:: Topic Area: Policy Process :: Fellowship Project Title: Accommodating the Urban Informal Sector in the Public Policy Process: A Case Study of Street Enterprises in Bandung Metropolitan Region (BMR), Indonesia.

 Mentor : Prof. Thomas B. Timar (USA) and Dedem Ruchlia (Indonesia)

 Project Proposal  Timetable  Interim Activity Report  Interim Research Paper
 Interim Policy Paper  Final Activity Report  Final Research Paper  Final Policy Paper

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The informal economy, in all the ambiguity of its connotations, has come to constitute a major structural feature of society, both in industrialized and less developed countries. And yet, the ideological controversy and political debate surrounding its development have obscured comprehension of its character, challenging the capacity of social sciences to provide a reliable analysis.

Portes, Castells, and Benton (1989:1)


The informal sector is known by many different names according to different contexts and points of view. Variously referred to as the informal economy, unregulated economy, unorganised sector, or unobserved employment, to cite but a few of its titles, this sector typically refers to both economic units and workers involved in a variety of commercial activities and occupations that operate beyond the realm of formal employment (Williams and Windebank, 1998; Suharto 2002).

In the urban context, the informal sector refers to small enterprise operators selling food and goods or offering services and thereby involving the cash economy and market transactions. This so-called “urban informal sector” is more diverse than the rural one and includes a vast and heterogeneous variety of economic activities through which most urban families earn their livelihoods.

Activities of the urban informal sector in the public arena of cities are particularly apparent in street-based trading, which is widely known as street vendors or pedagang kakilima in local language. Although these street enterprises are mostly hidden from the state for tax, they involve very visible structures, and are often subject to certain limited administrative processes, such as simple registrations or daily collection fees. The main forms are retail trade, small-scale manufacturing, construction, transportation, and service. These economic activities involve simple organisational, technological and production structures. They also rely heavily on family labour and a few hired workers who have low levels of economic and human capital and work on the basis of unstandardised employment laws (Suharto, 2000; 2001; 2002).

The role of the urban informal sector in development has been one of the many contentious issues in the public policy area. In Indonesia, evaluation and policy attention toward the urban informal sector is mainly concerned with the high growth rate of the sector and with its negative effects on the urban built environment. This is especially true for street vendors, the most dominant sub-group of the urban informal sector in the country (Suharto, 2002). Their continued presence in the markets and sidewalks of the cities produces a variety of conflicting opinions about the importance of their retailing activities in the overall urban economy of Indonesia.

This research-for-policy project aims to provide information on social and economic factors underlying street vending activities as a basis upon which to generate policy issues and options in the urban development planning of BMR. As such, the study will focus on five areas of inquiry: (a) the socioeconomic characteristics of street traders, (b) their reasons to participate in street vending, (c) their business site preferences, (d) policy makers’ perception on the operation of street enterprises, and (e) existing policy measures and legislations relating to the operation of street enterprises.

The Background

The importance of the informal sector to Indonesia’s development is obvious. High and uneven population distribution, an increasing rate of growth of urban population, and the effects of slow industrialisation call out for initiatives to create employment alternatives for an unprecedented growth of the labour force.

During the 1990s, the employment situation in Indonesia was particularly difficult as employment opportunities in the formal sector were unable to absorb the growing labour force within the national labour market. Between 1990 and 1997, while the labour participation rate increased from 55 percent to 58 percent, the work opportunity rate decreased from 97 percent to 95 percent. As a result, the open unemployment rate increased from 1.7 percent to 4.7 percent during the same period (CBS, 1995:19; CBS, 1997:1).

Indonesia has one of the largest informal economies in the world. As in many other Third World countries, the informal sector in Indonesia still accounts for most of the total employment and has, therefore, a larger impact on creating a more equitable distribution of incomes in rural as well as in urban development. During the 1980s and 1990s, the number of those who constitute the economically active population and who depend on the informal sector as their main source of employment and income has been consistently more than sixty percent of the total labour force (see Sethuraman, 1985; Evers and Mehmet, 1994; Firdausy, 1995; Azis, 1997; CBS, 2001). In 1998, it consisted of 43 million in rural areas and 14 million in urban areas or about 65 percent of the total working population (CBS, 2001; Hugo, 2000:125).

As widely reported by national and local newspapers, the growth of the informal sector was particularly high during the recent economic crisis. The crash of the modern economy between 1997 and 1999, involving the closure of banks, factories and service agencies, pushed the newly unemployed to more than double in the informal sector. In the case of street enterprises, the increase is even more impressive. In Jakarta and Bandung, for example, from the end of 1996 to 1999 the growth of the street vendors was estimated at 300 percent (Kompas, 23 November 1998; Pikiran Rakyat, 11 October 1999).

Despite the fact that the informal sector provides a livelihood for huge numbers in the national labour force, this sector continues to have low productivity, poor working conditions, low incomes and few opportunities for advancement. Although some of the more structured groups of the informal sector, such as street traders, tend to have an entrepreneurial character and sometimes high incomes, it is widely recognised that the informal sector is still vulnerable, with little capital, limited markets, inadequate economic returns, and low levels of living standards (Suharto, 2001).

With reference to street enterprises, the issue of the informal sector is particularly related to its business operation. The street traders operate their businesses in the areas that can be classified as public spaces and are originally not intended for trading purposes. As most street trading occupies busy streets, sidewalks, or other public spaces, it is often considered illegal. This status makes these traders victims of harassment and threats from police and other government authorities. In Bandung, for example, the municipality government continues to perform clearance operations in the five busiest areas: the Alun-alun Square and the streets of Asia Africa, Dalem Kaum, Kepatihan, and Dewi Sartika.

It is believed that these areas should be free from the “nuisance” of pedagang kakilima, especially during event days. This actually often involves a policy of “clear-the-streets and arrest-vendors” that removes the street enterprises from the areas in which they have been operating. The statement by Enjang Soedarsono, a vice mayor of Bandung City, perhaps represents the best example of the attitude of many city administrators toward pedagang kakilima:

If the operation of pedagang kakilima is allowed in the city, it will create an unsightly appearance and there will be no other parts of the city that will make the inhabitants proud. The presence of the street vendors can breed social disorder (Kompas, 27 November 1997, translated).

In Bandung, there are areas of visible agglomeration of such enterprises, particularly along the major transport arteries and streets (e.g. the streets of Asia Africa, Dalem Kaum, Kepatihan, and Dewi Sartika) and in road reservations in the city. They are also concentrated in other areas, such as public markets, commercial complexes, and bus stations, where crowds congregate at the day and night. Above all, they are found in public spaces and low-income residential neighbourhoods, usually through squatting on public or privately owned land.

According to Yankson (2000:315), as the urban informal economy expands, there is bound to be a proliferation of workshops and worksites or an intensification in the use of informal economic locations. This would breed and exacerbate environmental problems, such as traffic and health hazards, which are associated with the operation of informal economic activities. Therefore, there is an increased demand for suitable sites for such enterprises with requisite infrastructure and services. Unless the urban development planning responds with the appropriate policy and programmes, the prospects for their growth and development cannot be initiated. A failure of the urban management system to integrate them in the city master plan will result in a haphazard and scattered locational pattern of informal economic enterprises within the urban built environment.

Objectives of the project

The project basically aims to produce two interrelated papers, namely research paper and policy paper.

The research paper is intended to:

  1. To identify major characteristics of street vending and working and environmental conditions of the enterprise in which they are operating, such as business    profiles, social and economic determinants of street vending activities, and factors influencing the selection of worksites of the street traders in the urban space economy.

  2. To examine the policy-making process in urban development planning by highlighting existing policy measures and legislations relating to the operation of street enterprises, such as approaches of the measures, problems and implementation patterns, stakeholders (advocates, opponents, decision-makers) involved, and participation and communication procedures in policy-making.

The policy paper is intended to:

  1. Identify & discuss research-based policy issues with regard to the operation of the urban informal sector within the context of urban development planning of BMR.
  2. Increase the awareness and involvement of different policy stakeholders so as to enhance the sound process of public policy making.
  3. Outline and propose open and integrated policy measures and interventions to public policy administrators concerning the operation of street enterprises within the adequate framework of urban built environment.

Significance of the project

In Bandung, very little, if any, attention has been paid to integrating the urban informal sector in urban development planning. While the municipal and district government have no adequate understanding on the nature of micro-economic activities, the local government authority has not seriously considered the aspirations and needs of street traders.

This project will therefore address these issues, and integrate them within the urban space and economy. This will enable policy makers and city administrators to identify a number of policy options and programmes in accommodating the operation of small and micro-enterprises. The provision of suitable workshop sites and of access to appropriate technology and credit at a relatively lower cost, as well as the provision of adequate and appropriate shelter and infrastructural services, are some examples of the possible interventions.

In addition, the results can also be shared for policy analysis in some advanced countries, especially in the European Union nations which are now witnessing the exclusion of an increasing production of the citizens from both formal employment and welfare provision and hence experiencing the growth of the informal economy (Williams and Windebank, 1998:29).


The type of research undertaken by this study will be the triangulation method. This mixed-research strategy involves different quantitative and qualitative research approaches and multiple techniques of data collection, such as surveyed questionnaires, focused interviews and observations. The fieldwork for this study will be located in BMR for about three months.

BMR administratively consists of two areas: the district (kabupaten) and the municipality (kotamadya). Four research sites will be selected within both areas on the basis of “multistage cluster sampling technique” (de Vaus, 1991:67) or the area sampling with multi-stage classification before sampling (Suharto, 1994:31). These sampling blocks include the street, public market, commercial complex, and bus station – areas which typically contain a cluster of street enterprises. The main respondents of the research will be operators of street vending, but knowledge individuals (academia, NGOs) and policy makers and public administrators in BMR will also be involved.

The city selected as the study area shares much in common with other large Indonesian cities in terms of the level and pace of urban development as well as the severe economic downturn associated with the recent structural adjustment period. Bandung is the capital of West Java province situated 180 kilometres southeast of Jakarta, the capital of Indonesia. With population of over 4 million, BMR is one of the Indonesian cities that serves as a regional centre for administrative and business activities. This makes it a destination for rural migrants in search of employment as it has large and varied informal activities, including household-based commodity production, street traders, and itinerant petty traders (pedagang keliling).

General Activities and Schedule

The project will be carried out within the 12 months period. In general, the activities and schedule are as follows:

RESEARCH (6 MONTHS): Literature review, data collection and analysis followed by writing a preliminary report.

POLICY MAKING (3 MONTHS): disseminating the research findings to policy analysts, decision makers, and stakeholders in Bandung: city administrators, politicians (members of parliament), academia, NGO activists, mass media reporters, and street traders (street trader associations) and generate policy issues and options with them.

PROJECT REPORT (3 MONTHS): completing final project report, including research findings and policy options.


Azis, Iwan Jaya (1997) “The Increasing Role of The Urban Non-Formal Sector in Indonesia: Employment Analysis within a Multisectoral Framework” in Gavin W. Jones and Pravin Visaria, Urbanization in Large Developing Countries: China, Indonesia, Brazil, and India, Oxford: Clarendon Press, pp.143-159

CBS (1997), Employment Statistics: Statistical Tables, Jakarta: CBS

CBS (2001), Employment Statistics: Selected Tables, www.bps.go.id/ statbysector/employ/table1.shtml (accessed 7 May 2001)

CBS (Central Board of Statistics) (1995), Indikator Kesejahteraan Rakyat (Welfare Indicators), Jakarta: CBS

de Vaus, D.A. (1991), Surveys in Social Research, Sydney: Allen and Unwin

Evers, Hans Dieter and Ozay Mehmet (1994), “The Management of Risk: Informal Trade in Indonesia”, World Development, Vol.22, No.1, pp.1-9

Firdausy, Carunia Mulya (1995), “Role of the Informal Service Sector to Alleviate Poverty in Indonesia”, The Indonesian Quarterly, Vol.XXIII, No. 3, pp.278-87

Hugo, Graeme (2000) “The Impact of the Crisis on Internal Population Movement in Indonesia”, Bulletin of Indonesian Economic Studies, Vol.36, No.2, pp.115-138

Kompas (1998), 23 November

Pikiran Rakyat (1999), 11 October

Portes, Alejandro, Manuel Castells, and Lauren A. Benton (1989), “Introduction”, in Alejandro Portes, Manuel Castells, and Lauren A. Benton (eds.), The Informal Economy: Studies in Advanced and Less Developed Countries, Baltimore: Johns Hopkins University Press, pp.1-7

Sethuraman, S.V. (1985), “The Informal Sector in Indonesia: Policies and Prospects”, International Labour Review, Vol. 124, No. 6, pp.719-735

Suharto, Edi (1994), The Role and Performance of Local Organization in Poverty Alleviation Programs: A Comparative Study in Selected Villages of Majalengka, Indonesia, Unpublished Master Thesis, Bangkok: Asian Institute of Technology

Suharto, Edi (2000), The Informalisation of Indonesian Economy during the Crisis, 1997-1999: Some Evidence from Kakilima Street Enterprises in Bandung, paper presented at the First Conference of Indonesian Students in New Zealand held at Canterbury University, Christchurch, 15 – 16 November

Suharto, Edi (2001), How Informal Enterprises Cope With the Economic Crisis? The Case of Pedagang Kakilima in Bandung, Indonesia, paper presented at New Zealand Asian Studies Society 14th International Conference held at Canterbury University, Christchurch, 28 November – 1 December

Suharto, Edi (2002), Profiles and Dynamics of the Urban Informal Sector in Indonesia: A Study of Pedagang Kakilima in Bandung, unpublished PhD thesis, Massey University, New Zealand

Williams, Collin C. and Jan Windebank (1998), Informal Employment in the Advanced Economies: Implications for Work and Welfare, London: Routledge

Yankson, Paul W.K. (2000), “Accommodating Informal Economic Units in the Urban Built Environment: Petty Commodity Enterprises in the Accra Metropolitan Area, Ghana”, Third World Planning Review, Vol.22, No.3, pp.313-334

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