The ethiopian informal sector a term paper submitted in partial fulfillment of the requirement for the course entrepreneurship and private sector development contents 1. The informal sector is much smaller in south africa, accounting for about 21% of total employment, including domestic workers eca, 2005. The informal sector is a large part of employment in african cities. This study used national household survey data to explore the roles and characteristics of the informal sector in urban centers of ethiopia, in light of existing theory. On the one hand, a large informal sector often adds to city congestion, through informal. The informal sector varies across regions in its share of the total economy, but it has a significant role in the economic development of all world bank group client countries. The accumulated experience relating to the measurement of the informal sector and informal employment is consolidated in this manual. Like other ldcs, in ethiopia microenterprise development forms the major component in the promotion of broad based growth and improvement of the wellbeing of the poor by providing income generating opportunities. In contrast to the formal sector, the laborers, businesses and activities that make up the informal sector are not registered with or taxed by the. Understanding the informal economy in african cities.
The informal sector debate the debate on the informal sector has been confused at best, as can be illustrated by the many different names given to it table 1. Why informal economy and the unions the condition of workers in the informal economy has always challenged the unions and all those committed to human rights and work rights. Drc has operated in ethiopia since 2009, supporting refugee. It houses a large informal sector, comprising informality in businesses, employment, services, land and housing.
Acknowledgements our thanks to addis ababa university, in particular to tegegne. For this reason, the main contribution of this paper is furthering our understanding of the informal sector in african countries and the effects of globalization on this aspect of the labour market. However, very little is known about the actual size and nature of businesses in the informal sector in zambia today, in particular, of firms that are rural and based in households. Recent studies have shown that the informal sector in zambia employs a large share of the adult working population, and has grown rapidly in recent years. Project muse the urban informal economy in ethiopia. Informal and semiformal financial sectors in ethiopia 3 and the raison detre of the informal sector. Mar 14, 2018 the informal sector is a large part of employment in african cities. According to marjoriitta liimatainen 2002 cited in cross 2004. The federal democratic republic of ethiopia international. In ethiopia, small and mediumsized enterprises routinely raise finance from the informal financial sector. Statistical update on employment in the informal economy. Drc has operated in ethiopia since 2009, supporting refugee populations and host communities. The international labour organization estimates that more than 66% of total employment in subsaharan african is in the informal sector.
Manufacturing industry in east african region it is widely acknowledged that a competitive and private sector led manufacturing sector plays a key role in socioeconomic transformation of the economy and development and development of the sector. The informal sector and the potential role of microfinance institutions in ethiopia bachelor thesis minor field study in ethiopia author. The characteristics of informal financial markets in africa. The informal and semiformal financial sectors in ethiopia. Informality has been shown across regions to be associated with low productivity, and in one informative statistic, the informal sector is. Promoted by nexus emilia romagna and cetu ethiopia.
Primary data are gathered from a sample of 450 informal sector operators in hawassa city. This report focuses on a central element of ethiopia s challenge. What is the difference between formal and informal sectors. Due to the possible existence of some formal wage employment in the informal sector, total informal employment may be slightly lower than the sum of informal sector employment and informal employment outside the informal sector. Informal land settlement is socially, politically and economically growing problem in ethiopia. Most notably, the informal financial sector is dominated by iqqub schemes.
Accordingly, formalizing informal sector activities has become one of the priorities of microenterprise. This study is aimed at assessing the role of informal sector in solving unemployment and alleviating poverty. It serves as a breeding ground for new entrepreneurs, and contributes for the reduction of urban crime and violence. Introduction although researches and documents about women who participated in informal sector are very limited in ethiopia, women who participated in informal sectors generally and street vending particularly, have live for a long period of time as one group of the society. The study focuses on the iqqub and iddir in the urban and rural areas and on the savings and. With a pervasive informal sector, city governments have been struggling with how best to respond. Informal sector, collateral security, capital, production, economic challenges. The case for financial sector liberalization in ethiopia. The seed industry in ethiopia is divided into the informal, the formal, and the intermediate sectors. Democratic republic of ethiopia or the executive board of the imf. Kashuliia, hella, magayane and mvena dedication this work is dedicated to the memory of the late prof. Informal sector and government policy in ethiopia essay cram. Delbiso and others published the role of the informal sector in alleviating youth unemployment in hawassa town, ethiopia find, read and cite all the research you.
The market meets the informal economy since the term informal sector was coined in the early 1970s, the economic and political contexts in which research on this topic first emerged have changed. Incorporated as a notforprofit foundation in 1971, and headquartered in geneva, switzerland, the forum is tied to no political, partisan or national interests. Turnover tax is a tax that targets what is most commonly known in kenya as the informal sector. The role of large firms role of financial inclusion for economic growth in ethiopia challenges of private sector development private sector in tourism development. Origin, definition and characteristics the origin of the informal sector and the causes for its emergence are diverse. The informal sector comprises of the micro and the small enterprises most of which are not well organized, they use labour intensive technology and most of them are unregistered. Introduction in ethiopia, according to the nationwide urban informal sector survey by the csa 2003b, there were 799,358 establishments employing 997,380 persons 1. Chen 2004 outlines three basic approaches to explaining the informal sector. The informal sector over the past two decades, employment in the informal sector has risen rapidly in all. Informal sector plays an important role in urban poverty alleviation through creating jobs and reducing unemployment. British anthropologist keith hart coined the term informal sector in 1973 as part of a study on ghana. Introduction the informal sector refers to a large part of unregulated and unregistered economic activities. Pdf the role of the informal sector in alleviating youth.
According to the 2003 central statistic agency csa report, in ethiopia there were 974,676 micro and 31,863 small enterprise establishments in ethiopia, which accounted for 99. Informality in addis ababa, ethiopia1 utrecht university school of. However, it has been criticized because gdp is used both as a cause and indicator variable. To address this issue, this paper applies for the first time the light intensity approach instead of gdp. Some controversies on informal sector operation in ethiopia.
There are many conflicting theories as to the role and benefits of the informal sector. Informal economy international labour organization. The ethiopian manufacturing sector has had two distinct features. Micro and small enterprises mse development in ethiopia. Addis ababa is the capital and only prime city of ethiopia. In ethiopia, the informal economy accounts for about 5060 percent of the urban employment. This theory is directly relevant to informal financial. The formal sector consists of the businesses, enterprises and economic activities that are monitored, protected and taxed by the government, whereas the informal sector is comprised of the workers and enterprises that are not under government regulation. Informal sector and government policy in ethiopia essay. Shifts in the global economy are altering production processes in an. Ethiopia s real gross domestic product gdp growth decelerated to 7.
This study attempts to bridge the gap in knowledge about the size of the informal sector, and the characteristics of firms within it. We therefore start with an overview of the informal sector debate. Informal sector, microfinance institutions mfis, mmfi meklit microfinance institution abbreviations. A research on women in the informal economy in three. The main aim of this study has been to investigate the importance of informal sector in ethiopia economy and identify constraints and risk in the operation, specifically to examine the reason why informal operators become in the informal sector. This study focuses on the role of the informal sector in alleviating poverty in yeka sub city, addis ababa, ethiopia. There exists a substantial and welldeveloped literature on the economic theory of credit markets and saving decisions in economies characterized by incomplete markets and imperfect information.
With about 109 million people 2018, ethiopia is the second most populous nation in africa after nigeria, and the fastest growing economy in the region. The study focuses on the iqqub and iddir in the urban and rural areas and on the savings and credit cooperatives. Bagachwa who was full of initiative and whose pioneering work on tanzanias informal sector economy illuminated the path through which this study took cause. The multiple indicatormultiple cause mimic method is a wellestablished tool for measuring informal economic activity. However, information about them, an essential component in planning, is scarce in both official records and in the literature, particularly for informal.
Figure 1 size of the informal sector in subsaharan africa ratio of gni in 2003 0 10 20 30 40 50 60 70 ssa average benin botswa na bur k ina f a so cameroon cote divoire ethiopia ghana kenya madagascar malawi mali mozambique niger nigeria senegal south africa tanzani. The role of the informal financial sector in promoting small and medium sized enterprises in ethiopia zeleke worku tshwane university of technology business school 159 skinner street, pretoria 0001, south africa tel. Ethiopia has no capital market and very limited informal investing in shares of private companies. British anthropologist keith hart coined the term informal sector in 1973 as part of a. The role of micro and small enterprises in employment.
The primary sector is regular, wage jobs that are taxed and regulatedfor example, heavy industry or whitecollar jobs. The secondary sector is composed of jobs that have less security than primary work and are not as well regulated, e. The role of informal sector employment in poverty alleviation. Challenges and opportunities of women participating in. There is a significant segmentationtwo relatively privileged sector in the public and formal private sectors, a massive informal sector and. The importance of the informal sector in west africa world.
A global picture, the global movement by martha alter chen horner professor, radcliffe institute for advanced study lecturer in public policy, kennedy school of government coordinator, wiego i. Cbo communitybased organizations, rufip the rural financial intermediation program. The basic purpose of this study is to generate empirical information on the informal and semiformal financial sectors in ethiopia with a view to improving our understanding of their economic importance. This report is presented as received by idrc from project recipients. Ordinary logistic regression is used to determine the factors that can contribute to the livelihood improvement of the operators. It also uses the predictive mean matching pmm method to estimate the. Informal settlement in ethiopia, the case of two kebeles. For instance, central statistical authority report 1994 report that, figures obtained from 1994 census put that 52% of women were engaged in the informal sector. The informal sector broadly refers to the system where farm. Challenges and prospects of informal sector in alleviating urban.
Ethiopias financial sector remains closed and is much less developed than its neighbors. Pdf despite availability of ample empirical evidence regarding the role the urban informal sector plays in the economy of low income. This report is an output of the international growth centre. Ethiopias economy experienced strong, broadbased growth. A series of financial sector reforms has been introduced since 1994, when private banks were allowed to be reestablished.
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