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Indeed, the unproductive informal sector usually achieves the very reverse: it “crowds out” the way more productive formal small and medium enterprise (SME) sector. It does this by using the fee advantages sometimes derived from informality-paying much less tax, lower wages, and worse working circumstances-to unfairly take native demand (even if simply temporarily) away from the extra productive formal SME sector. With unstable demand and lower costs, formal SMEs find it much more durable to make the necessary investments that would elevate productiveness, broaden their operations, practice their workers, and sustainably grow. In its common “Enterprise Surveys,” the World Bank’s IFC arm sometimes finds that managers and homeowners within the formal SME sector consider the practices of the informal sector as by far the most important obstacle blocking their higher efficiency and development; for example, in Kenya.

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