Impact of The Informal Economic Activities on The Formal Economic Sectors of Sudan 1970 - 2005

Abstract

In today's economic societies, certain transactions involving goods and services evade national accounting and remain hidden. This applies not only to illegal activities such as contraband, drug smuggling, tax frauds and infringement of labor laws but also to legal activities such as home production, street vendors, casual activities and works. In attempting to study this invisible economy, the biggest problem seems to be of a technical nature: what means can one adopt to uncover transactions that are hidden from view? It is by no means easy to solve this problem and yet it is not impossible to attempt reasonable approximations on the basis of indirect methods. Things get more complicated when one observes the existence of perfectly legal exchanges of goods and services that are not accounted for in money terms, an interest-free loan between relatives, voluntary services, do-it-yourself and so on. Even in cases such as these one might seek to give a value to the transactions and relate them to national accounting. Having set out to quantify part of the hidden economy, people are now confronted by serious theoretical problems. The non-recorded, or hidden economy becomes an indefinite object. In Sudan and in many other countries all over the world, national accounts do not register a whole set of economic transactions. The size, causes and consequences of the existence of such transactions are studied under different names: informal, hidden, unrecorded, underground, parallel, black or shadow economy. Undeclared, nonmeasured and under-registered transactions made to avoid the burden of taxes or to circumvent regulations, illegal transactions connected with crime and corruption and legal but non-market activities are included in the concept of the hidden economy. The aim of this research is to present fresh evidence on the scale of the hidden economy in Sudan. Therefore, it evaluates different definitions and techniques for measuring of this phenomenon. Also it tries to investigate its causes and evaluate its impacts and consequences on the Sudan economy. Within this contest the size and development of the informal economy in Sudan for the period 1970 – 2005 was estimated empirically using different indirect methods. The results showed that the size of the informal economy in Sudan was found to be around 18% of the GDP during the period under study. Nevertheless, it should be noted that the results of this dissertation should be treated with certain limitations, as the measurement method adopted here are indirect means of the size of the informal economic activities.