this mapping must accommodate the potential for identifying different forms of illegal activity (revolved around manufacturing without regulation).&nbsp;
The policymakers must develop an adequate incentivization program that provides greater benefits to formalize in comparison to remaining informal/unregulated. This must include tax subsidies, or other forms of subsidies depending on the consultations to be conducted with the informal sector. Furthermore,&nbsp; the responsibilities of the informal sector and the actions to be taken by the government must be clearly articulated. Transparency will go a long way to formulating a successful policy.&nbsp;
Additionally, policymakers must establish a &ldquo;concession list&rdquo;. This will provide the list of concessions the government is willing to make for informal plastic manufacturers, and vice versa, with the government listing what it would ideally like the informal plastic manufacturers to concede. This is the starting point for negotiations, by which the facilitated discussion will provide the concluding points that will be the pillars of the formalization policy. The following matrix provides examples of the type of concessions that both sides can offer for two different aspects.
Table 1: Concessions Matrix
<table style="border-collapse: collapse; width: 100%; height: 330px;" border="3">
<tbody>
<tr style="height: 11px;">
<td style="width: 48.28967065868264%; text-align: center; height: 11px;">Government</td>
<td style="width: 48.28967065868264%; text-align: center; height: 11px;">Informal Plastic Manufacturing Sector</td>
</tr>
<tr style="height: 22px;">
<td style="width: 96.57934131736528%; text-align: center; height: 10px;" colspan="2">Registration and Taxation</td>
</tr>
<tr style="height: 224px;">
<td style="width: 48.28967065868264%; height: 199px;">
&nbsp;
Concession: Abandon taxation of informal sector entities straight away.
Alternative provision: Subsidize registration of entities and provide a realistic and agreed timeline for informal sector activity to become taxed (gradual taxation, in the sense that lower percentages are applied and increase over the agreed timeline).
</td>
<td style="width: 48.28967065868264%; height: 199px;">
Concession: Absolute autonomy and unregulatedmovement
Alternative Provision: Gradually start providing focal points to the government with quarterly data or updates regarding commercial activity (in the form of audits).&nbsp;
</td>
</tr>
<tr style="height: 22px;">
<td style="width: 96.57934131736528%; text-align: center; height: 22px;" colspan="2">Worker Protection and Insurance</td>
</tr>
<tr style="height: 88px;">
<td style="width: 48.28967065868264%; height: 88px;">Concession: Overlook a number of aspects related to the historical activity of some informal sector entities that could be considered illegal or lower the penalties they have to pay.</td>
<td style="width: 48.28967065868264%; height: 88px;">Concession: Their current unsystematic system of employing and using labor. They must start gradually integrating worker insurance for fixed or temporary workers.</td>
</tr>
</tbody>
</table>
Previous experiences to formalize informal sectors in Egypt, mainly the informal waste sector, failed due to the government not willing to concede or give up some of its vision and policies in the attempts to integrate informal waste workers as formal waste workers between 2002-2008 (Gerdes &amp; Gunsilius, 2010). This failure was the catalyst to an even more segmented and segregated waste sector in Egypt. Thus, when approaching policy development for informal plastic manufacturing, policymakers must be very careful not just on how they will integrate the informal workers, but to ensure they do not create a more complicated situation than what already exists.&nbsp;
Simply saying that the informal plastic manufacturing sector must be integrated in policymaking and decision making when drafting policies related to plastic in Egypt is persistently repeating previous recommendations that achieved little to nothing. Informal plastic manufacturing is consistently growing while the government attempts to move away from plastics in the long term. A humanized, realistic and trade-off-based policy must be drafted that sets the framework for developing a strategy aimed at formalizing the informal plastic manufacturing sector in phases, with sufficient stakeholder consultation and participation in the process.
<hr>
<h3>References</h3>
<ul>
<li>
Farag, M. G., &amp; Korachy, A. (2017). Strengthening entrepreneurship and enterprise development (SEED): Plastic value chain mapping and assessment (Technical Report No. 20). AECOM/USAID. <a href="https://cutt.ly/4b0HGgV">https://cutt.ly/4b0HGgV</a>
</li>
<li style="font-size: 10pt;">
Gerdes, P., &amp; Gunsilius, E. (2010). The Waste experts: Enabling conditions for informal sector integration in solid waste management lessons learned from Brazil, Egypt and India. <a href="https://www.giz.de/en/downloads/gtz2010-waste-experts-conditions-is-integration.pdf">https://www.giz.de/en/downloads/gtz2010-waste-experts-conditions-is-integration.pdf&nbsp;</a>
</li>
<li style="font-size: 10pt;">
PLASTEX. (n.d.). Why Egypt?. <a href="https://www.plastex-online.com/about/why-egypt/">https://www.plastex-online.com/about/why-egypt/</a>
</li>
<li style="font-size: 10pt;">
State Information Service. (2021). Egypt starts outlining national strategy to reduce use of plastic -- Minister. <a href="https://cutt.ly/1QB8TWe">https://cutt.ly/1QB8TWe</a>
</li>
</ul>

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