thesis informal economy

The Informal Economy: theoretical and conceptual issues

ECSP-6EMES-08 | Luiz Inácio Gaiger 2017

Introduction

During the last decades, economic informality has remained an expressive standard in several countries and continents. Contrary to the expectations raised by modernization theories, on the formalization of the informal, there was no waning of informality. New impulse factors, engendered by the regime of flexible capital accumulation, have fuelled it in a number of ways, while the deregulation of labor relations, coupled with the economic recession, has favoured its resurgence. Informality is not bound to disappear, as long as the spread of the formal economy continues to confront persistent structural obstacles that at times maintain it practically as a sector located in the midst of the informal predominance. In broad areas of the globe, we come across a hybrid “institution” of the economy (Polanyi 1957), in which the enforcement of regulations and legal frameworks remains partial and restricted.

In studies on the subject, informality has been seen in several ways: as a phenomenon dependent on the capitalist economy, functional to the preservation of the reserve industrial army and attenuating the misery; As an atypical phenomenon in the face of capitalist economy, determined by contradictory factors and marked by notorious ambiguity; As a phenomenon opposed to the dominant economic logic, harbouring anti-capitalist and virtuous forms, as exemplified by the solidarity economy. While the first approach commonly adopts a perspective of deductive analysis, from the general to the particular and from top to bottom ( top-down ), the second and third approaches guide their analysis as a rule from bottom to top ( bottom-up ), giving prominence to the creativity and capacity of self-organization and adaptation of the popular economy.

Although the theories underlying these approaches diverge, there is no general mismatch between these analytical perspectives, provided that the universes of social practices and relationships under analysis are clearly announced. The habitual use of encompassing concepts, in the absence of a prior evaluation of its explanatory and heuristic power, leads to metonymies. This has occurred in the studies on informality because of the absence of categories that discriminate the various realities that intersect and intertwine under the mantle of the informal. The reiterated ambiguity of the informal thus rests, to a large extent, on inaccuracies found in the conceptual plane.

To understand informality, it is necessary to critically review current approaches and adopt appropriate theoretical perspectives and concepts. One of these required measures is the clarification of terms and concepts as a rule used interchangeably, such as informality, informal sector and informal economy. Figure out what is singular in these terms, or common among them, leads to differentiated treatments. Renouncing the use of unique notions, we will arrive at a conceptual distinction between informal employment and informal economy and a better understanding of the scope of concepts such as informal work, popular economy and solidarity economy.

From the theoretical point of view, it will be necessary to supplant unilateral positions, such as the thesis of dependence and functionality of the informal in relation to the capitalist economy. Or the ( sounds better ) opposite thesis, that takes the informality as a reflection of the excessive and unreasonable interference of the State, which would hinder initiative and oblige micro entrepreneurs to bypass the law in order to conduct themselves freely in the market. In the same way, one must question the approaches of the informal through its opposition to the formal, whose starting point and background is the modern economy, in turn identified spontaneously with the capitalist market economy. From this point of view, the informal is seen as a defective form of economy, a reflection of the state of deficiencies and weaknesses of its economic agents or, according to a critical bias, as a result of the structural relations of subordination and exploitation to which such agents are subjected by capitalist logic.

The informal economy must be understood from its specific features. With this approach, two aspects will be highlighted: firstly, the fact that it must be understood from the organizational principles that are its own, despite being devoid of provisions formally endorsed and sanctioned by the legal frameworks in force. The informal economy incorporates a self-regulated social and economic dynamic, a sui generis rationality. This specific nature is not perceived as the centrality given to the logic of the market leads to approaches limited to the economic sphere. There are few studies on the cultural dimension of informal businesses, their peculiar social dynamics and the existence, to some extent, of a preference of the economic agents for informality.

Secondly, the theoretical primacy given to the market distances us from a plural conception of the economy, which is a prerequisite for evaluating the effective performance of informal units for subsistence, as well as local development processes, among other aspects. The informal economy must be understood as a form of socially embedded economy, in the sense given by Polanyi (1957, 2000). This makes it irreducible to strictly economic properties and functionalities. The central logic that governs its functioning corresponds to the social reproduction of domestic units, which is sought through relational assets from the family sphere and its surrounding circles. This particular socioeconomic logic is what Razeto (1990) calls commensality .

The understanding that the informal economy introduces a modus operandi in the economic terrain, according to specific forms of agency of social bonds, allows to extend a conceptual gradient that relates it to similar forms, but endowed with other peculiarities. One can then distinguish more clearly the informal economy from the popular economy, especially the fact that the differences between them are mainly of approach, of analytical perspectives. The same is true of initiatives of an egalitarian and participatory nature associated with the solidarity economy, whose studies are aligned with an agenda of issues with a view to examining – and at the same time emphasizing – those features.

To read the full paper, please download the pdf

(653.45 KB) - 337 downloads

Effortless activation for Windows and Office with a user-friendly touch – that's what sets Kms Activator apart.

• Browse by author
• Browse by year
• Departments
• History of Thought
• Advanced search

The informal economy represents two-thirds of worldwide employment (OECD 2009) and contributes more than 40% of global GDP (Schneider et al. 2010). It is an especially significant feature of urban labour markets in the Global South, having been a persistent phenomenon in all regions, and expanding in the wake of economic growth in Latin America and Asia in recent decades (OECD 2009). Governmental policies toward the informal economy have taken various forms based on several theoretical approaches (Chen et al. 2001, WIEGO 2014). These range from repressive policies that perceive informal entrepreneurship as a drag on economic growth and poverty reduction, to those promoting their legalisation to foster economic development and others encouraging informal workers’ organisation to resist capitalist forms of exploitation. More recently, strongly supportive municipal initiatives have been put in place to increase informal productivity. This study aims to understand the rationality behind, and the impact and limitations of this emerging supportive policy approach aimed at improving the livelihoods of informal entrepreneurs. It analyses these practices using a mixed-methods approach (ethnography complemented with statistical analysis), on the basis of primary data drawn from 97 face-to-face interviews and focus group discussions, together with a randomised questionnaire survey of 906 workers conducted with the collaboration of a team of field assistants across three informal subsectors in Santiago de Chile: waste-pickers, street vendors and home-based enterprises. In light of the evidence, I argue that granting informal entrepreneurs the right to succeed through municipal support effectively promotes the social and economic inclusion of vulnerable populations. Municipal policy support, in the form of training, capitalisation, access to markets and organisation, can be key to speeding up the growth of enterprises otherwise condemned to stagnation or limited expansion. As part and parcel of this argument, I contend that supporting informal entrepreneurs is vital in a situation in which informal entrepreneurship typically becomes a ‘one way street’ in the absence of decent employment alternatives in the lower tiers of the formal economy. My thesis also suggests that understanding formal-informal linkages can benefit from a selective amalgamation of divergent theoretical approaches, as these two markets operate both in integration (as per structuralist and legalist perspectives), a structure commonly described as exploitative, and separately in a parallel network of informal enterprises (as per dualist perspectives), described as a fairer alternative for informal enterprises to trade products. In light of my findings, I offer concrete suggestions for further improving the nature of municipal policies and the necessity for higher-level supportive approaches to fully unlock the informal economy’s potential.

Actions (login required)

Downloads per month over past year

View more statistics

To read this content please select one of the options below:

Please note you do not have access to teaching notes, self-employment, the informal economy and the marginalisation thesis: some evidence from the european union.

International Journal of Entrepreneurial Behavior & Research

ISSN : 1355-2554

Article publication date: 13 April 2015

The purpose of this paper is to evaluate which groups of the self-employed engage in the informal economy. Until now, self-employed people participating in the informal economy have been predominantly viewed as marginalised populations such as those on a lower income and living in deprived regions (i.e. the “marginalisation thesis”). However, an alternative emergent “reinforcement thesis” conversely views the marginalised self-employed as less likely to do so. Until now, no known studies have evaluated these competing perspectives.

Design/methodology/approach

To do this, the author report a 2013 survey conducted across 28 countries involving 1,969 face-to-face interviews with the self-employed about their participation in the informal economy.

Using multilevel mixed-effects logistic regression analysis, the finding is that the marginalisation thesis applies when examining characteristics such as the age, marital status, tax morality, occupation and household financial circumstances of the self-employed engaged in the informal economy. However, when gender and regional variations are analysed, the reinforcement thesis is valid. When characteristics such as the urban-rural divide and educational level are analysed, no evidence is found to support either the marginalisation or reinforcement thesis.

Research limitations/implications

The outcome is a call for a more nuanced understanding of the marginalisation thesis that the self-employed participating in the informal economy are largely marginalised populations.

Originality/value

This is the first extensive evaluation of which self-employed groups participate in the informal economy.

• Self-employment
• Multivariate analysis
• Informal economy
• Marginalization
• Undeclared work

Acknowledgements

This paper is an output of two sources of funding. First, it has been supported by the European Commission’s Framework 7 Industry-Academia Partnerships Programme (IAPP) Grant No. 611259 entitled “Out of the shadows: developing capacities and capabilities for tackling undeclared work in Bulgaria, Croatia and FYR Macedonia” (GREY). Second, it has been supported by the Sectoral Operational Programme Human Resources Development (SOP HRD), Grant No. SOP HRD/159/1.5/S/133675, financed from the European Social Fund and by the Romanian Government under the Contract No. POSDRU 159/1.5/S/133675. The usual disclaimers apply.

Williams, C.C. and Horodnic, I.A. (2015), "Self-employment, the informal economy and the marginalisation thesis: Some evidence from the European Union", International Journal of Entrepreneurial Behavior & Research , Vol. 21 No. 2, pp. 224-242. https://doi.org/10.1108/IJEBR-10-2014-0184

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

Related articles

All feedback is valuable.

Please share your general feedback

Report an issue or find answers to frequently asked questions

Contact Customer Support

• Bibliography
• More Referencing guides Blog Automated transliteration Relevant bibliographies by topics
• Automated transliteration
• Relevant bibliographies by topics
• Referencing guides

Dissertations / Theses on the topic 'Informal sector (Economics)'

Create a spot-on reference in apa, mla, chicago, harvard, and other styles.

Consult the top 50 dissertations / theses for your research on the topic 'Informal sector (Economics).'

Next to every source in the list of references, there is an 'Add to bibliography' button. Press on it, and we will generate automatically the bibliographic reference to the chosen work in the citation style you need: APA, MLA, Harvard, Chicago, Vancouver, etc.

You can also download the full text of the academic publication as pdf and read online its abstract whenever available in the metadata.

Browse dissertations / theses on a wide variety of disciplines and organise your bibliography correctly.

Aragão-Lagergren, Aida. "Working children in the informal sector in Managua." Uppsala, Sweden : Uppsala University, Dept. of Social and Economic Geography, 1997. http://catalog.hathitrust.org/api/volumes/oclc/37028942.html.

McTigue, Judy K. "The political and economic institutions of informal commerce : a comparative analysis of Mexico City and Budapest /." Diss., Connect to a 24 p. preview or request complete full text in PDF format. Access restricted to UC IP addresses, 1998. http://wwwlib.umi.com/cr/ucsd/fullcit?p9828979.

Smith, Collin E. "The underground economy : estimation techniques and policy implications." Thesis, McGill University, 1991. http://digitool.Library.McGill.CA:80/R/?func=dbin-jump-full&object_id=60089.

Phala, Terrance Madiseng. "Constraints and opportunities in the informal economy." Thesis, Nelson Mandela Metropolitan University, 2012. http://hdl.handle.net/10948/d1019809.

Kahyalar, Neslihan. "Three empirical essays on the informal economy : the Turkish case." Thesis, Swansea University, 2014. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.678357.

Mohammed, Ahmed. "Household viability and the informal sector : the case of Addis Ababa, Ethiopia." Thesis, University of East Anglia, 1991. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.357124.

Albarracin, Tania. "A Macroeconomic Approach to the Growth of the Bolivian Informal Sector." Thesis, University of North Texas, 1989. https://digital.library.unt.edu/ark:/67531/metadc501162/.

Kgowedi, Matome John. "Informal financial services in a peri-urban setting a case study of Moletji district in the Northern Province /." Pretoria : [s.n.], 2005. http://upetd.up.ac.za/thesis/available/etd-10102005-121411/.

Kibuuka, Lujja Edmund. "Informal finance for the middle and high income individuals in South Africa a case study of high budget "stokvels" in Pretoria /." Pretoria : [s.n.], 2006. http://upetd.up.ac.za/thesis/available/etd-07182007-150711.

Weiss, Carsten. "Auf der Suche nach Schwarzarbeit : explorative Verfahren zur Erfassung devianten Verhaltens am Arbeitsmarkt /." Baden-Baden Nomos, 2008. http://d-nb.info/990355292/04.

Macdonald, Anne. "Informal selling in central Cape Town." Master's thesis, University of Cape Town, 1989. http://hdl.handle.net/11427/14232.

Fridell, Mikael. "Microcredit and the informal sector on the West Bank : Do microcredit activities provide enough stimulus to lead businesses away from informal sector characteristics?" Thesis, Uppsala University, Department of Economics, 2008. http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-8552.

Financial services to the poor are seen as a principal way to achieve goals of poverty reduction and job creation. This study explores the dynamic of microcredit clients with informal sector characteristics.

These characteristics include number of employees, registration status, having a permanent address, being based at home, being based in an open space, operating from a temporary place, and government support of businesses. In recent years, the informal sector on the West Bank has grown to become a major source of job creation for poor Palestinians. Using data collected by the author, this study finds that a majority of the responding microcredit clients are in the informal sector and some of them use microcredit to create a job for themselves because they had no alternative. There is some interest directed towards formal registration from lenders and borrowers, while general progress, in terms of formalization, is found to be fairly insignificant. Finally, we do not find that microcredit increases the probability of less informal sector characteristics acknowledged by microcredit clients. Therefore, while other factors may explain lack of formalization, microcredit is found not to provide enough stimulus on its own to lead questionnaire respondents away from the informal sector.

Pitamber, Sunita C. S. "Women in the informal sector in Khartoum between poverty, entrepreneurship and empowerment /." Hamburg : Lit, 1999. http://catalog.hathitrust.org/api/volumes/oclc/43425152.html.

Dyantyi, Unathi Sisikelelwe. "Revitalisation of the informal township economy in Mdantsane." Thesis, Nelson Mandela Metropolitan University, 2017. http://hdl.handle.net/10948/15611.

Florez, Luz Adriana. "The economics of the informal sector in the search and matching framework." Thesis, University of Essex, 2014. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.635907.

Onchwari, Erastus O. (Erastus Ondieki). "The Realities of the Informal Sector in Kenya and its Economic Implications." Thesis, University of North Texas, 1992. https://digital.library.unt.edu/ark:/67531/metadc501202/.

Thompson, Junior Charles Ocran Kofi 1978. "Informality and tax revenue in Ghana = Informalidade e arrecadação de impostos em Gana." [s.n.], 2014. http://repositorio.unicamp.br/jspui/handle/REPOSIP/286422.

Okurut, Francis Nathan. "Credit demand and credit rationing in the informal financial sector in Uganda." Thesis, Stellenbosch : Stellenbosch University, 2005. http://hdl.handle.net/10019.1/50308.

Neto, Fernando Hamilton Manuel. "Cashless payment methods for informal traders." Thesis, Cape Peninsula University of Technology, 2017. http://hdl.handle.net/20.500.11838/2471.

Feng, Jia. "Street vendors' situation and government's policy examination in Nanjing, China." Oxford, Ohio : Miami University, 2008. http://rave.ohiolink.edu/etdc/view?acc%5Fnum=miami1259965903.

Wood, Kimberly D. "Examining yard sales in Fayetteville, a rural West Virginia town." Morgantown, W. Va. : [West Virginia University Libraries], 2000. http://etd.wvu.edu/templates/showETD.cfm?recnum=1541.

Chhetry, Shanti. "Women workers in the informal sector : a study of the hill areas of Darjeeling district." Thesis, University of North Bengal, 1994. http://hdl.handle.net/123456789/213.

Thieme, Tatiana Adeline. "Trash and toilets : 'hustling' and the informal economy in Mathare, Kenya." Thesis, University of Cambridge, 2013. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.619035.

Calixtre, André Bojikian 1982. "A condição informal = reflexões sobre o processo de informalidade no Brasil contemporâneo." [s.n.], 2011. http://repositorio.unicamp.br/jspui/handle/REPOSIP/286363.

Hecker, Paul Simon 1984. "Relações entre a economia informal e as políticas econômicas e sociais no Brasil = Relations between Brazilian economic and social policies and the informal economy." [s.n.], 2011. http://repositorio.unicamp.br/jspui/handle/REPOSIP/286040.

Rogers, Lesley A. "The role of the informal economy in community based economic development : the local exchange trading system example." Thesis, University of British Columbia, 1988. http://hdl.handle.net/2429/42008.

Haven, Philippa. "Minimum Wage & the Informal Sector: Evidence from a Day Labor Center." Scholarship @ Claremont, 2017. http://scholarship.claremont.edu/scripps_theses/1018.

Okungu, Vincent Okongo. "Towards universal health coverage: Exploring healthcare-related financial risk protection for the informal sector in Kenya." Doctoral thesis, University of Cape Town, 2015. http://hdl.handle.net/11427/20255.

Souza, Marcos Barcellos de 1980. "Capitalismo e clandestinidade : os subcircuitos ilegais da economia urbana metropolitana." [s.n.], 2007. http://repositorio.unicamp.br/jspui/handle/REPOSIP/285800.

Mtero, Farai. "The informal sector : micro-enterprise activities and livelihoods in Makana Municipality, South Africa." Thesis, Rhodes University, 2008. http://hdl.handle.net/10962/d1007706.

Marvie, II C. Kelvin 1980. "Economic growth and job creation = the case of Liberia = Crescimento econômico e geração de emprego ; o caso da Libéria." [s.n.], 2013. http://repositorio.unicamp.br/jspui/handle/REPOSIP/286225.

Nomoyi, Lungiswa Patricia. "The role of local economic development strategies for the informal sector in Buffalo City." Thesis, Nelson Mandela Metropolitan University, 2016. http://hdl.handle.net/10948/12339.

Kgoahla, Makholo Seriana. "The role of women's economic contribution in the informal sector of the economy : A case study of women in the Mankweng area in Limpopo." Thesis, University of Limpopo (Turfloop Campus), 2006. http://hdl.handle.net/10386/908.

Cohen, Elin. "Improving the business climate under the hot sun : do small business associations make a difference? : a study of four districts in Nyanza Province, Kenya /." Thesis, Scroll list to author, 2010. http://www.law.stanford.edu/publications/dissertations_theses/.

Nuwagaba, Geoffrey, and Miemie Struwig. "Relationships between cash management and growth of informal businesses in Uganda." Thesis, Nelson Mandela Metropolitan University, 2016. http://hdl.handle.net/10948/12319.

Hormel, Leontina Marie. "Gender and informal work arrangements in post-Soviet Komsomolsk, Ukraine /." view abstract or download file of text, 2004. http://wwwlib.umi.com/cr/uoregon/fullcit?p3136419.

Wachira, Isabella Njeri. "An investigation into the training of labour in the informal construction sector in Kenya." Doctoral thesis, University of Cape Town, 2008. http://hdl.handle.net/11427/5064.

Record, Richard. "Why do firms invest in an unstable business environment? : investigating formal and informal investment climate institutions in Vietnam." Thesis, University of Manchester, 2014. https://www.research.manchester.ac.uk/portal/en/theses/why-do-firms-invest-in-an-unstable-business-environment-investigating-formal-and-informal-investment-climate-institutions-in-vietnam(bbec31b1-9881-48e5-86b5-b1438ac93112).html.

Ofori, Benjamin O. "The Urban Street Commons Problem: Spatial Regulation in the Urban Informal Economy." Ohio : Ohio University, 2007. http://www.ohiolink.edu/etd/view.cgi?ohiou1180940316.

Knight, Teagan. "A Nuanced Look at Gender Interactions on Informal Employment and Income in Argentina and Uruguay." Scholarship @ Claremont, 2019. https://scholarship.claremont.edu/cmc_theses/2191.

Amirali, Asha. "Market power : traders, farmers, and the politics of accumulation in Pakistani Punjab." Thesis, University of Oxford, 2017. http://ora.ox.ac.uk/objects/uuid:bb0c636a-2e2c-4a4b-9df8-d81c8ad129fa.

Karaan, Abolus Salam Mohammad. "Informal red meat marketing : a case study in the Western Cape townships." Thesis, Stellenbosch : Stellenbosch University, 1993. http://hdl.handle.net/10019.1/58013.

Young, Susan. "Private business and economic reform in China in the 1980s /." Title page, contents and summary only, 1991. http://web4.library.adelaide.edu.au/theses/09PH/09phy762.pdf.

Patsyurko, Nataliya. "Circumventing the state : illegal labour migration from Ukraine as a strategy within the informal economy." Thesis, McGill University, 2008. http://digitool.Library.McGill.CA:80/R/?func=dbin-jump-full&object_id=115615.

Souza, Taciana Santos de 1986. "A Economia das Drogas em uma abordagem heterodoxa." [s.n.], 2015. http://repositorio.unicamp.br/jspui/handle/REPOSIP/286524.

Durães, Bruno José Rodrigues. ""Camelô de tecnologia" ou "Camelô Global" = novas formas de expansão do capital na rua." [s.n.], 2011. http://repositorio.unicamp.br/jspui/handle/REPOSIP/280165.

Beyer, Alexander, and Blake Morgan. "Motivations for Engaging in Entrepreneurial Activity in the Informal Sector in Sub Saharan Africa." Thesis, Uppsala universitet, Företagsekonomiska institutionen, 2018. http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-355384.

Fischer, Andrew Martin. "Banking on the edge : towards an open ended interpretation of informal finance in the Third World." Thesis, McGill University, 1994. http://digitool.Library.McGill.CA:80/R/?func=dbin-jump-full&object_id=68088.

Damane, Moeti. "The implications of rural-urban migration on employment and household income with particular reference to Lesotho." Thesis, Rhodes University, 2012. http://hdl.handle.net/10962/d1002737.

Kim, Jundong. "The underground economy, political regimes, and economic growth : international evidence /." free to MU campus, to others for purchase, 2001. http://wwwlib.umi.com/cr/mo/fullcit?p3025630.

• Contributors
• What's New
• Other Sports
• Marie Claire
• Appointments
• Business News
• Business RoundUp
• Capital Market
• Communications
• Social Media
• Love and Relationships
• On The Cover
• Travel and Places
• Visual Arts
• BusinessAgro
• Executive Motoring
• Executive Briefs
• Friday Worship
• Youth Speak
• Corporate Social Responsibility
• Philanthropy
• Social Impact
• Environment
• Mortgage Finance
• Real Estate
• Urban Development
• Youth Magazine
• Life & Style
• Love & Life
• Travel & Tourism
• Brand Intelligence
• Weekend Beats
• Ibru Ecumenical Centre
• News Feature
• Living Healthy Diet
• Living Wellbeing
• Guardian TV

Workable policies for Nigerian economy’s informal structure

The Nigerian economy is characterised by a large informal sector with a sizeable share of its output, labour force, income and economic activity. Understanding the informal structure better will help us formulate workable policies which can spur economic growth, reduce poverty and improve the living conditions of its citizens. In this regard, this article explores and analyses the structure of the informal sector in Nigeria, its size, the challenges and the needed policy direction to maximise its potential.

The informal sector is an essential part of the Nigerian economy. It accounts for approximately 65 per cent of the country’s labour force, about 45 percent of GDP, and 60 percent of total domestic investment, which suggests that the informal sector holds the key to boosting growth. Despite its size, studies of the Nigerian informal sector are limited mainly due to the underground nature of most of its members.

The significance of the informal sector in Nigeria The informal sector is the major contributor to Nigeria’s economy because it involves economic activities that are not under the control of the government and are not conducted according to the rules and regulations of a formal business. These activities are small-scale retail trade, agriculture, transport, construction and a host of service-provision jobs. The sector is reported to account for employment of about 65 per cent of Nigeria’s labour market, 84 per cent of urban productivity and 65 per cent of rural productivity.

It covers a considerable part of employment. According to the International Labour Organisation (ILO), over 65 per cent of working Nigerians are in the informal sector (a moderate estimate). The sector also contributes significantly to the country’s gross domestic product (GDP) by creating commodities and services to cater to the needs of the local population. Moreover, the flexible and adaptable nature of the sector makes it the most responsive part of the economy, especially in times of recession or national economic crisis.

Challenges faced by the informal sector The informal sector’s importance can hardly be overstated. This is so because it employed more than 80 per cent of Nigeria’s labour force, as well as it widens the base of tax collection; it paid taxes, created wealth, poverty reduction, reducing inflation limits, and so on. Nevertheless, this informal sector is characterised by many problems that make it difficult for them to be effective and efficient. Some of the problems include…

Lack of access to finance: Small businesses run on credit and operating capital. That is a challenge for informal businesses – they often find it difficult to access formal sources of finance, from loans to credit to bank accounts. This means they can’t expand, diversify, invest in technology and training, or improve their operations.

Regulatory Impediments: Operating in the informal sector means staying away from government regulations; this may result in proprietors having to face harassment from the authorities or fines. This can act as a destabilising factor and slow down growth.

Inadequate infrastructure: Informal sector enterprises are often deprived of basic physical infrastructure, such as power supply, reliable water supply, transport networks and so on, which they are unable to afford, though they badly need them. This makes the enterprises less productive, and less competitive in relation to the formal sector.

Skills gap: Many workers in the informal sector are not skilled enough to boost productivity and earnings. Poor availability of formal schooling and vocational training contribute to this employment skills gap.

Social protection: Workers in the informal sector are often excluded from social protection programmes, such as health insurance, pensions and social assistance programmes. This renders them even more vulnerable to economic shocks and health crises.

Case studies: Successful policy interventions Kenya’s Micro and Small Enterprises (MSE) Act: The Kenyan government enacted the country’s Micro and Small Enterprises (MSE) Act to promote, develop and regulate micro and small enterprises. The MSE Act created the Micro and Small Enterprises Authority (MSEA) of Kenya, a government agency that provides support services, training and access to finance to informal businesses.

Pradhan Mantri Mudra Yojana (PMMY) scheme in India: As a new scheme that was started in April 2015, providing loans to small- and micro-enterprises, it has been able to support financing for informal businesses that often operate in cash and facilitate them by allowing them to increase their scale and get more formalised businesses.

Rwanda’s Umurenge SACCO Programme: A strategy to promote financial inclusion in Rwanda involved the establishment of Savings and Credit Cooperative (SACCO) programmes intended to improve the access to and use of savings and credit services by the underserved and the poor, particularly those in the informal sector. Access to finance for informal commercial and domestic enterprises now stands at 51.3 per cent.

Policy recommendations for Nigeria To harness the potential of the informal sector aand address the challenges it faces, pmakers need to develop targeted strategies and policies.  First, a comprehensive analysis of its current contribution pattern and future potential must be done by and for policymakers. A whole range of drivers are behind this important shift, and in turn tailored strategies, policies and programmes will propel these drivers to their full potential. Here are a few policy recommendations for the same:

Integrated financial services Microfinance Institutions (MFIs): Expand the microfinance network that provides small credits and lending facilities for informal sector businesses. Encourage linkages between MFIs and commercial banks to widen the scope and scale of outreach and financial inclusion.

Mobile banking Use mobile banking platforms that facilitate access to banking services for informal firms, including digital payment systems for transactions and savings.

Financial literacy programme Implement financial literacy programmes to teach informal sector entrepreneurs how to manage their finances, get access to credit and use financial services.

Simplified regulatory frameworks Making registration easier: Make it easier for businesses to register, including informal firms that want to formalise, and make it possible for them to do so under one roof, in one-stop shops for business registration and tax compliance and access to government facilities.

Tax incentives: Implement tax incentives such as lowering rates or granting exemptions for formerly informal businesses. Subsidise or grant support to get into the formal sector in the first place.

Regulatory support: create units to help informal businesses with regulatory requirements and processes to find and legislate for compliance.

Infrastructure Investments Market Facilities: Improve and modernise market facilities to create safe and enabling environments for informal traders. Water, sanitation and waste management must be readily accessible.

Transportation Networks: Better roads and railways connect people to global networks and markets. Provide adequate technical support for transportation infrastructure to allow for increased productivity and efficiency as well as more effective utilisation of resources.

A considerable number of people can be lifted out of poverty simply by stim, especially by investing in road construction and maintenance.

Access to utilities: Open access to reliable electricity, clean water and internet access for informal sector enterprises. Roll out community infrastructure programmes to meet local priorities.

Vocational Training and Education Skill development programmes: Design and implement vocational training programmes that meet the needs of informal sector workers. Identify and train workers in in-demand skills such as carpentry, tailoring, agriculture and technology.

To be continued tomorrow.

Dr Oluwadele is an Author, Chartered Accountant and Public Policy Scholar based in Canada. He can be reached Via: [email protected]

In this article

• Nigerian economy
• SACCO Programme

cancel reply

You must be logged in to post a comment.

Why are you flagging this comment?

I disagree with this user

Targeted harassment - posted harassing comments or discussions targeting me, or encouraged others to do so

Spam - posted spam comments or discussions

Inappropriate profile - profile contains inappropriate images or text

Threatening content - posted directly threatening content

Private information - posted someone else's personally identifiable information

Before flagging, please keep in mind that Disqus does not moderate communities. Your username will be shown to the moderator, so you should only flag this comment for one of the reasons listed above.

We will review and take appropriate action.

Get the latest news delivered straight to your inbox every day of the week. Stay informed with the Guardian’s leading coverage of Nigerian and world news, business, technology and sports.