The Transition from the Informal to the Formal Economy in Africa 792078 Transition in Africa paper (original) (raw)
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The informal sector makes up an overwhelming share of both gross domestic product and total employment in Africa. In this paper, we lay out some of the basic characteristics of the informal sector in sub-Saharan Africa, relevant institutions, and development issues. Proposed policy approaches recognize both that the great capacity of the informal sector is not easily harnessed into formal systems, and that development is problematic when the bulk of economic activity operates outside of the formal regulatory regime.
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The Impact of Globalization on the Informal Sector in Africa
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Contrary to the expectations of much of the early development literature, the informal sector has not only persisted but actually grown in many developing countries, particularly in Africa where it dominates the economy both in terms of output and employment. This growth has occurred in conjunction with increasing globalization and opening up of economies, which has provoked a debate about the impact of these processes on the informal sector. In this debate it is often argued that the poor, usually women, lose out in a globalized world as multinationals seek to exploit low labour costs in developing countries. The empirical evidence suggests that there are in fact both winners and losers in a globalized economy. Given the importance of informalization in African economies, this paper sets out to summarise the nature of the informal sector in Africa and how globalization affects its development. Based on the issues discussed in the paper, a number of policy recommendations are proposed. The ultimate aim of any African government must be job creation and poverty alleviation, and the policy response for this objective has to address both the removal of the barriers that constrain the participation of enterprises and workers in the formal economy, as well as extending assistance to those in the informal sector. However, this poses a particular challenge for policymakers, namely the trade-off between the ability of the sector to generate jobs and the level of benefits and protection provided for informal workers.
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The problem of employment has become a central global concern in recent times. This makes the government and development partners to be fully engaged in finding a lasting solution to the problems. In the past, development planning efforts were concentrated on the development of modern industrial sector. Today, there is renewed interest in the informal economy worldwide. This is because a large share of the global workforce and economy is informal and because the informal sector is growing in many contexts and appearing in new places and guises. The informal sector serves as a buffer against unemployment in times of economic downturn, allowing an increasing share of the population to earn a livelihood from the sector rather than stay openly unemployed with no income. The sector has also played a key role in cushioning the adverse impact of economic crises. The paper therefore interrogated the nature of employment in the informal sector and is anchored on Modernisation theory. This pa...
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