Examining Ways to Bring Ethiopia's Urban Informal Sector into Formality

ILO Recommendation No. 204 about the transition from the informal to the formal sector and the Sustainable Development Goals (Target 8.3) reflects the current global emphasis given to the formalization of the informal sector. This paper's goal was to use a qualitative technique to investigate the manner in which the Wallaga Zones Oromia nation regional states of Ethiopia can move from the urban informal sector to the formal sector. In order to achieve the goal, 16 key informants were purposefully chosen from the trade offices of Nakamte, Gimbi, Shambu, and Dambi Dollo, the Office of Revenue Authority, the Labor and Social Affairs Office, the Trade Office, and the Micro and Small Enterprise (MSE) Development Office. The study identifies important strategies and pathways for bringing Ethiopia's urban informal sector into compliance, such as streamlining licensing and registration procedures, offering tax incentives and streamlining tax regimes, facilitating access to credit and finance, providing social protection, developing skills, and providing business training. According to qualitative interviews, formalization improves employment security, legal protections, and access to financial resources for formerly informal sector operators in addition to raising municipal revenue through taxes and licensing fees. Moreover, the findings pointed the transformative impacts of formalization on social inclusion, particularly for marginalized groups such as women and youth, enabling them to participate in cooperatives and decision-making processes. The study also underlines the significance of improved urban governance and improvements of urban household welfare resulting from the formalization process. By examining the multifaceted benefits of integrating informal businesses into the formal sector, this research contributes to the discourse on inclusive growth and poverty reduction, advocating for comprehensive policies that address the unique challenges faced by informal sector operators.