Informal Sector and Government Policy in Ethiopia

Topics: Informal sector, Economies, Informal economy Pages: 16 (5831 words) Published: July 15, 2012
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Government Policy towards Informal sector in Ethiopia|
A term paper submitted in partial fulfillment of the requirement for the course Entrepreneurship and private sector development| |


The Ethiopian Informal sector
A term paper submitted in partial fulfillment of the requirement for the course Entrepreneurship and private sector development

2.Country Profile of Ethiopia4
3.Defining the informal sector6
4.Informal sector in Ethiopia6
5.Size and composition of the urban informal sector in Ethiopia7
6.Doing Business in Ethiopia11
7.Pros and Cons of the Informal sector12
8.Government policy towards informal sector16
9.The challenges of the informal sector17

1. Introduction

The Informal sector refers to a large part of unregulated and unregistered economic activities. They are for the most part unregistered and operating on a very small scale and with a low level of organization. Most entrepreneurial activities or employment creation in developing countries comes from the informal sector. Due to structural problems or under development of the formal sector, most people resort to the informal sector as a source of employment and income. As a result the sector employs a significant portion of labor force in developing countries. The situation in Ethiopia is not an exception. According to a statistical report of national labor force survey around 50.6% of urban employment comes from the informal sector ( (MLSA 2009). Most of them have very low level of productivity and income. They tend to have little or no access to organized markets, to credit institutions, to modern technology, to formal training and to many public services and amenities. A large number of them are carried out without fixed location or in places such as small shops, outlets or home-based activities. But, they provide a potential for absorbing the abundant labor force available in the country. As a result there is a need for policy intervention in integrating or reducing the size of the informal sector. 2. Country Profile of Ethiopia

Ethiopia is a country located in eastern part of Africa with a population of around 84 million (CIA world fact book puts it to 90.1 million) and with a total land area of 1.14 million square kilometer. Ethiopia is the second largest populated country in Africa next to Nigeria. Ethiopia, being among one of the Sub Sahara African countries, is a poor country with per capital GDP of $1100 at PPP (2011 estimate). It has an estimated GDP of 98.8 billion at PPP (CIA 2012).Agriculture accounts for 85% of total employment in the country and 41% of GDP. The service sector employs 10% of the labor force but, constitutes 46% of GDP. The industry sector accounts for 5% of employment and 13% of GDP. Ethiopia was the fastest-growing non-oil-dependent African economy in the years 2007 and 2008. In spite of fast growth in recent years, GDP per capita is one of the lowest in the world, and the economy faces a number of serious structural problems. There have been efforts for reform since 1991, but the scope of reform is modest. Agricultural productivity remains low, and frequent droughts still beset the country. The effectiveness of these policies is reflected in the 10% yearly economic growth from 2003–2008. Despite these economic improvements, urban and rural poverty remains an issue in the country. Ethiopia is often ironically referred to as the "water tower" of Eastern Africa because of the many (14 major) rivers that pour off the high tableland. It also has the greatest water reserves in Africa, but few irrigation systems in place to use it. Just 1% is used for power production and 1.5% for irrigation. Ethiopia produces more coffee than any other country in Africa. Coffee was domesticated in...
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