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Ashoka Fellow "...Moussa Kane has begun to organize Mali's informal economy into a formal association that compiles data on the informal sector and provides basic services to impoverished entrepreneurs. The association provides startup equipment and in-kind loans to entrepreneurs and offers business and financial training to help small ventures succeed. His organization is the first company of its kind in Mali to be owned by its due-paying members, and it is financed and run entirely by members of the informal sector. Its services will be accessible to the approximately 40 percent of Mali's population involved in the informal sector...Although it provides basic sustenance to many, the informal sector is disorganized and risky. Members of the informal economy, like the street vendors that crowd Bamako's avenues, do not have access to loans, are harassed by the government for their occupation of unregistered public space, and are vulnerable to complete collapse in the event of an illness or accident. Furthermore, most "informal entrepreneurs" do not understand the essentials of bookkeeping, business management, and resource allocation, and are therefore unable to turn a consistent profit..."

Sub-Saharan Africa's unbalanced educational terrain with a lack of emphasis on technical and vocational training has mitigated its ability to industrialize. Adrian Ziderman's working paper (PDF), "Financing Vocational Training in Sub-Saharan Africa" provides a roadmap for the financing options and alternatives.It states that the goals of education are "...facilitating the development of effective, efficient, competitive,flexible, and responsive (demand-driven)training systems to meet national economic and social needs, and the needs of individuals...Traditional informal sector training markets, characterized by non-structured, within-firm skills acquisition,have served the sector well. However the system is too narrow to cope with the increasing challenges emanating from technical change, the need for skills enhancement, and the widening of geographical markets. Public institutional training has not been able to adapt to the skills needs of the informal sector. Thus, an increasingly central role for specialized training providers (external to the firm) is now seen, both for entry training into new skill areas and developing markets, as well as for informal sector workers and proprietors..."

An excerpt from Robert Neuwirth's Lecture 'The Extroverted City of System D' a contribution to the book Open City:

In Lagos, everything is informal. The bus system is informal—the government got out of mass transit business decades ago (though it has recently stepped back into public transport with a bus rapid transit line) and the system that includes more than 75,000 danfos was held together informally by the National Union of Road Transport Workers as one-part mass transit and one-part Ponzi scheme. One of the largest formal supermarkets in Lagos buys most of its product from informal wholesalers. Some major multinationals here distribute their products through informal networks. And informal merchants invest in the formal world.

Authorities in the city acknowledge that as much as 80 percent of the work force—and Lagos has between nine and 17 million inhabitants, depending on where you draw the boundaries and who’s doing the counting—is involved in the informal sector. The federal government also suggests that somewhere around 60 to 70 percent of the country’s economic activity derives in some way from the informal sector—and this means that, in aggregate, merchants like Prince Chidi Onyeyirim and Fatai Agbalaya are more important to Nigeria’s future than Shell, Mobil, and Chevron, the multinational oil giants that pump sweet crude from the Niger River Delta.

Robert Neuwirth writes(pdf) about the critical role of the informal economy in Lagos, Nigeria:

The informal sector is the most dynamic and fastest-growing part of the city.Eighty per cent of the people who live in Lagos work in the informal economy,which accounts for more than two-thirds of Nigeria’s gross domestic product. This gives informal workers unusual economic power: about US$125 billion worth. The unemployment and the massive social upheaval and misery that would exist if the thousands of people who immigrate to Lagos every day weren’t able to find work could quickly lead to social and political anarchy. The informal sector is what holds the country together and what determines its shape.

More on the informal in Stealth of Nations:

Two articles on Africa show the importance of engaging the informal economy.

First, The Daily Trust from Nigeria points out that government policies must be retooled "to encourage our small entrepreneurs who constitute the informal sector with a view to developing and enhancing their businesses." The writer suggests that 5 to 10 million Naira per local government per year (a pittance: $30,000 to $60,000) is all it would take to make the local economies bloom.
Second, the BBC points to the Eastleigh neighborhood of Nairobi, one of the most run down communities in the Kenyan capital -- but, significantly, not one of the poorest.
Marketplaces, and a million little lean-to repair shops and small-scale factories are what most urban Africans rely upon for a living. But such is their distrust of government officials that most businesspeople in the informal sector avoid all contact with the authorities

More on the informal in Stealth of Nations:

Two articles on Africa show the importance of engaging the informal economy.

First, The Daily Trust from Nigeria points out that government policies must be retooled "to encourage our small entrepreneurs who constitute the informal sector with a view to developing and enhancing their businesses." The writer suggests that 5 to 10 million Naira per local government per year (a pittance: $30,000 to $60,000) is all it would take to make the local economies bloom.
Second, the BBC points to the Eastleigh neighborhood of Nairobi, one of the most run down communities in the Kenyan capital -- but, significantly, not one of the poorest.
Marketplaces, and a million little lean-to repair shops and small-scale factories are what most urban Africans rely upon for a living. But such is their distrust of government officials that most businesspeople in the informal sector avoid all contact with the authorities

From late Tajudeen Abdul Raheem's last post:

The Majority of Africans continue to survive not because of government but in spite of governments. They eke out a living to keep body and soul together, provide for their families, doing all kinds of dirty work with little pay or selling anything that is buyable hawking all kinds of household wares, fruits, vegetables and myriad of consumer items.
The concept of informal settlements in Africa is not just about where people live but extends to informal markets in all kinds of goods and services: road side mechanics, vulcanisers, local industrialists who fabricate or copy anything from car parts to miniature planes! If the truth be told what is called informal sector is indeed the real enterprising economy of Africa delivering goods and services as and when needed

Emmanuel Oluwatosin comments on the award winning achievements of Nigeria's Central Bank governor, Charles Soludo. "...Soludo has the strongest success story on banking any where in the world in 2005...",The Banker.The Soludo-inspired and driven consolidation programme is also reputed to be the least-cost industry-wide restructuring of the banking system anywhere in the world...The Soludo-inspired and driven consolidation programme is also reputed to be the least-cost industry-wide restructuring of the banking system anywhere in the world...This has had the double effect of bringing into the formal sector, large funds hitherto were trapped in the infamous informal sector, and further boosting financial and investment awareness among Nigeria’s informal sector operators..."

Lucia Akosua Quachey writes(doc):

The fundamental importance of women entrepreneurs in promoting made in Africa goods is enormous. However, African governments and the private sector under estimate the crucial and important role women entrepreneurs play in production of goods and services and development of enterprises and the benefit to promoting made in Africa.
Entrepreneurship in all its diversity in Africa provides a dynamic and potentially efficient means of meeting the many of the emerging challenges of development and low productivity in Africa. The relationship between economic development and promoting the growth of the informal sector is in many ways symbolic. Entrepreneurial activity of the informal sector breeds innovation, injects competitive pressures and develops opportunities in economies. It is the foundation in many respects for broader economic development. African women entrepreneurs have a matured long standing tradition of entrepreneurship for centuries. In the context of promoting made in Africa goods, on-going reforms and rethinking of development will put women entrepreneurs in a pivotal position in relation to expectation

The Economic Commission for Africa reports "...The private sector only gets a brief mention in the Millennium Development Goals. Yet it is business – entrepreneurs, employers, investors and workers – who are best positioned to help Africa achieve the Goals...One area where private sector intervention could really make a difference is boosting the use of information and communication technologies (ICTs) as proposed in Goal 8...ICTs are crucial for developing countries. They help reduce costs, improve productivity and increase access to domestic and international markets, thus contributing to economic growth and competition in the global economy...It’s indisputable that the private sector has played a major role in the evolution of ICTs, particularly in the mushrooming mobile phone networks. Nigeria has the world’s fastest growing mobile market, increasing by about 143 percent in 2003. That’s the kind of growth that will bring the MDGs within reach...So why is Africa finding it hard to achieve the necessary growth rates? Tariff barriers and border restrictions, heavy and indiscriminate taxation, complex, time-consuming regulations and bureaucracy have all played a part.Vigorous entrepreneurship can be seen in the informal sector all over the continent but these constraints, as well as disincentives discouraging investors, prevent small operators from thriving and expanding their businesses to become energetic - small and medium-sized enterprises and the engine of African growth.Africa does not just need growth per-se, but specifically growth in labour-intensive sectors that leads to job creation and wage improvement. This link is vital because the fastest exit from poverty is through employment and higher salaries..."

Fekru Debebe asserts(PDF) that :

Privatization essentially increases the role of the private sector in the national economy and induces changes in basic values and attitudes in a society. The common characteristic features of countries which rely primarily on the private sector and free markets are freedom, basic human rights and democracy. These values are important to the development of the private sector and the acceptance of privatization would initiate a fundamental shift toward democratic values...The privatization process can also be a significant positive influence in the development of African entrepreneurial talent. In the statist development strategy of the past, indigenous entrepreneurial talent had neither been solicited nor its role recognized and encouraged. As the result, local entrepreneurs moved to where domestic opportunities were open to them, the informal sector...The new spirit toward privatization and market oriented policies is likely to bring entrepreneurs into the formal sector where they can learn and be trained in the tools of modern finance, commerce, and management. As they become more skilled and educated in an environment of freedom and private enterprise they are bound to make significant contribution to economic progress of their nations.

Gumisai Mutume writes:

African countries are grappling to undo a legacy dominated by trade with their former colonial rulers rather than with each other. Senegal's biggest trading partner is France, while Gambia trades extensively with the UK. Although Senegal surrounds Gambia, trade between the two neighbours is minimal...A major critique of current regional integration efforts in Africa is that their design and objectives are driven by a preference for formal rather than informal trade. Ms. Mkhonza (Former assistant secretary-general,ACP ) views the sector as an effective means of integration from below, as small-scale trade is often conducted and driven by the needs of indigenous traders rather than governments or international agencies."There is a real economic integration going on at the informal level," concurs the non-governmental InterAfrica Group (IAG). For many years it has been recognized that many countries' real economies "have been mostly informal and much larger, more dynamic and more regionally integrated than their official economies."

Keith Hart writing in Memory Bank:

When I graduated to the field of development studies, the picture of West Africa’s cities was just as distorted as one you might get from boorowing a Manchester school perspective. Here the emphasis of the economists was on the new states’ ability to pursue a neo-Keynesian development program. How could ‘we’ (the politicians, bureaucrats and their academic advisers) provide the jobs and other needs of the hordes flocking into the cities at the time? It was assumed that such provision had to come through the bureaucracy and conform to state-made laws. My paper on ‘informal income opportunities and urban employment’ pointed to the wide range of economic activities that were invisible to bureacracy. But even I saw them through a statist lens (“seeing like a state”), hence the term ‘informal’, not regulated by the bureaucracy. At that time I assumed that the bulk of economic progress must come though public and private sector enterprise of a corporate type.
The informal economy was never adequately described or defined, but these days it is commonplace to read assertions that African economies are 70-90% ‘informal’. Certainly the deregulation undertaken over the last three decades of neoliberal economic policies have led to a radical informalization of the world economy, not least in Africa. But to label these activities ‘informal’ is to avoid identifying what they are positively for or how they are organized, by which social principles.
I would say that the last half-century has seen a massive transfer of population to the cities, where most people have been left to generate their own forms of commerce. The informal economy in this sense has been a holding operation allowing many people to survive in the city and some to flourish. Whatever is coming up next will draw to some extent on this sprawling self-organized economic activity. Our task is to find out more about the promising sectors spawned by such a development.

In The Atlantic excerpts from the Steve Daniels book Making Do:

Images by Steve Daniels

Leonard is one of millions of entrepreneurs who rely on informal mechanisms in Kenya, where the informal sector comprises a full three quarters of the non-agricultural economy and produces over 90 percent of new jobs annually. Under severe material constraints, they are forced to improvise solutions to everyday problems that, from time to time, result in game-changing innovations that better address local needs. Informal artisans who engage in the production of goods are known as jua kali (Swahili for "hot sun") and have established entire ecosystems of production, from scrap sourcing to repair. The most advanced jua kali like Leonard have designed and built capital goods, such as lathes, that propel indigenous production forward. The jua kali have been largely ignored by formal institutions, regarded as a second-rate economy. Yet their drive for innovation, understanding of indigenous networks, and ability to work under extreme constraints make them ideal agents of industrialization.

Lauren Citrome in CIPE:

When businesses are informal, they do not have recourse to legal protection. When a corrupt official comes to collect a bribe, they do not have any formal means to contest. An informal business owner cannot easily grow his or her operations because without formal registration papers, there is less access to capital. If a business cannot use legal dispute-resolution mechanisms, there is increased risk for hiring employees outside of one’s family.
In many countries, however, prohibitive barriers to formalization keep entrepreneurs in the informal sector. For example, business registration offices may be located only in major cities and rural entrepreneurs cannot access them. Formalization may also entail an overly burdensome tax responsibility. In some cases, business owners lack the information and know-how to register their businesses, even if they wanted to do so.

Rebecca Regan-Sachs of Next Billion interviewing Alex Shkolnikov of CIPE:

NextBillion: You have mentioned that CIPE works frequently with business associations to find ways to fight corruption. However, in many developing countries, a large segment of the business sector is informal. If these "shadow economy" enterprises don't have official association representation, how can they defend themselves against corruption?
Alex Shkolnikov: We've actually seen in a number of countries that informal sector associations emerge spontaneously to defend the rights of small business. They act as a self-defense mechanism. So if inspectors come in, you have an association that basically provides protection. They also provide market information, of goods and prices and stuff like that, but they really emerged as kind of a self-defense mechanism.

Patrick Barta writes in the WSJ:

Economists have long thought the underground economy -- the vast, unregulated market encompassing everything from street vendors to unlicensed cab drivers -- was bad news for the world economy. Now it's taking on a new role as one of the last safe havens in a darkening financial climate, forcing analysts to rethink their views...the "informal," or underground, economy, an enormous, vital and poorly understood segment of world commerce. It is becoming a lot more important now, as the global financial meltdown casts millions of people out of steady-paying jobs. Especially in developing economies, many of those people are landing in the informal sector, which has become a critical safety net as the economic crisis spreads...[continue reading]