Informal Economy-Opportunity, not threat
July 2017
24
About the Report
About the Report
Informal Economy-Opportunity, not threat
Summary
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 Highlights
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 meet the needs of the informal economy was success struck.
Government crackdowns on the informal economy are bad for national economies. Not only does a large section of the economy fail to achieve its business potential, but cycles of bribery and corruption remain. Furthermore, services which employ vast numbers of people are damaged and those dependent upon them are faced with greater difficulties than normal.
Some countries are becoming much better at finding means of taxing the informal economy, helping to businesses operating outside of the law closer to a formalized setup. This is the correct approach because of the economic potential the informal economy has.
Scope
Explores how companies are adapting to the informal economy.
Explains why bribery is not the problem some governments believe it to be.
Analyzes policies created to deal with the informal economy
Seeks to explain the economic significance of the informal economy
Reasons to buy
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?
Products
Table of Contents
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 Figure
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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