The Donor Committee for Enterprise Development (DCED) has recently published guidelines for donor and development agencies on business environment reform and the informal economy. I was the principal author of this document, which was based on a discussion paper (see below), a major conference held in Cape Town in April 2010, and broad consultation with members of the DCED and its Business Environment Working Group.
The guidance has been published as an annex to the 2008 Donor Guidance on Business Environment Reform, which I was also closely involved in.
Donor and development agencies supporting business environment reforms are increasingly concerned about those who fall outside the legal and regulatory framework and are unable to take up the new opportunities an improved business environment provides. Many developing economies contain a large informal economy.
The guidance promotes a two-fold approach to reforms affecting the informal economy.
First, business environment reform has typically sought to encourage the formalisation of informal enterprises by improving the legal and regulatory framework in order to make formalisation and operation easier and cheaper.
Second, because informal economic activity can promote innovation and can act as a buffer to economic shocks that developing economies regularly face, an additional objective of business environment reform is to improve the conditions in which informal actors operate. Reforms can enhance the positive effects of informality while making it safer, protecting the vulnerable, and encouraging equity.
The Guidance on Business Environment Reform and Informality can be found here.
The Discussion Paper, written by Professor Clifford Zinnes, which examines informality in the developing world, and considers its relation to business environment reform can be found here.
Papers from the 2010 Cape Town Conference can be found here.