Informal Economy in Egypt

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The informal Economy in Egypt, can it be an engine for poverty reduction.

Sabreen Mahmoud

Econ 308
Fall 2010
Dr Magda Asssaad

The informal economy definition is a very wide one. It is difficult to define it because of the agreement on the activities to be deemed informal make it very hard. There are many definitions agree that the informal sector occurs outside the legal frame work. It was about 30 years later when the concept of informal sector is introduced by the (ILO) to describe the activities of working poor who were working very hard, but who were not recognized, recorded, protected or regulated by the authority, (ILO). There are two types of informal economy. The first one is the survival activities such as casual jobs, unpaid jobs, temporary jobs, subsistence agriculture, multiple job holding. The second is the unofficial earning strategies such as unofficial business activities: avoidance of labor regulation and other government or institutional regulations, tax evasion, no registration of the company, and underground activities: crime, crime, corruption - activities not registered by statistical offices. (“Concept of Informal Sector”). According to ILO, there are many features that describe informal economy such as easy access to the activity, usage of the local resources, family ownership of the enterprises, reduced scale of activity, labor-intensive activities, non-regulated competitive market, Low qualifications and skills of the workers. The informal sector includes two types of employment the self-employed, unpaid family workers and wage-employed workers, causal workers, part-time and temporarily formal sector workers, home workers, who work from home and mostly women. The informal sector are seen in our daily life including garbage collectors, waste recycles, vendors of vegetables, fruits, meat, fish, snack-food. The work process of those workers is affected by the absence of institutional regulations. Those workers are undeclared, lack social security benefits, paid below the minimum wage. They can not ensure public hygiene, safety of the location of worker place and health. The social protection given to those workers is differs according to the activity, gender, industrial sector, ruler-urban location, and age.

The informal economy in Egypt is widely spread whether it is informal employment or informal enterprise. It is represents a large percentage of total economics activities. Informal employment constitutes nearly 40% of the total labor force in Egypt while informal enterprises constitute nearly 82% of the total economic units, (“Towards Decent Work in the Informal Sector: The Case of Egypt”). According to The Alexandria Business Association EFG –Hermes the informal economy constitutes approximately 80% of the total economy with 2.28 million informal enterprise. Furthermore, informal sector absorbs nearly 8.2 million workers with a percentage of 40% of the total labor force in Egypt. The growth of the informal sector is steady increasing representing the changes that occurred in the Egyptian’s economy. For example, from 1988 to 1998 the number of informal units has grown by %50 from 2.5 million to 3.8 million. This increase is due to many factors such as the growth in the role of the private sector in economic activities, Economic reform programs. In the late nineties the informal sector provided 10 million job opportunities.

There are many reasons that lead to the emergence of informal economy in Egypt. The decline in economic performance is the most important one. When the economic performance decline or become less effective, firms in the formal sector tend to contract by retrenching employees in order to cut-down their operating costs ( Ranis and Stewart, 1999). That leads employees to seek alternative sources of income and with the growth in population number of job-seekers and consequently lead to the expansion of the informal sector. Rural...
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