## Chart of the Week: The Potential for Growth and Africa’s Informal Economy

_IMF Blog, August 8, 2017_

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## Bibliographic details
- Authors: The Editors
- Published: August 8, 2017

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### Key context and headline findings
- By 2035, sub-Saharan Africa will have added more working-age people to their workforce than the rest of the world’s regions combined.
- In the region, up to 90 percent of jobs outside agriculture are in the informal sector.
- From 2010 to 2014, sub-Saharan Africa’s informal economy accounted for 38 percent of GDP to the region.
- Within sub-Saharan Africa, informal economies vary widely:
  - 20 to 25 percent of GDP in Mauritius, South Africa, and Namibia.
  - 50 to 65 percent of GDP in Tanzania and Nigeria.
- Informality persists even in advanced economies, so the shift from informal to formal will take many years.

### Nature and drivers of informality
- The informal sector includes:
  - Unregistered household enterprises (for example, street vendors or domestic workers).
  - Off-the-books activities by registered firms (for example, the taxi driver who offers a discount if the meter is not turned on).
- Motivations:
  - Survey data show the primary motivation for starting an informal business is to fulfil an aspiration for the future.
  - A third of new entrepreneurs in sub-Saharan Africa report choosing this path out of necessity—most would prefer a job in the formal sector, but don’t have that option.

### Opportunities and constraints of the informal sector
- Opportunities:
  - Acts as a social safety net by providing employment and income to many who might otherwise be unemployed.
  - Household survey data suggest that people working in the informal sector consume more goods and services than those in the agricultural sector in many countries.
- Constraints:
  - Low productivity: on average, the productivity of informal firms in sub-Saharan Africa is only one-fifth to one-quarter that of formal firms.
  - These productivity differences likely reflect a combination of lower skill levels among workers and lower levels of physical capital.
  - In countries with large informal sectors, the rate of economic growth is reduced.

### Policy implications and recommendations
- Adopt a balanced approach that:
  - Increases the productivity of the informal sector.
  - Supports the expansion of formal businesses.
- Specific policy levers highlighted:
  - Improve access to finance.
  - Make it easier for small firms to enter the market.
  - Increase access to electricity.
- Rationale: These measures could go a long way in formalizing the informal sector and creating the types of jobs most desirable among sub-Saharan Africa’s expanding workforce.

*Source: Chart of the Week: The Potential for Growth and Africa’s Informal Economy (IMF blog, August 8, 2017).*

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## References

- [https://www.imf.org/wp-content/uploads/2017/08/BLOG-COTW-1024x600-Africas-Informal-Economy-Stone-Town-Zanzibar-Ton-Kone-VWPics-Newscom-dbcstock214484.jpg](https://www.imf.org/wp-content/uploads/2017/08/BLOG-COTW-1024x600-Africas-Informal-Economy-Stone-Town-Zanzibar-Ton-Kone-VWPics-Newscom-dbcstock214484.jpg)
- [https://www.imf.org/wp-content/uploads/2017/08/ENG_Aug_2_COTW_informal_economy.jpg](https://www.imf.org/wp-content/uploads/2017/08/ENG_Aug_2_COTW_informal_economy.jpg)
- [productivity](https://blogs.imf.org/2017/04/03/chart-of-the-week-slowing-productivity-why-it-matters-and-what-to-do/)
- [Regional Economic Outlook for sub-Saharan Africa](https://www.imf.org/en/Publications/REO/SSA/Issues/2017/05/03/sreo0517)

_Source: https://www.imf.org/en/blogs/articles/2017/08/08/chart-of-the-week-the-potential-for-growth-and-africas-informal-economy_