Did you know ? The Nepal Labour Force Survey (NLFS) - 2017/18 has estimated around 62 percent people to be currently employed in the informal sector This presentation introduces the concept of informal economy and presents data about informal economy in Nepal. A short reflection on the ways forward has been included from an urban planning perspective.

1. Understanding
Urban Informal
Economy (with focus on issues of
street vendors in Nepal)
078MSUrP002 | Anup Ghimire
078MSUrP012 | Prabal Dahal
078MSUrP015 | Sarik Awale
078MSUrP017 | Shirish Maharjan
078MSUrP020 | Yuvaraj Timalsina
Submitted to: Kirti K Joshi | PhD

3. Introduction to Informal Economy
Informal economy: Grey economy, unofficial economy, unorganized economy,
everyday economy, shadow economy
● An informal economy is the part of any
economy that is neither taxed nor
monitored by any form of government
● The 2002 ILC Resolution and
Conclusions on Decent Work and
Informal Economy defined informal
economy as “to all economic activities by
workers and economic units that are – in
law or in practice – not covered or
insufficiently covered by formal
arrangements.”
Source:-ILO

4. Formal Sector vs Informal Sector

5. History of Informal Economy
● The traditional sector comprised of petty trade,
small-scale production, and a range of casual jobs
would be absorbed into the modern capitalist—or
formal—economy and, thereby, disappear.
● This perspective was reflected in the prediction by
W. Arthur Lewis, in the 1954 essay for which he
received a Nobel Prize in Economics.
● This effect was coined as Lewis Turning Point.
● But economist Hans Singer argued in 1970 that he saw no sign of the “Lewis Turning
Point” in developing countries.
Fig:- W. Arthur Lewis

6. History Contd.
● He also warned of an employment crisis due to acute land
shortage in overcrowded farming communities and an acute job
shortage in overcrowded urban communities.
● Reflecting this concern, the International Labour Office
Organization mounted a series of large multi-disciplinary
“employment missions” to various developing countries.
● The Kenya Mission found that the traditional sector in Kenya,
which they called the “informal sector,” included profitable and
efficient enterprises as well as marginal activities (ILO 1972).
● The term “informal sector” had been coined the year before by a
British anthropologist, Keith Hart, in his 1971 study of low-income
activities among unskilled migrants from Northern Ghana to the
capital city, Accra, who could not find wage employment.
1950s-1960s :
Industrial Expansion
1960s:
Unemployment
1970s
Anthropologist Keith Hart coined
the term “informal sector”
The first ILO World Employment
Mission was to Kenya in 1972

7. History Contd.
● Both Keith Hart and the Kenya Mission (led by Hans Singer and
Richard Jolly) were largely positive about the informal sector.
● But the informal sector as an economic reality received a mixed
review in development circles.
● Some of these observers believed that the informal sector in
Ghana, Kenya, and other developing countries would disappear
once these countries achieved sufficient levels of economic
growth or modern industrial development.
● Others argued that industrial development might take a
different pattern in developing countries—including the
expansion of informal economic activities than it had in
developed countries
1980s-
1990s
Informalization
Economic crisis
Globalization
Recent
years
Renewed interest in
informal economy

8. Informal Economy
Cause of informal economy
● Elements related to the economic context
● Legal, regulatory and policy frameworks
● Micro level determinants such as low level of
education, discrimination, poverty and
● Lack of access to economic resources, to property,
to financial and other business services and to
markets.
Impact of informal economy
● Create major challenge for the rights of workers
and decent working conditions.
● Negative impact on enterprises, public revenues,
government’s scope of action, soundness of
institutions and fair competition.

9. Informal Economy
Characteristics of informal economy
● small or undefined work places
● unsafe and unhealthy working conditions
● low levels of skills and productivity
● low or irregular incomes
● long working hours and
● lack of access to information, markets, finance, training and technology.
Characteristics of informal economy workers
Workers in the informal economy are not recognized, registered, regulated or
protected under labour legislation and social protection.
Source: Pixelchrome photo tours

10. Hierarchy of Earnings & Poverty Risk
Fig:-Women in
Informal
Employment:
Globalizing and
Orga-
nizing (WIEGO)

11. Introduction to Informal Economy
● Informality: addressed directly in just one SDG target, namely
SDG 8.3: “Promote development-oriented policies that support
productive activities, decent job creation, entrepreneurship,
creativity and innovation, and encourage formalization and growth
of micro-, small- and medium-sized enterprises including through
access to financial services”.
● The informal economy is informal because formal arrangements, including laws and
regulations, are not, or not sufficiently, applied, observed or applicable.
● A key element of ILO’s work on formalizing the informal economy therefore seeks to
gradually improve the legal framework and compliance with the law and with
international labour standards.
● The informal economy comprises more than half of the global labour force and more
than 90 percent of micro and small enterprises (MSEs) worldwide. (ILO)

12. Contribution of Informal Economy

13. Types of Informal Economy
● Open street workers like street vendors, push-cart vendors, rickshaw pullers,
garbage collectors and roadside barbers
● Small shops and workshops that repair bicycles and motorcycles; recycle scrap
metal; make Furniture and metal parts; tan leather and stitch shoes; weave, dye,
and print cloth; polish diamonds and other gems; make and embroider garments;
sort and sell cloth, paper, and metal waste; and more
Source: Pixelchrome photo tours

14. Types of Informal Economy
● Garment workers, shoemakers and assemblers of electronic parts
● Casual workers in restaurants and hotels; subcontracted janitors and security
guards; day labourers in construction and agriculture;
● Piece-rate workers in sweatshops; and temporary office helpers or off-sitedata
processors
Source: Business today

15. Street Vendors
Source: theKathmandupost
● Street Vendor is a person who
offers goods for sale to the
public at large without having a
permanent built-up structure
from which to sell.
● Street vendors may be
stationary in the sense that they
occupy space on the pavements
or other public/private spaces or,
they may be mobile in the sense
that move from place to place by
carrying their wares on push
carts or in baskets on their heads.

16. Model in Informal Economic
Dual Sector Model (Lewis Model) of Development
Developed in 1954 by Sir William Arthur Lewis (Nobel Prize winner in Economic Science,
1979)
Tried to provide general theory on labor transition in developing countries
Dual economies
Traditional agricultural sector:
Industrial sector:

17. Model in Informal Economic
Dual Sector Model (Lewis Model) of Development
Setup of the Model
The wages in the manufacturing sector are more or less fixed.
Entrepreneurs make profit because they charge a price above the fixed wage rate.
These profits will be reinvested in the business in the form of fixed capital.
An advanced manufacturing sector means an economy has moved from a
traditional to an industrialized one.
Modern industrial sector would attract workers from rural areas

18. Model in Informal Economic

19. Model in Informal Economic

20. Vicious Circle of Informal Economy
Ignore the People in the informal economy Social Turmoil
● Slums and Squatters
● Higher percentage of women involvement. So ignoring might lead to further gender inequality.
● Impact on education and health
● Duty of Government etc.
Address the People in the informal economy More and More people migrate from rural areas
to Urban Areas to join the informal economy
● Overpopulation and overstrain on limited resources.
● Will the municipality be able to bear the social cost?

21. Harris Todaro Model of Urban Rural Migration
Laborers
● Wm=Minimum wage
rate of formal
economy
● Lus= Urban Labor pool
● Lm=Formal Labor Pool
● Wa*=Equilibrium
wage

22. Harris Todaro Model of Urban Rural Migration
● 1.4% population growth rate
of kathmandu district(census
2021).
● Steady increase in GDP of
the city.
● Based on this, assuming that
there is not much change in
the demand curve, the
informal economy will
increase.
● So sooner or later regulations
will have to be implemented.
● It is high time that we now
use the best practices.
Laborers

23. The informal
economy and
urbanization rate
at the national
and regional
levels of China,
2000-2018
(Gengzhi et al., 2022)

24. Approach on Informal Economy
1. Proper identification of informal economy.
For e.g. identity cards
2. Proper management of space and timing.
3. Formalizing the Informal.
For e.g. credit assistance to people shifting
from informal to formal economy, social
Security benefits etc.
Fig:- Lagankhel Market

25. INFORMAL
ECONOMY OF
NEPAL
Photo by Mehmet Turgut Kirkgoz on Unsplash

26. Urban Poverty | Poverty Trends in Nepal
Fig : Poverty Level, Targets and Achievement in Plan Periods (Kharal, NJDRS, 2019)
8th Plan : 1992 - 1997
14th Plan : 2016 - 2019
15th Plan : 2019 - 2024

27. Urban Poverty | Poverty Trends in Nepal
Fig : Urban and Rural poverty Level in Nepal (adopted from Karna, 2017)

28. Informal Economy in Nepal
Economy of Informal Sectors
Informal Sectors
Businesses and Enterprises that are:
● Small in size
● Un-organized
● Not within the government regulations (social
security/protections and taxes)

29. Informal Economy in Nepal
● According to ILO, more than 70 per cent of the economically
active population in Nepal is involved in the informal economy
● The Nepal Labour Force Survey (NLFS) - 2017/18 has
estimated around 62 percent people to be currently employed
in the informal sector

30. Informal Economy in Nepal
Source: NEPAL LABOUR FORCE SURVEY -
2017/18
Fig: Formal and informal employment by sector
Formal and informal sector vs Formal and informal employment

31. Informal Economy in Nepal
According to the Analytical Report on the Informal Sector published by
the Central Bureau of Statistics in 2018, about half of the establishment in
Nepal are unregistered.
Total establishments : 923,027
Registered : 462,605
Unregistered : 460,422
Not Stated : 329
Source: CBS 2018

32. Informal Economy in Nepal
According to the Analytical Report on the Informal Sector published by
the Central Bureau of Statistics in 2018, about 26% of engaged population
works at unregistered establishments
Total persons engaged : 3,226,284
Engaged in Registered establishments : 2,394,097
Engaged in Unregistered establishments : 832,187
Not Stated : 2,173
Source: CBS 2018

33. Street Vendors | Informal Economy in Nepal
Number of establishments in
street business
34,101
887,667
Number of persons engaged
in street business
45,330
3,228,025
Source: CBS 2018

34. Street Vendors | Informal Economy in Nepal
Share of persons engaged
in street business of the
whole persons engaged by
Industry
Source: CBS 2018

35. Street Vendors | Informal Economy in Nepal
Share of persons engaged in
street business by size of persons
engaged
Source: CBS 2018
Share of establishment in street
business by size of persons
engaged

36. Informal Economy in Nepal | Contribution to GDP
● The size of Nepal's informal
economy is estimated to be
33.2% which represents
approximately $62 billion at GDP
PPP levels. (worldeconomies.com)
● As per the estimation based on
the value added per labor and the
total number informally employed
persons, the share of informal
sector to total GDP is estimated
to be around 51. 47 percent
(Suwal, et al., 2009)
Adopted from Adhikari, 2019

37. Realities of Informal Economies in Nepal
● In Nepal, tens of thousands of workers in the informal economy
face challenges and difficulties because the government does
not regulate it. There is no safety net for many in the informal
sector, especially in urban areas. (The Kathmandu Post, April 22, 2022)
● The shrinking jobs in the formal sector, lack of skills and
education pushes more and more urban poor into street
vending (The Rising Nepal, August 24, 2022)

38. Realities of/for Street Vendors in Nepal
● Section 11 of the Local Government Operation Act 2074 (2017) gives
right to the municipal police for the implementation of City’s law and
policies. The law also permits the municipal police to conduct
“surveillance” and “management” of local markets and parking
facilities, and protect public land and property. The Act, however, does not
mention how much force the police can use while detaining street vendors
and their goods.
● Urban planners and experts say street vending is a ‘worldwide
phenomenon’ and the authorities should focus on regulating the vendors
rather than violently attacking them and chasing them away.
(The Kathmandu Post, July 4, 2022)

39. Realities of/for Street Vendors in Nepal
(The Kathmandu Post, June 19, 2019)
Informal sector absorbs surplus
labours and provides income
earning opportunities for the poor
and that becomes a primary means
of maintaining a low cost of living
with cheaper goods and services
(Bhatt, 2006 as cited in Adhikari, 2018)
Informality is not only by choice but
also by necessity
(Spotlight Nepal, August 7, 2022)

40. Dynamics of Street Vending at Maitidevi Chowk
Location of Maitidevi Chowk
Image Source: Presenter
Image Source: Pushpendra Khadka, 2022

41. Dynamics of Street Vending at Maitidevi Chowk
Commodities sold at the market
● Daily Commodities: Vegetables (immobile) and
Fruits (mobile)
● Low cost utensils and appliances
● Wash and Clean Products
● Cheap Clothes and garments
● On Sale products
● Cosmetics
Image Source: Pushpendra Khadka, 2017

42. Dynamics of Street Vending at Maitidevi Chowk
Space Encroachment
● Footpath
● Shop entry Plinth
People Involved in Street Vending
● Less educated, esp. Female
● Less competitive individuals: No formal training
● Age group from 8-9 years to 63 years old
● Shop owners employees in front of their shops
Image Source: Pushpendra Khadka, 2017

43. Dynamics of Street Vending at Maitidevi Chowk
Affected Groups
● Consumers of commodity
● Resellers of commodity / vendors
● Impact on Pedestrians
● Impact on similar product shops: shoes,
cosmetics, kitchenware, fruits.
Image Source: Pushpendra Khadka, 2017

44. Dynamics of Street Vending at Maitidevi Chowk
Economic Impact on the suppliers/
vendors
● No rent Payment
● No Tax Payment
● No facilities
● No securities: insurance and fear of
unemployment
● No respect/recognition
Economic Impact on the Consumers
● Cheaper cost of commodity
● Time Saving
● Difficulty in mobility
● Pollution
● Low quality products

45. Dynamics of Street Vending at Maitidevi Chowk
Externalities
● Government tax loss
● Pedestrians discomfort
● Environment Pollution
Losers
● Government
● Environment
● Pedestrians/ consumers of public space
● Shop owners

46. Street Vendors | Problems
Major Problems Identified
● Confusing/ time consuming
government regulations
● Auditing
● Responsibilities/Obligations to
fulfill
● Trust to the government
● No Recognition/Conflict/ high work
pressure and time
● Environmental Pollution
● Government Tax Revenue
● Public Mobility
● Low Quality / Non-Standardized
Products
● Similar Shop owners’ income

47. Reflections
Possible Solutions
● Registration as Informal Sector/ Recognition
○ Identity Cards and Membership provision
● Flat Tax and addition of facilities/ Social Securities through tax
● Urban Design
● Provision for Business upgrade
○ Pull Towards Formality
○ Push From Informal

48. Reflections
Possible Solutions
● Employment: Person managing space, pedestrian flow, waste management, e.g.
parking management in New Road
● Time Restrictions:
Everyday time restrictions or Day in a week restrictions

49. References
Street vendors are crucial to urban economy, but their plight is huge. (n.d.).kathmandupost.com. Retrieved December 16, 2022, from
https://kathmandupost.com/money/2022/04/22/street-vendors-are-crucial-to-urban-economy-but-their-plight-is-huge
Republica. (n.d.). We do not like Mayor Balen: Street vendors. My Republica. Retrieved December 16, 2022, from https://myrepublica.nagariknetwork.com/news/we-do-not-
like-mayor-balen-street-vendors/
Street Vending Integral To Urban Living. (n.d.). GorakhaPatra. Retrieved December 16, 2022, from https://risingnepaldaily.com/news/15777
Street vending needs regulations, not ad hoc crackdown, experts say. (n.d.). Kathmandupost.com. Retrieved December 16, 2022, from
https://kathmandupost.com/valley/2022/07/04/street-vending-needs-regulations-not-ad-hoc-crackdown-experts-say
Republica. (n.d.). Street vendors remove their shops from New Baneshwor area, parking problem remains the same. My Republica. Retrieved December 16, 2022, from
https://myrepublica.nagariknetwork.com/amp/street-vendors-remove-their-shops-from-new-baneshwor-area-parking-problem-remains-the-same/
“Furious” street vendors protest outside KMC. (2022, September 16). Himalayantimes. https://thehimalayantimes.com/ampArticle/1015258
NEPAL: Poverty Profile 2017. (2017, June 14). Rakesh Karna. https://rkarna.com/2017/06/14/poverty2017/
National Economic Census 2018 Analytical Report Informal Sector National Planning Commission Central Bureau of Statistics Kathmandu, Nepal. (2021).
https://cbs.gov.np/wp-content/upLoads/2021/06/Analytical-Report-Informal-Sector.pdf
Adhikari, D. B. (2018). Informal Economy and Poverty in Urban Nepal. Economic Journal of Nepal, 41(3-4), 12–24. https://doi.org/10.3126/ejon.v41i3-4.35927
Pant, B., Suwal, R., & Nepal, C. (2009). Measuring Informal Sector Economic Activities in Nepal. http://old.iariw.org/papers/2009/7%20Suwal.pdf
Huang, G., Xing, Z., Wei, C., & Xue, D. (2022). The driving effect of informal economies on urbanization in China. Journal of Geographical Sciences, 32(5), 785–805.
https://doi.org/10.1007/s11442-022-1972-y