The Role (Contribution)/advantages/merits   of the Informal sector to Development

Positive roles/contribution/advantages/merits of informal sector

1. It creates employment opportunities.    This is because   most of its activities   are labour   intensive and are on self-employment    basis.
2. It provides a variety of locally affordable   basic consumer    commodities.    This widens the choice of consumers,   especially   the low income earners hence improving   their standards   of living.
3. It reduces foreign exchange   out flow.   This is because commodities   which could be imported   are domestically   produced   and this helps to reduce on balance of payment problems.
4. It acts a cheap training   ground  and development of skills for   local entrepreneurs.     This promotes   managerial    capacity building and helps to reduce government   expenditure   on training costs.
5. It facilitates the exploitation    and utilization   of the idle local resources.   This helps to improve on the productive   capacities   in the economy hence growth and development.
6. It promotes the equitable   distribution    of income.   This  is because   the  informal   sector  requires little  capital  to set up and  therefore,  the low income  earners  can easily  be involved   in carrying  out business  activities  to earn income.
7. It is  a  source   of  government     revenue    through    taxation,    The  government    taxes   incomes   of employees   and  business   activities   of  those  involved   in  the  informal   distribution.    The revenue realized is used to construct   social and economic   infrastructure.   Like hospitals,   roads, etc.
8. It promotes commercialization      of the economy.    The informal   sector can later  be  transformed into a modem  monetary   sector.
9. It promotes mobilization    of local savings.     This promotes   capital accumulation   in the economy.
10. It promotes technological development    in the long run through the use of simple tools.  This acts as an avenue for developing   and promoting   appropriate   technology   in the economy.
11. It facilitates modern industrial development.  The   backward    and   forward   linkages    created between   the   modem    and   traditional    sectors   as  well   as  the   agricultural    sector   promote    the establishment   of small  scale industries  which  can later be developed   into large  scale  industries.

Negative contributions/disadvantages/demerits

1. It encourages duplication of goods and services. This   leads   to resource   wastage    through wasteful competition.
2. It leads to low government revenue. This is because  it is associated   with  a small  tax  base  and high  levels  of  tax  evasion.   This  makes   it  difficult   for  the  government   to  realize   the planned revenue  required  to provide  the necessary  social  services  to the people.
3. It leads to poor standards of living for the people. This is because   it is associated   with the production of poor quality products.
4. It limits the foreign exchange earnings of the country. This is because it does not encourage production for export purposes.
5. It encourages under employment and disguised unemployment. This because the sector mainly operates at excess capacity and on a small scale.
6. It leads to congestion in semi-urban areas. This increases the cost of living in such areas.
7. It reduces the rate of economic growth and development. This is due to underutilization    of resources and use of poor production techniques hence low output.
8. It leads to environmental degradation and pollution. This is in form of air and water pollution which leads to negative   externalities   to society.
9. It accelerates rural urban migration. The youths move to towns to engage in petty but short run profitable   activities.   This leads to regional   economic   imbalance   and poor accommodation facilities in the sub-urban   areas.
10. It increases the administrative costs by the government especially in terms of prevision of the basic social and economic   infrastructure.    It also makes it difficult for the government   to carry out proper planning   due to uncoordinated   development