The informal economy and sustainable development

The informal economy – broadly defined as economic activity that is not subject to government regulation or taxation – sustains a large part of the world's workforce. It is a diverse, complex and growing area of activity.
2016 - ongoing
Mecati Forest, Mozambique: a group of charcoal producers clear trees and prepare to make charcoal. Each year more than eight million bags of charcoal are produced by Mozambique's informal sector (Photo: Mike Goldwater/IIED)

Mecati Forest, Mozambique: a group of charcoal producers clear trees and prepare to make charcoal. Each year more than eight million bags of charcoal are produced by Mozambique's informal sector (Photo: Mike Goldwater/IIED)

Hundreds of millions of people – including most of the world's poorest and most vulnerable citizens – live, work, trade and produce in informal markets. In many countries this informal private sector is bigger than the formal sector in terms of employment and even output.  

There are multiple perspectives on the informal economy. Some associate it with lost revenue, unfair competition, low productivity, human rights abuses and environmental degradation; while others associate it with entrepreneurship, flexibility and resilience.  

But there is growing recognition that they can also be more innovative, resilient and resource-efficient than their formal counterparts.

It is similarly becoming increasingly clear that if attempts to achieve green growth and sustainable development are to succeed, they must be rooted in a sound understanding of the informal economy – especially if such efforts are to be inclusive, and to benefit the poor.

What we are doing

Much of the work by IIED and partners focuses on markets and sectors with high levels of informality and artisanal enterprise. It straddles rural and urban, from natural resource extraction, to trading, to waste management.

We look across informal and artisanal sectors and how they might work better in providing green and inclusive growth. We strengthen the voice of informal enterprise in policymaking and business strategy. 

Our Shaping Sustainable Markets (SSM) initiative is providing a platform for information and debate on inclusive and green market governance mechanisms for the informal economy. We have published a set of seven briefing papers showcasing innovative policy approaches to formalising informal activities in an inclusive way.

IIED, the Green Economy Coalition, WIEGO, the Center for International Forestry Research and OECD's Sahel and West Africa Club organising an event, 'The biggest private sector: what place for the informal economy in green and inclusive growth', in February 2016 for representatives of government, civil society, business and research.

This reviewed the evidence and agree practical steps towards reconciling informality with inclusive growth, green economy and sustainable development. The post-event report is also available on IIED's SlideShare site.

Our discussion paper on inclusive green growth addresses two key questions:

  • What does green economy mean in the context of informal markets where the world's poorest and most vulnerable people produce and trade? and
  • Does 'greening' necessitate formalisation, or can it happen through people's own actions?

In Africa, we are carrying out field-based research together with partners in order to understand the value chains that operate in the informal markets that link China to Africa's natural resources and agricultural sectors.

We are studying the drivers and impacts of informality in agriculture, logging, and mining in sub-Saharan Africa. This work aims to show that development interventions in resource governance need to be grounded in the complex reality of the rural informal economy in order to benefit impoverished communities.

IIED has begun an ambitious programme of work on artisanal and small-scale mining (ASM), a sector characterised by informality, risk and marginalisation. We aim to encourage a move to more responsible and inclusive mining and are organising a series of in-country dialogues, where local ASM stakeholders can identify their context-specific challenges and opportunities.

We are looking at the role of the informal sector in urban environments and how it can assist the transition to a greener, more resilient economy.

Additional resources

Participation as policy: time to formalise artisanal and small-scale mining in Colombia, Cristina Echavarria, Frances Reynolds (2015) IIED Briefing Paper

Inclusive governance of informal markets: the street vendors of Surakarta, Ronnie S Natawidjaja, Endang Siti Rahayu, Joko Sutrisno (2015) IIED Briefing Paper

Innovations for inclusivity in India's informal e-waste markets, Kate Lines, Ben Garside (2014), IIED Briefing Paper

Informality and market governance in wood and charcoal value chains, Rachel Godfrey Wood, Ben Garside (2014), IIED Briefing Paper

Artisanal and small-scale mining: protecting those 'doing the dirty work', Boris Verbrugge, Beverly Besmanos, Abbi Buxton (2014) IIED Briefing Paper

Taxes and transition: formalising small-scale farmers in Peru?, Ethel del Pozo-Vergnes (2015) IIED Briefing Paper

Legitimising informal markets: a case study of the dairy sector in Kenya, Emma Blackmore, Silvia Alonso, Delia Grace (2015) IIED Briefing Paper

Informal and green? The forgotten voice in the transition to a green economy, Emily Benson, Sarah Best, Ethel del Pozo-Vergnes, Ben Garside, Essam Yassin Mohammed, Sjoerd Panhuysen, Grazia Piras, Bill Vorley, Anna Walnycki, Emma Wilson (2014) IIED Discussion Paper

Recognising informality in the China-Africa natural resource trade, Xiaoxue Weng (2015) IIED Briefing Paper

The rural informal economy: understanding drivers and livelihood impacts in agriculture, timber and mining, Xiaoxue Weng (2015), IIED

Urban informality and building a more inclusive, resilient and green economy, Donald Brown, Gordon McGranahan, David Dodman (2014), IIED HSG Working Paper