Informal Economies

The expressions, “informal economy,” “informal sector,” and “informal employment” reflect statistical terms and definitions used to describe various aspects of informality. They are the result of several decades of work to develop a framework that adequately represents the multifaceted nature of informality as it applies not only to developing countries, but also to other transition and developed economies. The informal sector is generally viewed as the set of activities of small unregistered enterprises, while informal employment refers to employment within the formal or informal sector that lacks any form of protection, whether legal or social.1 The informal economy is a broader concept that encompasses all of these elements in their different forms, including their outputs and outcomes. The many different views about the drivers and composition of the informal economy in Africa have influenced various prescriptions and policy responses. On the one hand, some have viewed informality as being inimical to investment and growth, given that the activities undertaken usually fall outside of official regulation and control. The policy response has, therefore, often been to clamp down on or formalize the activities and relationships within the informal economy. On the other hand, informality is sometimes viewed as critical for growth and poverty reduction, given that the informal economy is inextricably linked to the formal economy while also serving as an important source of livelihood for millions of people. As a result of this, some effort has recently gone into providing a more supportive environment to enhance productivity within the informal economy and minimize its inherent vulnerabilities in the last decade. In the face of increasing globalization and access to new technologies that will drive the future of work, there is concern about the future of informal economic activities. Whether new technologies lead to a decline or upscaling of the informal economy in Africa will depend on several elements. Technology will not only shape how informality in Africa is viewed, but will influence the kind of activities undertaken, its links with the formal economy, and ultimately, the public policy response, which will itself be shaped by advances in technology.

Informal Economies of the Sahel

Sahelian countries, while sharing many features of other Sub-Saharan African economies, face some unique economic challenges, which merit particular scrutiny, notably: a sizable demographic bulge, being landlocked, a lower income per head, and a higher poverty incidence. The picture is further darkened by critical governance weaknesses, political instability, and radical Islamist threats, which, as discussed in other chapters in this volume, have caused serious security challenges within, and across, national borders. All these factors have contributed to a downsizing of the formal business environment and an expansion of the informal sector. This chapter assesses the relative weights of the formal and informal sectors in Sahelian national economies, its growth dynamics, as well as employment and productivity patterns. It also examines the implications of the rise of the informal sector for institutions and governance, social inclusion, and stability.

Retailer-reseller embeddedness and price-setting in the informal economy

Purpose This study aims to investigate how and why retailers and resellers in sample firms of the informal economy set prices and the performance implications for the firm’s pricing efforts. Design/methodology/approach The author generated their insights through an inductive qualitative study of four organizations operating within the informal economy in the Nigerian retailing sector. Findings The study found that some organizations within the informal economy set prices in different ways i.e. negotiated pricing and fixed pricing. The contracting criteria between the retailers and resellers determine the pricing strategy. Contractual terms based on relational ties between both facilitate negotiated price-setting, while contractual terms based on non-relational ties promote fixed pricing. The type of price-setting arrangement of the sampled retailer relates to the organization’s performance within its industry. Particularly, the study found that retailers that adopted negotiated pricing performed above the industry average for their product category. In contrast, the retailers that adopted fixed pricing performed below the industry average for their product category. Originality/value As far as the author knows, this is the first study to investigate pricing methods within the informal economy. This is also the first known study to investigate price-setting arrangements between retailers and resellers within the informal economy. Another unique contribution of this paper is that it is the first study that focuses on pricing interactions among business-to-business firms within the informal economy. The study contributes to the work on relational embeddedness, relational contracting and informal economies.

Return to the Past

Chapter 15 analyzes ethnographic data that suggests many people in postsocialist countries, particularly those who lived in rural areas, felt that their lives were moving backward following transition. It shows that many were forced to return to subsistence agriculture and pastoral herding as rural state enterprises collapsed through privatization and as state job guarantees disappeared. The chapter explores how the flaws of privatization led to the substantial growth of informal economies and examines the new phenomenon of homelessness in societies where all had previously been guaranteed a home. In analyzing homelessness, it shows how the dissolution of state-support networks caused those without individual support networks to be “thrown away,” many of whom would end up living on the street in the clutches of alcoholism. The chapter considers nostalgia for past systems by those who cannot compete in a market economy, generally the elderly or members of marginalized groups.

Supply Chains, the Informal Economy, and the Worst Forms of Child Labour

As a cohort of people, ‘children in work’ have become critical to the everyday functioning of diverse supply chain systems. This Working Paper considers diverse commodity chains (leather, waste, recycling and sex) to explore the business realities that generate child labour in its worst forms. A review of the literature finds that occurrence of the worst forms of child labour (WFCL) in supply chain systems is contingent on the organising logics and strategies adopted by actors in both the formal and informal economies. Piecing together the available evidence, the paper hypothesises that a supply chain system is sensitive to the use of WFCL when downward pressure to take on business risk cannot be matched by the economic resilience to absorb that risk. Emergencies and persistent stressors may increase risk and reduce resilience, shifting norms and behaviour. There is a need for further work to learn from business owners and workers in the informal economy.

Meeting in the Middle: TVET Programs’ Education–Employment Linkage at Different Stages of Development

Technical and vocational education and training (TVET) programs are most successful at supporting youth labor markets when they combine education and employment. Education–employment linkage theory describes this combination in terms of power-sharing between actors from the education system and their counterparts in the employment system over key processes in the curriculum value chain of curriculum design, curriculum application (program delivery), and curriculum updating. The Education–Employment Linkage Index measures linkage for every function in a TVET program where actors from the two systems interact, aggregating those into processes and phases and eventually an index score. We apply this index to the largest upper-secondary TVET programs in Benin, Chile, Costa Rica, and Nepal. We find that Benin has relatively high education–employment linkage, while the other three countries score very low. Benin’s situation is unique because its TVET program is moving from employer-led to linked, rather than the typical employer integration into an education-based program. Other countries with large informal economies, low formal education and training rates, and existing non-formal employer-led training may be able to implement similar approaches.

Impact of COVID-19 shutdown on economic resilience of low-income households and its implications for livelihood interventions: the case of Bangladesh

COVID-19 shutdown provides a unique opportunity to assess how the low-income households engaged in urban and rural formal and informal economies coped with the shock and how it affected their capacity to cope with such shocks in the near future. Insights on the income and expenditure, savings and borrowing patterns of the low-income households can help us to understand how the coping mechanism and coping capacity varies across different types of low-income households. In turn, it can help us understand the weaknesses in their coping capacity which should be addressed for these households to become more resilient against such external shocks. This paper examines the coping mechanism and the coping capacity of the low-income households based on rapid surveys that were undertaken during the COVID-19 shutdown period in Bangladesh by the author and other agencies in Bangladesh.

The Exiled Spaces Of The City: Transforming Laneways Into Community Spaces

This goal of this project is to re-imagine a derelict, underutilized, and exiled laneway in the Roncesvalles Village neighbourhood (alternatively known as ‘Roncy’), into a place that can be celebrated and used by the community. I imagine it to be a project that expands the street level excitement into the laneways. This project is heavily grounded in the practical. The idea for it flourished while standing on a rooftop of a building during a festival in the ‘Roncy’ neighbourhood. After spending the afternoon on the ground we retreated from the busy street to a private rooftop. From here, I was able to watch as people squeezed by each other enjoying street vendors and local artisans and music. But I could also see the intricate network of laneways that stood vacant and still amidst the heavy traffic on the street below. Since then I’ve spent countless hours wandering through the laneways in Roncy hoping to see activity, kids playing, informal economies, or seniors sitting and reading books. But alas, the only people I’ve come across are those looking through garbage and recycle bins in search of bottles to return for a few cents.

The Exiled Spaces Of The City: Transforming Laneways Into Community Spaces

This goal of this project is to re-imagine a derelict, underutilized, and exiled laneway in the Roncesvalles Village neighbourhood (alternatively known as ‘Roncy’), into a place that can be celebrated and used by the community. I imagine it to be a project that expands the street level excitement into the laneways. This project is heavily grounded in the practical. The idea for it flourished while standing on a rooftop of a building during a festival in the ‘Roncy’ neighbourhood. After spending the afternoon on the ground we retreated from the busy street to a private rooftop. From here, I was able to watch as people squeezed by each other enjoying street vendors and local artisans and music. But I could also see the intricate network of laneways that stood vacant and still amidst the heavy traffic on the street below. Since then I’ve spent countless hours wandering through the laneways in Roncy hoping to see activity, kids playing, informal economies, or seniors sitting and reading books. But alas, the only people I’ve come across are those looking through garbage and recycle bins in search of bottles to return for a few cents.

Post-Disaster Economies at the Margins

This chapter is concerned with the making of development zones in Nepal’s northern borderlands. Focusing on the shifting economic geographies of traders and businessmen, I demonstrate that the current revival of border markets and informal economies is inseparable from the combined processes of state restructuring and infrastructural reconstruction that ensued after the 2015 earthquakes devastated large parts of the country. I seek to develop the category of “informal development zones” to attend to the ways in which state power is enacted to control and discipline the margins in the post-disaster moment, while also foregrounding how rural inhabitants engage with, resist, or support the formalities of state laws and regulations. Looking closely at local narratives of social differences and insecurities, I show how people navigate the complex space between competition and choice to carve out investment strategies and entrepreneurial opportunities. Informal development zones are transforming life in borderlands and offer an urgent reminder of the uncertain and uneven outcomes of market economies following moments of rupture.