Unlocking potential: Tackling economic, institutional and social constraints of informal entrepreneurship in Sub-Saharan Africa
Introduction
In the past two decades, research on the informal sector has emphasized the heterogeneity of this part of the economy, e.g. in terms of
- entry costs,
- firm size,
- access to credit,
- forward- and backward linkages and
- human and physical capital endowments.
Yet, not much research has investigated the causes of this heterogeneity and the implied inefficiencies. This is true in particular for Sub-Saharan Africa (SSA), where informality dominates urban labour markets. Understanding these causes and the implied inefficiencies is however necessary to design policy interventions that are able to remove the most binding constraints for informal entrepreneurs.
Based on a concept of informality adapted to the African context and a comprehensive theoretical framework, the proposed project analyzes the quantitative importance of various constraints to informal enterprises. We distinguish between
- economic constraints, such as capital market imperfections, the lack of insurance and the lack of demand for informal sector products,
- institutional constraints, such as ill-managed government regulations and exposure to corruption, and
- social constraints, such as sharing obligations with the extended family.
We examine the nature and the relative importance of these constraints, their interaction and the channels through which they impact on enterprise performance. The empirical basis of our research programme is a unique micro data set on informality (1-2-3 surveys) covering seven West-African countries, Madagascar, Peru and Vietnam.
For the case of Madagascar we also offer an evaluation of the short and long term effects of a micro-credit programme. The integration of the insights emanating from the analysis of the above-mentioned constraints will allow us to evaluate policy options that are able to unlock potential in the informal sector. Our networks, in particular those of AFRISTAT in SSA, will ensure that findings reach potential users through workshops, conferences and training events.
