formal and informal sectors

• Formal sector

  Formal sector refers to businesses that are registered and pays tax. They are controlled by laws and regulations of government. It is capital intensive as it involves using machinery/equipment etc
• Importance of the formal sector

  Companies pay taxes on their profits. Provides employment to highly skilled, semi-skilled, and unskilled laboures. They provide legal products. Products supplied by the formal sector are guaranteed, which means that faulty goods can be returned. They employ many people with different skills and qualifications.
• Informal sector


  Informal sector refers to businesses that are not registered and do not pay tax. The informal sector refers to the people who are self-employed. Employees are not protected and can be exploited.
• Importance of informal sector

  Provides employment opportunities to communities and contributes to poverty alleviation. Encourages entrepreneurship as self-employment. It is easy to enter this sector and serves the needs of individuals.
• Formal sector 


  Industries in this sector are legally registered. Employees are protected as they receive unemployment funds, disability funds, and injured-on-duty funds. They are controlled by the laws and regulations of the government. Not easy to enter this sector as businesses have to be legally registered.
• Informal sector


  This sector is not legally registered. Employees are not protected and can be exploited. They are not tracked by any form of government. Easy to enter this sector as they are no legal formalities needed.