Informal Firms in Mozambique : Status and Potential
In most countries in Africa, the informal sector is large and exhibits low levels of productivity compared to the formal economy: informal firms are typically small, inefficient, and run by entrepreneurs with low levels of education. This paper presents novel representative firm-level data collected on informal firms in the three largest cities of Mozambique, as well as data of microenterprises, formally registered businesses with less than 5 employees, the segment of the private sector that compares best to informal firms. Compared to formal microenterprises, informal firms sell about 14 times less, make 17 times lower profits and are 2–3 times less productive. Almost two-thirds (61 percent) of these performance gaps can be explained by differences in firm characteristics: informal firms are smaller and have limited skills, adapt fewer good business practices, use less capital and production inputs and are less likely to have access to finance. The rest of the productivity gap is explained by differential returns. Despite this “duality” between formality and informality, there is nevertheless a small but significant group of informal enterprises (7.6 percent of informal firms, representing 10.6 percent of employment in the informal sector) that in their characteristics and productivity levels are similar to formal microenterprises. Policies should take this heterogeneity into account.
| Main Authors: | , , , , |
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| Format: | Working Paper biblioteca |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021-06
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| Subjects: | INFORMAL SECTOR, SMALL AND MEDIUM-SIZED ENTERPRISES, INFORMALITY, BUSINESS REGISTRATION, ACCESS TO FINANCE, TAXATION, |
| Online Access: | http://documents.worldbank.org/curated/en/728261624545269477/Informal-Firms-in-Mozambique-Status-and-Potential http://hdl.handle.net/10986/35883 |
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| Summary: | In most countries in Africa, the
informal sector is large and exhibits low levels of
productivity compared to the formal economy: informal firms
are typically small, inefficient, and run by entrepreneurs
with low levels of education. This paper presents novel
representative firm-level data collected on informal firms
in the three largest cities of Mozambique, as well as data
of microenterprises, formally registered businesses with
less than 5 employees, the segment of the private sector
that compares best to informal firms. Compared to formal
microenterprises, informal firms sell about 14 times less,
make 17 times lower profits and are 2–3 times less
productive. Almost two-thirds (61 percent) of these
performance gaps can be explained by differences in firm
characteristics: informal firms are smaller and have limited
skills, adapt fewer good business practices, use less
capital and production inputs and are less likely to have
access to finance. The rest of the productivity gap is
explained by differential returns. Despite this “duality”
between formality and informality, there is nevertheless a
small but significant group of informal enterprises (7.6
percent of informal firms, representing 10.6 percent of
employment in the informal sector) that in their
characteristics and productivity levels are similar to
formal microenterprises. Policies should take this
heterogeneity into account. |
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