E-government and the informal sector in Peru

Josué Israel León Turco

There is no doubt that today's digital transformation has enhanced the capacity of

businesses that have successfully implemented it. Today information systems such as ERPs and

SCMs have reached a great development, allowing a more efficient control and administration of

resources. In addition, new resources have appeared such as Big Data, Data Analytics, Deep

Learning, Social Business and Internet of Things, among others, which can enhance business

strategies, leading to disruption (Aviña, 2017). All these tools have allowed today's companies to

see beyond the obvious, make the smartest decisions, reduce considerably their mistakes and

achieve greater control over the company. All these tools and their benefits can also be

implemented in the State through e-government, which within the analogy would be the

company and citizens would be the generators of information. With the implementation of e-

government, the State would use these new tools to combat an endemic problem in the Peruvian

society: the informal sector. This constant struggle for many years that never seemed to come to

an end, but that today, thanks to the advances in technology, we can identify their weaknesses

and face it head on. The e-government is the way that the Peruvian government must follow to

combat the informal sector.

De Soto defines the informal sector as the group of companies, workers and activities that

operate outside the legal and regulatory frameworks that govern the economic activity.

Consequently, belonging to the informal sector involves not being under tax burdens and legal

norms, as well as not having the protection and services that the State can offer (De Soto, 1989).

So far in 2018, according to INEI, Peru has reached 73.30% of informal employment (INEI,

2018), well above the 53% average of Latin America and the Caribbean (ILO, 2018). Being
outside legal and tax frameworks, the State does not receive taxes for these activities, and at the

same time cannot allocate either subsidies, subsidies or benefits. INEI shows us through its

surveys some characteristics of informal businesses: lack of accounting records or illegitimate

accounting records, which does not allow proper control to the tax entity; lack of operating

premises, which limits the traceability of the business activity; and lack of access to public

services, which entails a limited work environment and even inhuman conditions (INEI, 2017).

Therefore, we can deduce that in general informal businesses lack the basic conditions for the

proper operation of a business, compete in unequal conditions with formal businesses and

jeopardize the integrity and quality of life of their workers. Therefore, the informal sector harms

the State, formal businesses and citizens. It is the duty of the State to lead the fight against

informality, supported by formal businesses and responsible citizens.

Being a relatively recent trend, when defining the word e-government you can find

different concepts. However, we will take as a basis the definition of the Organization of

American States (OAS), which defines e-government as the implementation of Information and

Communication Technologies (ICT) in various functions and procedures of the government in

the search to increase efficiency, transparency and citizen participation (www.oas.org). We also

know that digital transformation processes not only involve the use of ICTs, but also to

reformulate processes, rethink the organizational structure and prepare staff, which in this case

would be both state officials and citizens. In addition, any implementation or improvement that is

carried out always has the purpose of adding value to the client, which under this figure would

again be the nation. Therefore, we can complement the definition of e-government as the new

management of the State, through the restructuring of processes and organizational structure,

with the purpose of adding value to the services offered, through the implementation of
Information and Communication Technologies, seeking efficiency, transparency and a dynamic

relationship between the State and citizens. It is important to mention that as in a process of

digital transformation in a company, the State will face difficulties such as the underestimation

of the complexity of the planning, development and necessary training; the attempt to carry out

many activities and in such a short time in the conversion process; not perform enough data

conversion and testing; and not involve affected workers in the planning and development phases

(O'Brien and Marakas, 2010).

Today, Peru is ranked 77th in the E-Government 2018 Ranking prepared by the UN,

based on 193 countries that are currently part of it (UN, 2018). Through this study, the UN seeks

to quantify the capacity for e-government development through three indexes (online service,

telecommunications infrastructure and human capital). In Latin America and the Caribbean,

Uruguay (34th place) and Chile (42th place) are the countries that are at the top of the UN E-

Government Ranking. Now, let's look at the informal sector index of Chile and Uruguay.

Uruguay has reached the lowest level of informal work in the region, with 22% (Torterola,

2018). In addition, it is worth noting that Uruguay managed to reduce its informal sector by 17%

in the 2004 to 2014 period (ECLAC, 2016) and that since the creation of the UN ranking in

2003, it has been contesting the top with Chile (top in 2003, 2004, 2005 and 2012), reaching the

top of Latin America and the Caribbean for 4 years: 2014, 2016 and 2018 (UN, 2018). On the

other hand, according to the National Institute of Statistics of Chile, the informal sector of the

country of the South is around 30% (INE, 2018). We note that the two countries with the best

position in the E-Government 2018 Ranking in Latin America and the Caribbean and that have

been investing for the last 15 years in the development of e-government are the same countries

that have the lowest index of informal sector in that region. Therefore, we can conclude that
there is an intimate relationship between the development of e-government and the reduction of

the informal sector. Likewise, we can appreciate that the results are evident in the long term.

As Loayza summarizes, the emergence of the informal sector occurs when the costs of

operating within the legal and regulatory framework of a country are greater than the benefits

that formalization offers (Loayza, 2008). We cannot deny that the costs involved with the

formalization can be very high for the micro and small business (MSE), which make up 94.1% of

the companies in the Peruvian society, and of which around 80% are informal (INEI, 2017).

Although in recent years laws were enacted in favor of formalization, such as Legislative Decree

No. 1332 and its regulation by Supreme Decree No. 006-2017-PRODUCE, which refers to

optimizing the processes of advice and technical assistance in the constitution of a company

through centers of business development and provides facilities such as exemption from

registration fees, we observe that the cycle is not complete, since beyond the initial payments, the

problem lies in the operation and continuity of the business . E-government is the opportunity to,

in addition to simplifying registration facilities, create platforms that help MSEs to manage and

develop their business. Within the e-government is the creation of G4B portals in order to give

businesses in various sectors a continuous support service, as well as to provide tools such as

integrated cloud-based management platforms. In this way, the way in which the MSEs perceive

the formality will be transformed: from just complying with legal and tax obligations to the way

of winning a strategic partner that will provide advice and help with the simplification of

business administration. In turn, the State can draw on the large amount of information that users

can enter and take better control of the activities. While implementing technology and resources

to provide these services can be quite high at the beginning, remember that one of the

characteristics that makes digital technology transformational is that once the initial
infrastructure investment is made, it can be replicated multiple times, almost at marginal cost

(Iansiti and Lakhani, 2014)

One of the main reasons for informality is the lack of communication and attention from

the State. The perception of a distant and inefficient State is deeply rooted in our culture, and this

perception is not gratuitous. According to the IDB, Peru is the second country in Latin America

with the longest average time to complete a procedure with a score of 8.6 hours, second only to

Bolivia, which reaches 11.3 hours (IDB, 2018). However, within the area of citizen-oriented

services, important steps have been taken in recent years, such as the strengthening of centers for

administrative services, the beginning of the process of administrative simplification, the

creation of the Digital Government Secretariat and the new Digital Government Law (Lafuente,

2018). Now it is time to start developing services oriented to companies, especially SMEs, which

as we have been able to analyze in previous paragraphs, are the portion of the universe of

companies with the highest incidence in informality. Through e-government, the simplification

of processes must be sought between the State and the companies that are part of the various

stages of the business life cycle: constitution, administration, growth and closure. Breaking this

communication and attention barrier by the State is an important factor in the fight against the

informal sector.

Within the functions of the executive power is the daily management of the State. As in

any management, the collection of data and its transformation into information is a key process,

since decisions that will define the country's direction will be made based on this information.

This collected information from both formal and formalizing companies was usually gathered

manually, which generated tedium even in formal companies, falling little by little into the

temptation of the informal sector. The e-government can simplify these procedures, help the
State in making more accurate decisions through its tools based on the collected information and

thus take better control of what happens in the country. Several ministries have started with force

the implementation and renewal of online platforms that allow them to collect information from

controls that were carried out manually for many years. An example of implementation is the

Ministry of Energy and Mines statistic registry called ESTAMIN, platform by which formal and

formalizing mining companies, whether small, medium or large, declare their annual production,

investment, costs, sales, inputs and others, in order to obtain a national balance of the production

and sale of mineral products of Peru. This database has multiple uses and serves as a reference

for various State institutions. To have an informality control, this information is crossed with the

export records to determine the amount of undeclared material has been exported.

In conclusion, the digital transformation offers various opportunities for improvement to

organizations through innovative tools that can be used by the State, through the development of

e-government. It has been proven that in other nations of Latin America more advanced than

ours, e-government has been a fundamental piece in the fight against the informal sector. In

addition, we have analyzed how e-government can frontally combat some of the most important

causes of the informal sector, as well as one of the e-government applications that are underway

in the state that has been marching quite well. As we mentioned, the current government is

expressing interest in developing e-government, creating a legislative framework through the

new Digital Government Law, laying the groundwork to begin this great change. It is time to

start working to develop e-government and be one of our main arguments in the fight against the

informal sector.
References

Aviña, J. (2017, 11 de junio). ¡EUREKA! / Transformación Digital [EUREKA! Digital

Transformation]. Mural. Retrieved from:

https://search.proquest.com/docview/1908025835?accountid=28391

De Soto, H. (1989). The Other Path: The Invisible Revolution in the Third World. United States

of the Americas: Harper & Row Publishers.

Economic Commission for Latin America and the Caribbean – ECLAC (2016). La informalidad

en Uruguay cayó 17 puntos en la última década, destaca estudio de CEPAL [Informality

in Uruguay fell 17 points in the last decade, highlights ECLAC study]. Economic

Commission for Latin America and the Caribbean. Retrieved from:

https://www.cepal.org/es/noticias/la-informalidad-uruguay-cayo-17-puntos-la-ultima-

decada-destaca-estudio-cepal

Iansiti, M. & Lakhani K. (2014). Digital Ubiquity: How Connections, Sensors, and Data Are

Revolutionizing Business. Harvard Business Review, November 2014, 1-11.

International Labour Organization – ILO (2018). Cerca de 140 millones de trabajadores en la

informalidad en América Latina y el Caribe [Nearly 140 million workers in informality in

Latin America and the Caribbean]. International Labour Organization. Retrieved from:

https://www.ilo.org/americas/sala-de-prensa/WCMS_645596/lang--es/index.htm

Instituto Nacional de Estadísticas – INE – Chile (2018). Encuesta Nacional De Empleo – ENE

[National Employment Survey]. Instituto Nacional de Estadísticas – Chile. Retrieved

from: http://www.ine.cl/estadisticas/laborales/

Instituto Nacional de Estadística e Informática – INEI (2017). Producción y Empleo Informal en

el Perú, Cuenta Satélite de la Economía Informal 2007-2016 [Informal Production and

 Employment in Peru, Satellite Account of the of the Informal Economy 2007-2016].

Lima: Instituto Nacional de Estadística e Informática. Retrieved from:

https://www.inei.gob.pe/media/MenuRecursivo/publicaciones_digitales/Est/Lib1471/libr

o.pdf

Instituto Nacional de Estadística e Informática – INEI (2018). Informe Técnico N° 03 Empleo

Nacional Trimestre: Abr – May – Jun 2018 [Technical Report N ° 03 National

Employment Quarter: Apr - May - Jun 2018]. Lima: Instituto Nacional de Estadística e

Informática. Retrieved from:

https://www.inei.gob.pe/media/MenuRecursivo/boletines/03-informe-tecnico-

n03_empleo-nacional_abr-may-jun2018.pdf

Inter-American Development Bank - IDB (2018). El fin del trámite eterno: ciudadanos,

burocracia y gobierno digital [The end of the eternal process: citizens, bureaucracy and

digital government]. Washington D.C.: Inter-American Development Bank. Retrieved

from: https://publications.iadb.org/handle/11319/8930?locale-attribute=es&locale-

attribute=pt&

Lafuente, M. (2018). Perú acelera la transformación digital en el Estado para facilitarle la vida al

ciudadano [Peru accelerates the digital transformation in the State to make life easier for

the citizen]. Gestión. Retrieved from: https://gestion.pe/blog/bid/2018/09/peru-acelera-la-

transformacion-digital-en-el-estado-para-facilitarle-la-vida-al-ciudadano.html?ref=gesr

Loayza N. (2008). Causas y consecuencias de la informalidad en el Perú [Causes and

consequences of informality in Peru]. Revista Estudios Económicos, 15, 43-64. Retrieved

from: http://www.bcrp.gob.pe/docs/Publicaciones/Revista-Estudios-

Economicos/15/Estudios-Economicos-15-3.pdf
O´Brien, J. & Marakas, G. (2010). Management Information Systems. New York: McGraw-Hill

Irwin. Retrieved from:

http://fumblog.um.ac.ir/gallery/652/James_OBrien,_George_Marakas_Management_Info

rmation_Systems,_10th_Edition______2010.pdf

Torterola, A. (2018). Trabajo informal y subempleo son los problemas más graves en Salto

[Informal work and underemployment are the most serious problems in Salto]. Diario

Cambio. Retrieved from: https://diariocambio.com.uy/2018/03/15/trabajo-informal-

subempleo-los-problemas-mas-graves-salto/

United Nations - UN (2018). UN E-Government Knowledgebase. Public Institutions and Digital

Government Department of Economic and Social Affairs. Retrieved from:

https://publicadministration.un.org/egovkb/Data-Center