# **A. Size and importance of the sector**

Schneider and Enste (2003) estimate that the informal sector represents 10 to 20% of global output in developed countries and more than a third of global output of developing countries. The figures reported by the ILO (2002) are of the same magnitude: 48% of non-agricultural employment in North Africa, 51% in Latin America, 65% in Asia, and 72% in Sub-Saharan Africa. Focusing on Africa, Steel and Snodgrass (2008) report that the informal economy accounts for 50 to 80 percent of GDP and as much as 90 percent of new jobs.

Some of the largest and fastest growing sectors of African economies are dominated by informal firms: wholesale and retail trade, transportation, restaurants, reproduction of CDs and tapes, carpentry, construction, real estate, etc. This tendency for informal firms to dominate in certain sectors, notably retail, construction, and other services, also occurs in other developing countries (Adams 2008; Lund and Skinner 2004; Haan 2006). Verick (2006) also finds that the retail sector is the largest locus of informal activities in African economies.

# **B. Role in jobs and employment**

Informal employment refers primarily to employment in enterprises that lack registration and social security coverage for their employees (OECD, 2009). It also refers to self-employment and precarious employment in formal enterprises. A distinctive feature of this type of employment is lack of social coverage and other related benefits applicable to formal employment. Hence it is highly precarious and vulnerable. Gaspirini and Tornarolli (2007) in their study of informality in Latin America identify the following characteristics to the informal labor workforce: mostly unskilled and operating in low productivity jobs, in marginal, small scale and often family-based activities. They add: “They are selfemployed or salaried workers in small, precarious firms without a signed contract in compliance with labor regulations, and without access to protection against health and unemployment shocks, to savings for old age, to employment protection and to labor related benefits.” These characteristics are also widely observed in Africa. According to ILO (2002), informal wage employment in Africa encompasses employees of informal enterprises as well as various types of informal wage workers who work for formal enterprises, households, or who have no fixed employer. These include casual day laborers, domestic workers, industrial outworkers, undeclared workers, and part-time or temporary workers without secure contracts, worker benefits, or social protection.

Most studies on the informal sector conclude that its workforce differs substantially from that of the formal sector. Self-employment is a predominant characteristic of the informal sector (Becker 2004). A study led in Botswana, Kenya, Malawi and Zimbabwe shows that about two-thirds of informal firms in these countries consist only of the owner (Haan 2006). The Botswana Central Statistics Office (CSO) (2008) study found that the majority of informal enterprises are either individually-operated or family owned. The same patterns emerge from Latin America (Maloney 2004). Gatti et al. (2011) find that 20 to 40 percent of workers in the Middle East are informal, working mostly for small firms.

Chen (2001) estimates that 93% of newly created jobs in Africa during the 1990s were part of the informal sector. Comparing the performances of the formal and informal sectors in terms of job creation, Xaba et al. (2002) find that employment in the formal sector is stagnant at best, or falling sharply, while in the informal sector it is experiencing dazzling growth.

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