Source: Financial Times, 01/02/2005

By Jonathan Wheatley

It is a rainy summer's afternoon in the Brás neighborhood of São Paulo, and Genivaldo Batista de Jesus shelters under the plastic cover of his stall selling handbags and shoulder bags he and his wife have sewn together from jeans fabric.

They make 40 bags in a day going flat out, enough in a good month to net a profit of 1,200 real ($ 460,? 350, £ 250). "We're doing well at the moment," he says. "We're among friends and I wouldn't change things."

It was not always so. Mr Batista arrived in São Paulo in 1999 from Brazil's arid north-east, where he worked on cocoa farms until witch's broom disease killed the industry there. With no friends and no job, he spent long periods sleeping in a bus station and selling pieces of cut pineapple in the street. Even now, his business is precarious. “We come under a lot of pressure,” Mr Batista says. Shopkeepers often ask inspectors to move on stall holders, he says. Some put obstacles in front of their shops so street vendors cannot occupy the space.

Mr Batista is one of more than 8,000 street vendors or street vendors in São Paulo. In spite of the informal nature of their jobs, many are organized into local unions, including SINDCISP in São Paulo. It estimates that street vendors generate 8 per cent of Brazil's gross domestic product.

But street vendors are merely the tip of an enormous iceberg. According to the World Bank, the entire informal economy accounts for 40 per cent of Brazilian GDP. The IBGE, the Brazilian government's statistics office, says 56 per cent of all Brazilians in work are employed outside the formal economy.
The rights of a street vendor are few. Miguel Soares Silva, who sells Bermuda shorts, worked in the finance department of a building company until he lost his job and became a vendor.

“Most street vendors can't get credit, they can't even open a bank account, because they can't prove their income,” he says. "You have no credibility and there's a lot of discrimination."

The leader of SINDCISP, Afonso Jos da Silva (better known as Afonso Camelô) says his members are routinely beaten, arrested and got rid of by police and shopkeepers. "Nobody is a street vendor because they want to be," he says. “It's not a choice. It's a lack of choice. ”

The informal economy has a surface appeal. Workers pay no taxes. Employers are spared the taxes and social security contributions that can bring the total cost of employing someone to nearly twice that person's salary. The burden on Brazilian business of seemingly endless bureaucracy is swept aside.
But there are disadvantages. Vendors, says Mr da Silva, live a hand-to-mouth existence with little stability, often buying their merchandise on credit and relying on sales to meet payments.

In an effort to regulate the sector in the late 1980s, the Sâo Paulo city government started issuing permits to give street vendors the right to use an allocated section of pavement. But no new permits have been issued for 12 years and 90 per cent of street vendors have no guarantee they will be able to work.

Then there is the violence. Street vendors, shopkeepers and police are often in conflict. The first recorded incident was in São Paulo in 1889, a year after the abolition of slavery swelled street vendor numbers. Last October, six people were injured in a similar disturbance.

For the wider economy, the effects of the sector are hard to overstate. Emerson Kapaz, president of the Instituto Etco, which lobbies for fair competition in business, says the tax-free, low-cost informal economy takes market share from the formal economy and revenue from the government, undermining the creation and distribution of wealth. Workers have no employment benefits, no unemployment benefits and no pensions. Mr Kapaz estimates the cost to the government in lost taxes at $ 50bn a year.

Informality is often the first step to illegality. Says Mr Kapaz: “Workers accept being unregistered in exchange for having a job. Employers have to keep most of their sales out of their accounts to be able to pay them. From there they enter the underworld. Inspectors have to be bribed and anything goes. ”
Informal workers labor alongside those in the formal economy. The soft drinks industry is among the most notorious examples: even though its workers turn up every day to steady factory jobs, an estimated 80 per cent of them are unregistered.

Mr da Silva wants the São Paulo city government to set up a secretariat for the informal economy as a first step towards a constructive dialogue. In December, the city of João Pessoa in north-eastern Brazil invited him to help set up the street vendors' union there, so it will have somebody with whom to negotiate. The dream of all street vendors, he says, is to join the formal economy. But for the foreseeable future, they are out in the sun and rain.