Estimates suggest that a billion people live in slums and informal settlements today, representing about 30 per cent of the world’s urban population. In parallel, in many cities of Africa, Asia and Latin America the informal economy is a key source of employment, engaging half to three-quarters of the (non-agricultural) urban workforce. This report looks at the intersection of slums and informal settlements and the informal economy, to raise awareness amongst communities, local authorities, NGOs and other urban actors of the potential of the local economy in informal settlements – much of which is also informal – as a key component of participatory slum upgrading, to contribute to economic development and poverty reduction. It accompanies the earlier report published by UN-Habitat on Enhancing Productivity in the Urban Informal Economy (UN-Habitat, 2017).

Slums and informal settlements are often vibrant centres of economic activity, with a mesh of small scale enterprises and home-based work that serve both the local populations and the wider city. Yet the focus of settlement upgrading has been on improving land tenure and infrastructure, with limited awareness of the diversity, networks and specialisms of economic enterprise found in slums and informal settlements. The potential of the informal economy in informal settlements is not yet well-understood – the types, networks and locations of economic activities, its contribution to employment, income generation and economic growth, its gender dimensions – and its potential contribution to slum upgrading and poverty reduction is not well-recognized. Much has been written both on settlement upgrading and the urban informal economy, but there is little research on the intersection of these two important areas. This report seeks to fill this gap and strengthen the links between settlement upgrading, livelihoods and improved quality of life. It aims to enhance understanding of the importance of the informal economy in slums and informal settlements for both residents and the wider urban economy, and explores enabling approaches that can enhance the livelihoods and local economies of settlements. The report draws on the experiences of the Participatory Slum Upgrading Programme of UN-Habitat and other similar projects and programmes.

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