In the Pacific Islands and many developing and emerging countries worldwide, the informal economy far outsizes the formal one, playing a vital role in the survival of urban and rural households and absorbing expanding working-age populations.

Informal business entrepreneurs and workers make up more than 60 percent of the labour force worldwide. But they are also the most exposed, with precarious assets and working conditions, to the economic shocks of extreme weather and climate disasters.

In 2016, Category 5 Cyclone Winston, the most ferocious cyclone recorded in the southern hemisphere, unleashed widespread destruction of Fiji’s infrastructure, services and economic sectors, such as agriculture and tourism. And in March this year, Cyclones Judy and Kevin barrelled through Vanuatu, an archipelago nation of more than 300,000 people, and its capital, Port Vila, leaving local tourism businesses with severe losses.

It is now three months since the disasters. But Dalida Borlasa, business owner of Yumi Up Upcycling Solutions, an enterprise at Port Vila’s handicraft market, which depends on tourists, told IPS there had been some recovery, but not enough. “We have had two cruise ships visit in recent weeks, but there have only been a few tourists visiting the market. We are not earning enough money for daily food. And other vendors at the market don’t have enough money to replace their products that were damaged by the cyclones,” she said.

Up to 80 percent of working-age people in some Pacific Island countries are engaged in informal income-generating activities, such as smallholder agriculture and tourism-dependent livelihoods. But in a matter of hours, cyclones can destroy huge swathes of crops and bring the tourism industry to a halt when international visitors cancel their holidays.

Climate change and disasters are central concerns to the Commonwealth, an inter-governmental organisation representing 78 percent of all small nations, 11 Pacific Island states and 2.5 billion people worldwide. “The consequences of global failure on climate action are catastrophic, particularly for informal businesses and workers in small and developing countries. Just imagine the struggles of an individual who relies on subsistence and commercial agriculture for their livelihood. Their entire existence is hanging in the balance as they grapple with unpredictable weather patterns and unfavourable conditions that can wipe out their crops in a matter of seconds,” Patricia Scotland, Secretary-General of the Commonwealth, told IPS. “It’s not simply a matter of economic well-being; their entire way of life is at stake. The fear and uncertainty they experience are truly daunting. But they are fighting. We must too.”

The formal economy in many Pacific Island countries is too small and offers few employment opportunities. In Papua New Guinea, an estimated four million people are not in work, while the formal sector has only 400,000-500,000 job openings, according to PNG’s Institute of National Affairs. And with more than 50 percent of the population of about 8.9 million aged below 25 years, the number of job seekers will only rise in the coming years. And so, more than 80 percent of the country’s workforce is occupied in self-generated small-scale enterprises, such as cultivating and selling fruit and vegetables.

But eight years ago, the agricultural livelihoods of millions were decimated when a record drought associated with the El Nino climate phenomenon ravaged the Melanesian country.

“Eighty-five percent of PNG’s population are rural inhabitants who are dependent on the land for production of food and the sale of surplus for income through informal fresh produce markets. In areas affected by the 2015 drought, especially in the highlands, the drought killed food crops, affecting food security,” Dr Elizabeth Kopel of the Informal Economy Research Programme at PNG’s National Research Institute told IPS. “Rural producers also supply urban food markets, so when supply dwindled, food prices increased for urban dwellers,” she added.

In Vanuatu, an estimated 67 percent of the workforce earn informal incomes, primarily in agriculture and tourism. On the waterfront of Port Vila is a large, covered handicraft market, a commercial hub for more than 100 small business owners who make and sell baskets, jewellery, paintings, woodcarvings and artworks to tourists. The island country is a major destination for cruise ships in the South Pacific. In 2019, it received more than 250,000 international visitors.

Highly exposed to the sea and storms, the market building, with the facilities and business assets it houses, bore the brunt of gale force winds from Cyclones Judy and Kevin on 01-03 March. Tables were broken, and many of the products stored there were destroyed. Thirty-six-year-old Myshlyn Narua lost most of the handmade pandanus bags she was planning to sell. The money she had saved helped to sustain her family in the immediate aftermath of the disaster, but it would not be enough to survive six months, she stated in a report on the disaster’s impacts on market vendors compiled by Dalida Borlasa.

The country’s tourism sector has suffered numerous climate-induced economic shocks in recent years. In 2015, Cyclone Pam left losses amounting to 64 percent of GDP. Another Cyclone, Harold, in 2020 added further economic losses to the recession across the region triggered by the COVID-19 pandemic.

“To address the climate emergency and protect the lives and livelihoods of people, particularly those in the informal sector, countries must fulfil their commitments under the Paris Climate Agreement. They must work to limit global temperature rise to 1.5 degrees Celsius and provide the promised US$100 billion per year in climate finance,” said the Commonwealth Secretary-General. She added that climate-vulnerable nations should also be eligible for debt relief.

Meanwhile, the Commonwealth Secretariat is working with member countries to improve their access to global funding for climate projects. And it is calling for reform of the global financial architecture to improve access to finance for lower-income countries that need it the most.

At the same time, the International Labour Organization predicts that the informal economy will continue to employ most Pacific Islanders, and the imperative now is to develop the sector and improve its resilience.

In PNG, the government has acknowledged the significance of the informal sector and developed national policy and legislation to grow its size and potential. Its long-term strategy is to improve the access of entrepreneurs to skills training, communications, technology and finance and encourage diversity and innovation within the sector. Currently, 98 percent of informal enterprises in the country are self-funded, with people often seeking loans from informal sources. The government’s goal is to see informal enterprises transition into higher value-added small and medium-sized businesses and to see the number of these businesses grow from about 50,000 now to 500,000 by 2030.

In Port Vila, Borlasa and her fellow entrepreneurs would like to see their existing facilities made more climate resilient before they face the next cyclone. She suggested that stronger window and door shutters be fitted to the market building and the floor raised and strengthened to stop waves and storm surges penetrating.

Looking ahead, the economic forecast is for GDP growth in all Pacific Island countries this year and into 2024 after three difficult years of the pandemic, reports the World Bank. Although, the economic hit of the cyclones is likely to result in a decline in growth to 1 percent in Vanuatu this year. But the real indicator of economic well-being for many Pacific islanders will be resilience and prosperity in the informal economy.