Investigating pathways to socioeconomic benefits and constraints of urban informal sector formalization in Wallaga Zones of Ethiopia

Formalizing the informal sector is becoming the main topic of discussion as it is reflected in the Sustainable Development Goals (Target 8.3) and the International Labor Organization Recommendation No. 204. The purpose of this study is to examine pathways, socio-economic benefits, and constraints of urban informal sector formalization in Wallaga Zones, Ethiopia. This study employed a qualitative research approach and thematic analysis to achieve its objectives. The findings reveal that pathways for bringing Ethiopia’s urban informal sector into the formal sector include streamlining licensing and registration procedures, offering tax incentives, facilitating access to credit and finance, providing social protection, developing skills, and providing business training. The findings of the study also show that barriers to the transition of informal businesses to the formal sector include informal sector participants’ readiness to formalize, policies, laws, and regulations, and that many planned actions are underway to support the transition to formalization. Further, the findings of this study divulge that formalization improves employment security, legal protections, and access to financial resources for formerly informal sector operators, in addition to raising municipal revenues. The study concludes that urban informal sector formalization in Wallaga zones, Ethiopia, is a multifaceted process shaped by diverse pathways and constraints, yet it offers significant socio-economic benefits for informal sector participants and the broader urban economy. The study recommends that government agencies should collaborate with non-governmental organizations and vocational training institutions to effectively implement business skills training, entrepreneurship development, and technical support, which can empower urban informal sector operators.