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Question of the Week 16

How can the strength of informal segments be captured to contribute towards inclusive economic growth?

Reactions (8)

Donald Sparks - The Citadel
2016-10-17 12:12

By 2035 the number of sub-Saharan Africans reaching working age (15–64) will exceed that of the rest of the world combined. There will not be enough jobs in the formal sector to absorb such a large number of people. The informal sector now employs well over 50% of the labor force. Indeed, in Sub-Saharan Africa it is more likely that large numbers of young workers will be forced to work in low-productivity sectors such as agriculture and informal household enterprises. Large inflows of young people into the informal labor market will make it dif... read more »

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Assefa Admassie
2016-10-19 12:52

In deed the informal sector in developing countries, particularly in Africa is an important sector which cannot be ignored. Millions of people are deriving their livelihood from the sector the majority of whom are either in the youth category or are women. Of course this practice will have significant implications on the performance of the formal sector. So, the informal sector will have to be ultimately formalized and integrated into the formal economic system. But the question is what could be done to encourage the transformation and integrat... read more »

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Ratna M. Sudarshan - independent researcher
2016-10-20 07:34

I believe this is a difficult goal unless there is a substantial change in the social status and economic strength of the informal economy. As long as it remains ‘below’ the formal economy – whether in the attributes and background of those who populate it, or the degree of economic independence it has – genuine inclusion in processes of economic growth might be limited. Education may not bring about much change: (for a review based on Indian experience see ... ). If however, the sources of growth and drivers of growth could be located within the informal economy, might this change the situation? read more »

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Racky Balde - UNU-MERIT Institute
2016-10-20 16:28

In developing countries, more than 70% of the labor force evolve in the informal sector. The size of the informal sector is growing and it is a stepping stone for many young people and small firms. It is well known that the informal sector is less productive than other sectors. According to Rodrik 2011, this is one of the reasons that explains the variation between Asia and Africa in the contribution of structural change to overall labor productivity. The low productivity of the informal sector is due to the prevalence of low skilled workers, d... read more »

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Adeline Ajuaye - HIVA-KU Leuven
2016-10-21 18:40

Informal sector represents an important part of the economy and certainly of the labor market in many countries especially developing countries, and thus plays a major role in employment creation, production and income generation (Sparks and Barnett, 2010). In Tanzania for example, 40% of all non-agriculture workers are employed in the informal sector which contributes more than 36% to the national GDP (ESRF 2010, Aikaeli and Mkenda 2014). Evidence also shows that the informal economy in the country has been expanding where about 98% of busines... read more »

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Vinícius Ferreira
2016-10-24 22:59

The informal sector has a great participation on the labour creation, specially in developing countries. In these informal sector the most representative category usually are small entrepreuners that are very vulnerable to the flow of National Economy, due to the fact that people buy more when they are in a prosperous time. How most of them are their own boss, giving more flexibility the labour market regulation will not have an effectiveness effect on job creation. So these workers have a quite fragile guarantee of incoming, what suggests they... read more »

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Nancy Benjamin - World Bank
2016-10-25 20:28

The performance of informal businesses needs to be supported according to where they are along a continuum of informality.  At the most informal end of the spectrum, the most direct approach is to raise the capacity of informal workers, including basic education and some vocational training.  Training in business management for SMEs has a more mixed record, but in certain targeted instances it could help.
 Policy regarding formalization should focus rather on the large, sophisticated informal firms.  These already have the cap... read more »

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INCLUDE secretariat - INCLUDE
2016-10-28 10:51

INCLUDE would like to thank all contributors to this Question of the week. Your answers have been very informative for our lunch seminar on the informal sector, which took place on the 27th of October. The discussion on this question so far clearly shows that policies to ensure the informal sector’s contribution to economic growth are still mostly thought of in terms of formalization. Alternatives to this route appear scarce and very dif... read more »

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