Explain the impact of the regulations on the informal sector in African cities.
Answers
The informal sector is a large part of employment in African cities. The International Labour Organization estimates that more than 66% of total employment in Sub-Saharan African is in the informal sector. With a pervasive informal sector, city governments have been struggling with how best to respond. On the one hand, a large informal sector often adds to city congestion, through informal vending and transport services, and does not contribute to city revenue. Furthermore, informal enterprises are typically characterized by low productivity, low wages and non-exportable goods and services. On the other hand, the informal sector provides crucial livelihoods to the most vulnerable of the urban poor.
Policy reactions to the informal sector typically vary between two extremes: some focus on punitive and regulatory measures to enforce formalization or evict vendors outside the city, while other approaches focus on unleashing the untapped entrepreneurial potential of the informal sector. Recent World Bank research in Greater Kampala finds evidence that both policy options may be unlikely to produce positive impacts. Instead, our findings suggest a more varied interpretation of Greater Kampala’s economy.