Quick answer: The informal sector is the part of the economy made up of work and businesses that are not registered, taxed or protected by labor law: street vendors, small-scale farmers, market traders, domestic workers, motorbike taxi drivers and many more. In Africa it is not the exception but the norm: the International Labour Organization found that 85.8% of employment on the continent is informal (ILO, 2018).
Informal sector definition
Work is informal when it lacks the legal and social protections of formal jobs: no written contract, no pension contributions, no sick leave, no health insurance and usually no business registration. The informal economy includes both informal businesses and informal jobs inside formal businesses.
Examples of the informal economy
| Activity | Example in Mozambique |
|---|---|
| Small-scale farming | A family growing maize and beans on two hectares in Zambézia |
| Street and market vending | Selling vegetables, airtime or second-hand clothes at a market |
| Cross-border trade | Mukheristas buying goods in South Africa to sell in Maputo |
| Transport | Chapa minibus conductors, motorbike taxis |
| Services | Hairdressers, tailors, mechanics working from a roadside stall |
| Savings | Xitique rotating savings groups among traders |
How big is the informal sector?
Worldwide, more than 61% of employed people work informally, about 2 billion people. In Africa the share is 85.8%, and in agriculture informality exceeds 90% (ILO, 2018). For most families, informal work is not a choice between formal and informal; it is the only work available.
$25 plants a farmer's season in Zambézia.
Paid straight to the local seed shop. You get the receipt, a field photo and a harvest update.
A gift, not an investment. Not tax-deductible.
Why is the informal sector so large in Africa?
- Too few formal jobs for a fast-growing, young population
- Agriculture employs most people and is mostly small-scale and unregistered
- Registration is costly or slow, and the benefits are unclear to small businesses
- Low education and skills limit access to salaried jobs
What risks do informal workers carry?
Informal workers often work long hours, but one shock can undo months of progress: an illness with no sick pay, goods confiscated or stolen, a failed harvest with no insurance, or a loan from a moneylender at high interest. That is why informal work and poverty are so closely linked.
Is the informal sector good or bad?
Both. It provides livelihoods, supplies cheap goods and services, and shows real entrepreneurship. But it leaves workers unprotected and governments without tax revenue. The goal is not to shut it down but to make it safer and more productive.
What helps informal workers?
- Savings and credit that fit their reality, such as savings groups (see how xitique works) and mobile money
- Simple insurance, for example weather-index insurance for farmers
- Easier registration with real benefits, like access to credit
- Inputs at the right time, such as seed and fertilizer for farmers before the rains
How MBC supports informal farmers
Most of the farmers MBC works with are informal smallholders. A sponsorship pays for a named farmer's seed and fertilizer at their local shop, with the receipt sent to you. Sponsor a farmer from $25, or read Street Vendors in Africa and Mukheristas: Mozambique's Cross-Border Traders.
Sponsorships are gifts, not investments, and are not tax-deductible.
Source: ILO, Women and men in the informal economy: A statistical picture, 3rd edition (April 2018)