ZIMBABWE EZEKIEL GUTI UNIVERSITY

FACULTY OF HUMANITIES, EDUCATION AND SOCIAL SCIENCES

Department of Social Work

NAME : SHALOM TATENDA CHIHOTA

REG NO. : R220819S

DEGREE PROGRAMME : BSc SOCIAL WORK

COURSE NARRATION : SOCIAL ECONOMIC DEVELOPMENT

COURSE CODE. : ASW 22$

LECTURER : MS P. TENDENGU
QUESTION : UTILISING PRACTICAL EXAMPLES FROM
DEVELOPING COUNTRIES, EXAMINE THE WAYS IN WHICH INFORMALISATION OF
THE ECONOMY CAN IMPACT ON THE NATION´S DEVELOPMENT TRAJECTORIES.

Informalisation of the economy which is characterized by the growing prominence of informal

Informalisation refers to

Informalisation of the economy can impact on the nation´s development trajectories through
employment creation and income generation. In many developing countries, the informal sector
employs a sizable percentage of labour force by provides a source of livelihood for a large
number of people, for instance in countries like India street vending, small scale agriculture, and
unregistered small businesses employ a significant portion of the population. According to a
research conducted by the International Labour Organization (ILO, 2018), the informal sector
employed around eighty percent (80%) of the population in India which resulted in income
generation. The informal sector plays a crucial role in the creation of employment opportunities
particularly in the face of high unemployment rates, for instance the expansion of the informal
sector can contribute to poverty alleviation by absorbing surplus labour and reducing
unemployment rates. Informal employment also helps to alleviate poverty by offering income
generating activities and livelihood options for individuals who would be unemployed.
Therefore, informalisation of the economy can impact on the nation´s development trajectories
through employment creation and income generation.
Adding on, informalisation of the economy can impact on the nation´s development trajectories
through enhanced economic growth and productivity. The informal sector can contribute to the
overall economic growth through its production and consumption activities by filling gaps in the
market and by providing goods and services that are inadequately supplied by the formal sector.
Informalisation also contributes to economic development by supplying goods and services that
suit the requirements of local communities, for instance, in Nigeria informal retail shops such as
neighbourhood stores, and roadside kiosks account for a large of portion of the informal sector.
In developing counties like Nigeria, the informal sector contributes significantly to the country´s
Gross Domestic Product (GDP) and provides economic opportunities for a large segment of the
population (World Bank, 2020). The flexibility and productive spirit in which the informal sector
is associated with, can drive innovation and stimulate economic activities which contributes to
overall economic growth and productivity. Thus, informalisation of the economy can positively
impact on the nation´s development trajectories through enhanced economic growth and
productivity.

Moreover,

Informalisation of the economy can also impact on the nation´s development through reduced tax
revenues in developing nations. The informal sector´s dominance significantly affects a nation´s
tax collection and fiscal capability, for instance, informal entrepreneurial activities can lead to
reduced tax revenues for the government limiting their capability to invest in infrastructure,
education and healthcare. Olajide(2017), asserts that reduced tax revenues hinder the government
´s capability to fund development projects and to deliver key public services. Informal businesses
often operate with lower costs and evade formal regulations giving them a competitive advantage
over formal enterprises which can result in the reduction of the government´s tax revenue
limiting its capability to invest in critical sectors, for example in Nigeria , informal economic
activities are rarely subject to formal taxation , depriving the government´s valuable revenue
sources. The informal sector makes a sizable component of the economy in most developing
countries with estimates of around sixty five percent (65%) of the total employment which
presents tax collection issues since many informal enterprises such as grocery stores operate
outside of the conventional tax system. Hence, informalisation of the economy can impact
negatively on the nation´s development trajectories due to reduced tax revenues which can
impede economic and social development.

Furthermore, informalisation can impact a nation´s development due to limited access to labour
protection and social protection services. Informal workers in most developing nations, for
instance in Zimbabwe workers in the informal sector often face inadequate labour protection
including low wages, poor working conditions and limited access to social security benefits. The
absence of formal regulations and protection often expose workers to exploitation, for instance in
the informal mining sector in Kadoma most mall scale miners practice open cast mining in the
absence of proper safety measures and are often exposed to hazardous working conditions
without proper safety measures leading to accidents and health risks. In Bangladesh´s garment
sector, a large proportion of people employed in that informal sector have been exposed to
substandard working conditions and lack of safety precautions for workers (Rahman, 2016). This
can be attributed to the collapse of the Rana Plaza building in 2013 which contained numerous
garment companies, exposed the poor working conditions and lack of safety precautions for
informal workers. Informal workers also lack access to social protection services such as
healthcare, pensions (retirement plans) and unemployment benefits which can leave them
vulnerable to risks and shocks which can lead to a cycle of poverty and inequality. Therefore,
informalisation can impact the nation´s development due to lack of labour and social protection
services.
References

International Labour Organization. (2018). Women and men in the informal economy: A
statistical picture (3rd ed.). International Labour Organization.

Olajide, O. (2017). Informal sector and tax revenue generation in Nigeria. Journal of Economics
and Sustainable Development, 8(5), 97-104.

Rahman, M. M. (2016). Informal sector and its economic consequences: A study of garment
industry in Bangladesh. International Journal of Economics, Commerce, and Management, 4(4),
145-156.