Showcasing innovations in policy approaches to informality

IIED's Shaping Sustainable Markets initiative has published a set of seven briefing papers that showcases innovations – and challenges – in developing inclusive policy approaches for the informal economy.

Article, 21 July 2015
A street vendor sells produce in Surabaya, Indonesia (Photo: Schristia, Creative Commons, via Flickr)

A street vendor sells produce in Surabaya, Indonesia (Photo: Schristia, CC BY-SA 2.0)

In rich, poor and rapidly developing countries alike, the informal economy is big and growing. Hundreds of millions of people — including most of the world's poorest and most vulnerable citizens — live, work, trade and produce in informal markets, sometimes in volumes that rival the formal economy.

It has long been known that informal economies are closely connected with poverty, human rights violations and environmental degradation. 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.

Produced in partnership with local partners, these papers offer case study-based evidence of processes of inclusive formalisation: authorities working with marginalised workers in e-waste; dialogues that relocate street-vendors to safer spaces; national policies to recognise artisanal and small-scale mining as a legitimate livelihood, and not indiscriminately criminalise those in the sector; and tax schemes for small-scale farmers that attempt to offer a more accessible and affordable means for farmers to formalise; and more.

The seven papers, published by IIED's Shaping Sustainable Markets initiative, are listed below:

This paper focuses on Colombia's artisanal and small-scale mining (ASM) sector and contributes to IIED's work to identify pathways towards inclusive and responsible mining. 

Cristina Echavarria and Frances Reynolds examine current barriers, opportunities and learnings to recommend policy-level action for inclusive ASM formalisation. 

In this briefing paper, Ronnie Natawidjaja, Endang Rahayu and Joko Sutrisno examine how the mayor of Surakata succeeded in formalising street vendors as part of its process of inclusive urban transformation. 

Using a dialogue-based approach and formally recognising street vendors as viable and important businesses, the city enabled them to make a meaningful contribution to urban transformation and economic growth.

The vast majority of India's huge waste collection and recycling markets are informal, and e-waste is no exception. Regulations that came into force in 2012 are pushing for much-needed greener and safer practices, but threaten the livelihoods and security of this large informal workforce.

In this briefing paper, which draws on experience in India and elsewhere, Kate Lines and Ben Garside look at the current mismatch between regulation and reality, and identify the types of mechanisms that could steer India's e-waste market towards greener and fairer outcomes.

Two billion people rely on wood and charcoal for their daily energy needs. But supply chains are often environmentally unsustainable, and poor actors rarely capture enough value from trade in these products.

In this briefing paper, Rachel Godfrey Wood and Ben Garside discuss two innovative cases in the governance of biomass markets, which enhance the inclusion of informal actors. The first shows how Nepal's long history of effective forestry governance has helped rural communities thrive in producing briquettes for urban markets; the second examines efforts to regulate Kenya's charcoal trade in an inclusive way. Both cases identify wider lessons for improving biomass market sustainability that address issues of equity, inclusion and environmental sustainability.

Approaches to formalising ASM mostly consider it a poverty-driven subsistence activity and take legalistic approaches, emphasising the need to recognise local people's property claims. But these policy responses can misunderstand the complex and multi-tiered labour structure that exists within informal ASM. More inclusive formalisation policies are needed — policies that particularly seek to understand and improve the position of ASM’s large, mobile and often marginalised workforce.

Using empirical evidence from the Philippines, Boris Verbrugge, Beverly Besmanos and Abbi Buxton identify the opportunities and challenges posed by a more inclusive approach to formalising ASM, and recommend potential policy responses.

Like many developing countries, Peru needs to increase tax collection to provide public goods and services for its people. In the agricultural sector, out of a total of 2.2 million farmers only 42,000 pay taxes; 1.8 million work on less than five hectares of land, most in the informal sector. As competition in markets that demand formality in their supply chains becomes central to policy and development interventions, formalising the very significant sector of small-scale farmers is key. But if smallholders are to join the formal economy, the benefits must outweigh the costs of compliance.

In this paper, Ethel del Pozo-Vergnes reviews the government's formalisation efforts to date, focusing on a specific programme and tax mechanism designed to support farmers' voluntary transition to formalisation.

The seventh briefing, listed below, completed the series in November 2015. 

In developing countries, perishable food is mostly sold in informal markets and often does not meet national food safety standards. Government regulation in informal markets has not improved food safety in the past and formalisation does not guarantee safe food.

New approaches, based on gradual improvements and an inclusive path to formalisation, show greater promise. In this paper, Emma Blackmore, Silvia Alonso, Delia Grace highlight how a scheme to train and legitimise dairy traders in Kenya has revealed benefits for public health, farmers, vendors and consumers. But governments must withstand pressure from vested interests and show genuine commitment to supporting progressive, effective and inclusive policies if these are to be successful.

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Emma Blackmore ([email protected]), IIED consultant, Sustainable Markets Group

Bill Vorley ([email protected]), acting co-head and principal researcher, Sustainable Markets Group; team leader, small-scale and informal enterprise