Informality, productivity, and enforcement in West Africa: A firm level analysis

Abstract

The informal sector accounts for a very large share in African economies, both in terms of GDP and employment. However, most national surveys on the informal sector focus on labor market issues and informal employment rather than the structure of informal businesses. And sample designs are shaped by a narrow and in our view misleading definition of informality as small scale individual or household firms. In this study, we use firm-level data collected on 900 formal and informal businesses in the capital cities of Benin, Burkina Faso and Senegal. The information obtained from these surveys was complemented by more qualitative information gathered from semi- structured interviews of major stakeholders in the three cities as well as secondary data compiled from the national income accounts. Our study documents huge enforcement problems leading to the emergence of large informal actors coexisting with smaller informal businesses. In addition, we found an important difference in productivity level between formal and informal firms in favour the former. We also show, however, that the productivity gap is much smaller for large informal firms than for small informal firms, again suggesting that large informal firms have the requisites to formalize but choose not to do so.