Informal Sector and Government Policy in Ethiopia

5831 WordsJul 15, 201224 Pages
[Type the company name] | 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 Contents 1. Introduction 4 2. Country Profile of Ethiopia 4 3. Defining the informal sector 6 4. Informal sector in Ethiopia 6 5. Size and composition of the urban informal sector in Ethiopia 7 5.1 Size 7 5.2 Composition 9 6. Doing Business in Ethiopia 11 7. Pros and Cons of the Informal sector 12 8.…show more content…
The sector also supplies different kinds of goods and services that cannot be supplied or formally produced by the formal sector. There different reasons for the expansion of the informal sector in Ethiopia some of them include Easy of entry: entry into the informal sector does not require high capital and professional knowledge as a result many find it easy to start their business informally. Tight government entry regulations: due to the lengthy and costly process of being registered or getting license, many potential small business operators find it easy to open up their business without being registered. Tax and social security contribution burdens: fear of high tax burdens is one of the main reasons that forces individuals to enter the informal sector. It is also one of the main reasons why the sector operates in small scale and tends to hinder growth prospect of small scale operations. The official economy: the situation of the official economy also plays a crucial role in people’s decision to work or not to work in the shadow economy. In a booming official economy, people have a lot of opportunities to earn a good salary and “extra money” in the official economy. This is not the case in an economy facing a recession; more people try to compensate their income losses from the official economy through additional shadow economy activities. This reason can be used to explain why developing countries have relatively a larger
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