The formalization of the informal sector economy : Panacea or Chimera?

Abstract

In 2011 author Robert Neuwirth identified the global informal sector economy as having a combined Gross Domestic Product (GDP) that is equivalent to the second largest economy in the world behind the United States of America (USA).Studies have shown that the informal sector economy is prevalent in Africa and India which are both considered to be emerging market economies with potential for exponential growth. The GDP of a country is calculated using a total of a countries production of goods and services; however production in the informal sector economy is unaccounted for. The inclusion of their production could potentially boost the economic growth of these emerging market economies.This study aims to observe whether the informal sector economy should be formalized or left as it is in its current state. Despite the ‘problem statement’ in the previous paragraph, which appears to be in favour of formalization, there are advantages and disadvantages for both formalizing the informal sector economy and leaving it in its current state.The objective of this study is to come up with a sustainable strategy of how to manage and administer the informal sector economy as in its current state it is proving to be unsustainable.A two phased approach was used to produce the findings which included interviews with experts and interviews with entrepreneurs operating in the informal sector economy.These findings provided suitable recommendations to be made as to how to manage and administer the informal sector economy.