Africa 10, Informal Sector.2007 ppt

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Published on March 8, 2014

Author: katishakayla

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Slide 1: The “Informal Sector” in Africa June 1 and 3, 2010 ECON 3510 Slide 2: . This section is not in the text book. Please take notes to flesh out this summary. Outline : Outline Some Description Past Theorizing Definition of the Informal Sector Origins and Roots of Informal Economy Comparison of “Formal” and “Informal Sectors” Impacts of the Informal Sector on the National Economy and Society Public Policy and the Informal Sector? Slide 4: Artisanal Mining, Tanzania Slide 5: Kenya: Rural Market Slide 6: 1. Some Description Presence everywhere Variation among Countries Diversity or “Heterogeneity” of Informal Enterprise within countries High-end to low-end Sophisticated to “last resort” enterprise Rural and Urban IS Men, Women and Children in the Informal Sector The Informal Sector in Kenya : The Informal Sector in Kenya Non-Farm Economic Activities in Rural Households. Kenya, circa 1979 Informal Employment in Non-Agricultural Employment for Africa : Informal Employment in Non-Agricultural Employment for Africa Source: ILO, Men and W\omen in the Informal Economy, Geneva, 2002 pp 19-20 Past Theorizing regarding the Potential Role of the informal Sector : Past Theorizing regarding the Potential Role of the informal Sector Older Views: Adam Smith: Normal activity; purely competitive Karl Marx: Replace with large scale industry and organization; “lumpen proletariat” Socialist Theorizing: Replace it; Central Planning; Economies of Scale; Collectivization Mainstream “Development Economics” 1945-1972 Small Enterprise Usually Ignored Rostow, Lewis, Prebisch, Capital-Centred Theorizing, Dependency Theorizing … Some Voices in the Wilderness: Indian Cottage industry, Community Development Theorizing Slide 11: The Informal Sector gets Discovered! Keith Hart, 1972, focussing on Ghana; ILO, 1970s, Study in Kenya; Parallel interest in Underground Economies of Western countries [“Shadow Economies”] Hernan DeSoto, 1989 re Peru; Underground Economies in Centrally Planned Economies get ‘discovered’ , 1980s [“Second Economies,” ] Informal Economy and Underground Economy in Transitional Countries (E.Europe and former Soviet Union) Definition of the Informal Sector based on Institutionalization and Legality : Definition of the Informal Sector based on Institutionalization and Legality Slide 14: Origins and Roots of Informal Economy Why does it exist? Slide 15: Origins and Roots of Informal Economy 1. Traditional and often Pre-Colonial Economy and Society, e.g. African traditional economic activities …. 2. Slow Growth of Employment in the Formal Economy (due to excessive capital intensity, economic stagnation ……….) Slide 16: 3. State Controls and Bureaucratic Regulations Note differences among various types of societies and economic systems. - Hernando De Soto: “The Other Path” Registration Blockages Registration Blockages: Starting a Business : Registration Blockages: Starting a Business World Bank, WDI 2009, pp. 276-278 Slide 18: Taxation Levels Regulations Labour Laws , Health & Safety Regulations, Minimum Wage Legislation, Environmental controls and rules Zoning Regulations i.e. some IS entrepreneurs may prefer to remain “informal” to evade regulations and taxation 4. Informal Sector as a Social Safety Net Comparison of “Formal” and “Informal Sectors” : Comparison of “Formal” and “Informal Sectors” Comparison of “Formal” and “Informal Sectors”, continued : Comparison of “Formal” and “Informal Sectors”, continued Slide 21: The Positives: What are they The Negatives: What are they On Balance, Impacts of the Informal Sector on the National Economy and Society Slide 22: The Positives: 1. Production of low-cost goods and services mainly for low income people 2. Job Creation 3. Income Generation 4. Social Safety net function 5. Development of Entrepreneurship 6. Training: informal apprenticeship systems 7. Domestic Value Added (using domestic inputs rather than imported inputs) 8. Appropriate Technology? 9. Foreign Exchange generation 10. Generation of Savings and Investment Impacts of the Informal Sector on the National Economy and Society Impacts of the Informal Sector on the National Economy and Society (Continued) : Impacts of the Informal Sector on the National Economy and Society (Continued) The Negatives: Tax avoidance and evasion Health & safety standards ignored Environmental laws & regulations ignored “Self-exploitation” ? ? Child labour Links with criminal economic activities sometimes Irreverence and non-compliance with some concerns of the state. Public Policy and the Informal Sector? : Public Policy and the Informal Sector? Should governments do anything in support of micro and small enterprises? Why or why not? What types of public policy would be relevant? Public Policy and the Informal Sector? : Public Policy and the Informal Sector? Possible Supportive Policies: Low cost licensing Security of tenure Physical security MICROCREDIT Basic training e.g. in book-keeping Technical extension services Public provision of infrastructure (market stalls, water, electricity) Encouragement to “graduate” to “formality”? But note aversion to paying taxes and government regulation Potential Contribution of the Informal Economy for Future Development?? : Potential Contribution of the Informal Economy for Future Development?? Potential Contribution of the Informal Economy for Future Development?? : Development of Entrepreneurship: transferrable to other sectors and up-graded enterprises Training: gradual up-grading of skills? Steadily increasing productivity leading to higher incomes, one hopes “Graduation” of enterprises, into the formal economy, with tax-oaying and acceptance of regulations Improved environmental standards Potential Contribution of the Informal Economy for Future Development?? Potential Contribution of the Informal Economy for Future Development?? : 7. Better jobs and higher incomes 8. Increased generation of Savings and Investment 9. Foreign Exchange generation and savings (continued domestic Value Added using domestic inputs rather than imported input) 10. “Last resort” activities will diminish and disappear with the expansion of the formal economy – one hopes 12. Low productivity activities will evolve into higher productivity activities or else disappear. Potential Contribution of the Informal Economy for Future Development?? Slide 29: Potential Contribution of the Informal Sector for Future Development Last resort activities that will diminish and disappear with the expansion of the formal economy? A foundation for future enterprise development and economic improvement?

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