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“50% of the population is related to the informal economy.”
Posted On 06 Oct 2017
Ecuadornews:
Ecuador is one of the countries with the greatest regulatory burden in the region and one of the consequences is the increase in informal businesses. This was stated by Aldo Salinas, Ph.D. in Administration from the University of Padua in Italy. The expert participated in the VI Conference on Supervision of Popular and Solidarity Economy that analyzed the effects of the regulatory and legal framework on informal business activities.
Excerpt from the interview
Q: What are the implications of informal trade in the country’s economy?
A: Informal entrepreneurship is bound to prevent certain companies from complying with labor, tax, environmental or city regulation. These activities somehow fall into illegality but are legitimized by the population. For example, while street vending is prohibited, people believe that those vendors have the right to carry out these activities.
Q: These activities do not generate tributes…
A: Informal entrepreneurship is heterogeneous. There are economic activities in which if these informal sellers meet the tax and labor requirements, they could not survive because their profitability is very low. The design of public policy must take this heterogeneity into account.
Q: Is the percentage of the population working in the informal sector high?
A: It is estimated that about 30% of the economically active population are informal entrepreneurs. 20% of employees working in informal enterprises must be added. So we are talking about 50% of this economically active population that is related to the informal economy. This is a colossal figure.
Q: What are the factors that allow the development of this activity?
A: Unfortunately, Ecuador is one of the countries with the greatest regulatory burden in the region.
Entrepreneurs need many days to start a business. They have too many formalities to fulfill, it takes them many hours to pay taxes, there is an excessive bureaucracy. Ecuador is the fourth or fifth country in Latin America with the greatest regulatory burden. The government must relax this kind of restrictions that are imposing barriers to formality. In addition, there are potential entrepreneurs with good ideas who, after excessive regulations, decide not to invest in a profitable business.
