The State of the Informal Economy in Ethiopia: Insights from Addis Ababa City Administration

The document assesses the pervasive role of the informal economy in Ethiopia, noting that it accounts for 80-90% of national employment and approximately one-third of GDP. It highlights a disconnect between official national surveys, which show a decline in informality, and international estimates that suggest the sector remains dominant. The analysis focuses on the drivers of informality—including rural-to-urban migration and structural exclusion—and the challenges of formalization, such as bureaucratic burdens and limited financial access. In Addis Ababa, the city administration has shifted from viewing informal trade as 'illegal' to implementing regulations (such as Regulation No. 184/2025) to recognize and gradually integrate street vendors into the formal economy.

• The informal economy is a dominant force in Ethiopia's labour market, estimated to account for 80%-90% of national employment and approximately one-third of the national GDP.
• There is a significant discrepancy between official Ethiopian national surveys and international data; while national surveys show a decline in urban informal employment (e.g., a 74.2% decline in Addis Ababa between 2004 and 2022), international reports suggest informality remains as high as 90% in sub-Saharan Africa, including Ethiopia.
• The underreporting of informality in official statistics is attributed to narrow operational definitions (focusing primarily on the possession of a business licence and book of accounts) and administrative pressures that compel operators to formalize or face harassment.
• Informality in Ethiopia is driven by structural exclusion, rapid rural-to-urban migration, and a mismatch between the surplus of low-skilled labour and the limited growth of formal job opportunities.
• Sole proprietorship is the overwhelming business structure in the urban informal economy, with rates remaining nearly constant at approximately 98-99% between 2002 and 2021.
• Women are disproportionately represented in the informal sector, particularly in low-paying roles such as street vending, domestic work, and home-based production.
• The 'gig economy' is emerging in Ethiopia, driven by digital platforms for ride-hailing (e.g., RIDE, Feres) and e-commerce, which attract urban youth but introduce new precarieties such as 'algorithmic control'.
• Informal and formal sectors are deeply interlinked; informal enterprises act as essential suppliers of raw materials and intermediate goods to formal businesses and serve as key distributors of formal sector products to underserved areas.
• The Addis Ababa City Administration has transitioned from treating informal trade as illegal to recognizing it through Regulation No. 184/2025, which defines informal street trade as activities with capital up to 200,000 Birr.
• Formalization efforts are hindered by significant barriers, including complex registration procedures, high compliance costs, frequent government restructuring, and a lack of access to formal credit due to high collateral requirements.

APA

Tesema, D., Mohammed, Z., Getahun, C., Fenta, G., & Chemeda, T. (2025). The State of the Informal Economy in Ethiopia: Insights from Addis Ababa City Administration. Good Governance Africa. https://digitalmallblobstorage.blob.core.windows.net/wp-content/2026/04/GGA-HoA-Informal-Economy-Final-Monograph.pdf

Chicago

Tesema, Dereje, Zerihun Mohammed, Chalachew Getahun, Getahun Fenta, and Tesema Chemeda. The State of the Informal Economy in Ethiopia: Insights from Addis Ababa City Administration. Good Governance Africa, 2025. https://digitalmallblobstorage.blob.core.windows.net/wp-content/2026/04/GGA-HoA-Informal-Economy-Final-Monograph.pdf.

Wikipedia

{{cite report |last1=Tesema |first1=Dereje |last2=Mohammed |first2=Zerihun |last3=Getahun |first3=Chalachew |last4=Fenta |first4=Getahun |last5=Chemeda |first5=Tesema |title=The State of the Informal Economy in Ethiopia: Insights from Addis Ababa City Administration |publisher=Good Governance Africa |date=2025 |url=https://digitalmallblobstorage.blob.core.windows.net/wp-content/2026/04/GGA-HoA-Informal-Economy-Final-Monograph.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{tesema2025state, author = {Tesema, Dereje and Mohammed, Zerihun and Getahun, Chalachew and Fenta, Getahun and Chemeda, Tesema}, title = {{The State of the Informal Economy in Ethiopia: Insights from Addis Ababa City Administration}}, institution = {Good Governance Africa}, year = {2025}, url = {https://digitalmallblobstorage.blob.core.windows.net/wp-content/2026/04/GGA-HoA-Informal-Economy-Final-Monograph.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }