Informal Economy – Opportunity, Not Threat

By some estimates the informal economy is the second largest economy in the world, yet governments have a history of attacking it and failing to realize the opportunities on offer for economic progress. Embracing the opportunities in terms of employment and taxation possible from creating effective regulation would help to formalize the informal economy. Rather than working against it, some companies have struck success by accommodating a different means of doing business. Supporting such a large number of people – be it through employment or utilizing goods and services – working to improve the informal economy is the best outcome, particularly for many developing countries in which the informal economy is notably large.

Key Questions Answered

– How important is the informal economy to the working poor in developing nations?

– What can be done to formalize the informal economy?

– How are governments changing approach to the informal economy?

Scope

– Some companies have been able to change how products are sold to meet the needs of the informal economy. MTN, for instance, failed to break into the Nigerian market when attempting to use conventional means; only when mobile phone services were sold to

Reasons to buy

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Table of Contents

Table of Contents

Overview 2

Catalyst 2

Summary 2

Major companies choose to sell directly to street vendors, circumventing traditional routes 5

Some companies have demonstrated how to accommodate a different way of doing business 5

Companies can change products to suit informal economy 6

Banking products are changing informal business, helping to bring many closer to formalization 7

Share offerings are now available to informal economy businesses 8

Government crackdowns are bad for ordinary people and economic performance 9

Attempts to shut down informal economy in Lagos caused mayhem for many people living in poverty 9

Iconic street food of Bangkok has not been exempt from heavy handed governance 10

India removed 86% of cash in circulation, harming many poor people in the informal economy 11

Informal economy has major impact on wealth - it must be aided, not discarded 12

Informal economy serves those who require it the most, helping growth by providing employment and services 12

Some countries are becoming much better at taxing informal businesses 13

Informal economy is helping to improve the health of poor people, enabling greater economic activity 13

Informal businesses are functioning closer to formal companies 14

Governments can influence scale of informal economy 16

Brazil created an incentive system to increase business registration 16

Indian government passes street vendor law, but it resembles a thinly veiled threat rather than granting legitimacy 16

Governments in developed countries have influence on informal economy too 17

Bribery: commonly associated with informal work, it also afflicts formal companies 19

Informal economy bribery is essential, creating a problem for moving towards formalization 19

Although commonly associated with informal traders, bribery afflicts incorporated companies 20

Conclusions 21

Informal economy is an opportunity, not a threat 21

Appendix 22

Sources 22

Further Reading 22

Ask the analyst 23

About MarketLine 23

Disclaimer 23

List of Figures

List of Figures

Figure 1: Share of the economy which is informal, average 1999-2007 5

Figure 2: MTN street store in Nigeria 6

Figure 3: Spaza store in South Africa 7

Figure 4: Proportion of products sold informally on Nigerian streets, 2015 9

Figure 5: Bangkok Street food market 10

Figure 6: Rate of poverty in Nigeria by area, 2010 12

Figure 7: International food prices according to Food Price Index 14

Figure 8: Street vendor in Delhi 17

Figure 9: Lowest share of the economy taken by the informal economy, average 1999-2007 18

Figure 10: Percentage of people in India who consider organizations to be corrupt 19

Figure 11: Ranking on the corruption index, 2016 20

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