The Informal Sector
For many local and national governments in developing countries, the goals of poverty alleviation coupled with job creation and skills development remain a key for overall social ad economic development. These goals have taken on an added significance with the Sustainable Development Goals (SDGs) which the governments have promised to achieve before 2030.
But these challenges are exacerbated by an increasing proportion of its population that are migrating to cities and urbanized areas, fleeing the vulnerabilities of the agricultural sector and other "push" factors.
Amid a lack of abilities and capacities for positive action from governments, the urban informal sector (used here interchangeably with the 'informal economy') thrives for precisely the same reason - to alleviate poverty and create jobs. Taken together, the different sectors of the informal economy - manufacture ring, trade, housing, services, finance etc. - play a critical role in ensuring that these newcomers not only get the services that they need to establish a foothold in the city, but also participate and engage in the formal urban economy.
But negative attitudes and approaches towards low-income migrants and the informal economy at large still continue (See 10 Myths about the Informal Sector).
How can we change our attitudes to the informal sector and understand its true contribution to the developmental processes?
There is a love-hate relationship between government agencies and the informal sector (See document, "Yes, but ... " - Local Government Attitudes towards the Informal Sector) and any steps in "supporting" the informal sector is anathema to them. As with squatter settlements and slums, the most common approach is driving the informal sector away to the outskirts of the city, and clearing the city center.
But the realization that more than 60 to 90 percent of urban economic activity, particularly in cities in developing countries, are in fact informal, has led to a rethinking of this approach and a move towards more reconciliatory and inclusive policies. Job creation and skill development policies for poverty reduction have also driven this rethink.
The key to a supportive and inclusive approach is a process of "formalizing" of the informal sector, which retains the inherent advantages of the very features of "informality" that defines the sector. These features include, for example:
The lessons are there - with forward-looking local governments that have taken positive steps in implementing inclusive economic growth policies, taking into account the contributions and advantages of the informal sector.
Based on field visits to the three cities of Penang, Bandung and Bangkok, interviews with planning and local government officials, as well as review of official documents and literature on the theme, the following lessons emerge:
All three cities used some common strategies to better organize their informal enterprises:
The middle ground achieved by the above strategies and examples have two key complementary policies - (1) maintaining the essential benefits of informal enterprises and (2) providing basic urban services and utilities for these enterprises to benefit the overall population.