Formal and Informal Enterprises in Francophone Africa: Moving Toward a Vibrant Private Sector Edited by Ahmadou Aly Mbaye, Stephen S. Golub, and Fatou Gueye Formal and Informal Enterprises in Francophone Africa: Moving Toward a Vibrant Private Sector Edited by Ahmadou Aly Mbaye, Stephen S. Golub, and Fatou Gueye International Development Research Centre Ottawa • Amman • Dakar • Montevideo • Nairobi • New Delhi Editors: Ahmadou Aly Mbaye, Stephen S. Golub, and Fatou Gueye Cover photograph: Shutterstock (NewYork, USA) Composition and conversion services: JMR Digital Solutions (Chennai, India) ©Contributors 2020. Licensed under the Creative Commons Attribution 4.0 Licence. http://creativecommons.org/licenses/by/4.0/ The research presented in this publication was carried out with the financial assistance of the International Development Research Centre (IDRC), Ottawa, Canada. The views expressed herein do not necessarily represent those of IDRC or its Board of Governors. Published by: International Development Research Centre P.O. Box 8500 Ottawa, ON K1G 3H9 Canada www.idrc.ca / [email protected] ISBN: 978-1-55250-615-8 / 978-1-55250-616-5 (ebook) Table of Contents Figures, tables, and appendices vii List of contributors xv List of acronyms xvii Foreword xix Arjan de Haan Preface xxiii Chapter 1 Overview and Summary 1 Ahmadou Aly Mbaye, Stephen S. Golub, and Fatou Gueye Part I Comparative Analysis of the Informal Sector in Francophone Africa and Elsewhere: Measurement, Causes, and Effects Chapter 2 Conceptualizing the Informal Sector: Analysis and Application to Francophone Africa 21 Ahmadou Aly Mbaye and Fatou Gueye Chapter 3 Informal Sector Value Chains: Evidence from Case Studies 43 Ahmadou Aly Mbaye, Stephen S. Golub, Fatou Gueye, Yves Momo Ngapgho, and Dominique Sébastienne Salla Chapter 4 The Informal Sector in Francophone Africa: Dominant Characteristics, Scope, and Trends from Our Survey Data 79 Jean-Jacques Ekomié, Fatou Gueye, Dominique Haughton, Ahmadou Aly Mbaye, and Ibrahima Tall Table of Contents v Chapter 5 Characteristics and Consequences of Informality: African Firms in Comparative Perspective 103 Dominique Haughton, Jonathan Haughton, and Ahmadou Aly Mbaye Chapter 6 The Failure of Structural Transformation in Francophone Africa and the Rise of the Informal Sector 137 Nancy Claire Benjamin and Ahmadou Aly Mbaye Chapter 7 The Role of Labour Market Regulation in Deterring Formal Employment, with a Focus on Senegal 159 Stephen S. Golub, Ahmadou Aly Mbaye, and Hanyu Chwe Chapter 8 What Policies Can Support Small Informal Businesses in Africa? 189 Ahmadou Aly Mbaye, Félix Zogning, and Fatou Gueye Part II The Informal Sector in Central Africa, with a Focus on Cameroon Chapter 9 The Informal Sector in Cameroon: Practices and Productivity 209 Nancy Claire Benjamin, Fatou Gueye, Dominique Haughton, Ahmadou Aly Mbaye, Romain Tchakouté, and Joël Maturin Tinga Yepdo Chapter 10 Cameroon’s Informal Cross-Border Trade 233 Stephen S. Golub and Georges Kobou Chapter 11 Road Infrastructure, Corruption, and Cross-Border Trade: The Case of the Mamfe-Ekok Road Linking Cameroon and Nigeria 269 Stephen S. Golub, Ahmadou Aly Mbaye, Dominique Sébastienne Salla, and Marina Tsikouras Chapter 12 Gender and the Labour Market in Cameroon 285 Jacques Charmes and Rosalie Njonkam Index 311 vi Mbaye, Golub, and Gueye Figures, tables, and appendices Figures Figure 1.1 Share of the informal sector in selected Francophone West and Central African countries by major economic sector (percent of sectoral GDP) 3 Figure 2.1 A directed acyclic graph of the connection among seven criteria of informality for Cameroon 36 Figure 4.1 Informality scores according to the level of annual sales 80 Figure 4.2 Informality scores according to the level of education of the business manager 82 Figure 4.3 Self-employment (percent of total employment) 83 Figure 4.4 Informality scores by gender of the business manager 87 Figure 5.1 Distribution of sales per firm, by informality 110 Figure 5.2 Partial effects of predictors on the probability that a firm is formal 114 Figure 5.3 Distribution of the log of value added per worker, by formality 120 Figure 5A2.1 Simple decision tree with two predictors 135 Figure 6.1 Annual GDP growth and cumulative poverty reduction in various regions, 1970–2014 138 Figure 6.2 Decomposition of economic growth into structural change (between sectors) and within-sector growth, 1990–2010s 139 Figure 6.3 Average monthly wage by formal/informal status, FCFA 142 Figure 6.4 Growth decomposition for Africa by decade 143 Figure 7.1 Breakdown of Senegal’s labour force into informal employment, formal employment, and unemployment, 2011 172 Figures, tables, and appendices vii Figure 7.2 New registered employment contracts and labour force growth in Senegal 173 Figure 7.3 Number of workers enrolled in the IPRES retirement program, total and as a ratio of the working-age population 174 Figure 8.1 Proportion of firms that have received bank financing 195 Figure 9.1 Structure of value added and employment by formal/ informal status in the Cameroonian economy 210 Figure 9.2 Boxplot of (log) productivity by formality levels 212 Figure 9.3 Histogram of the logarithm of labour productivity 216 Figure 9.4 Comparative analysis of the level of formality predicted from random forest and linear regression 218 Figure 9.5 Formality instrument and productivity 220 Figure 9.6 Sector of firm (IG3) 221 Figure 9.7 Interaction of the informality instrument and sector 222 Figure 9.8 Interaction of the informality instrument and sector 222 Figure 9.9 Ownership status (IG7) 225 Figure 9.10 Capital intensity 226 Figure 9.11 Age of the head of the enterprise (ID1) 227 Figure 9.12 Age of firm 228 Figure 9.13 Marital status of manager (ID2) 229 Figure 9.14 Proportion of females in the firm 230 Figure 10.1 Cameroon and its neighbours 234 Figure 10.2 Rice imports per capita (USD) in Cameroon, Nigeria, Benin, and Togo 246 Figure 10.3 Average official gasoline prices in Cameroon and Nigeria, 1991–2019 (USD/litre) 248 Figure 10.4 Average official diesel fuel prices in Cameroon and Nigeria, 1991–2019 (USD/litre) 248 Figure 10.5 Cameroon’s main trading groups 256 Figure 11.1 The Mamfe-Ekok Road 272 Figure 12.1 Labour force participation rates by gender in African countries (most recent year) 289 Figure 12.2 Unemployment rates by gender in African countries (most recent year) 291 Figure 12.3 Underemployment rates by gender in African countries (most recent year) 293 Figure 12.4 Breakdown of workers by wage bracket, gender, and firm status (percent) 306 viii Mbaye, Golub, and Gueye Tables Table 1.1 Share of urban informal employment in total urban employment (percent), selected West and Central African economies 4 Table 2.1 Scoring informality based on the seven criteria 29 Table 2.2 Criteria of informality satisfied by the three categories of firms 30 Table 2.3 Size and composition of sampled firms in six cities 34 Table 2.4 Share of firms that satisfy various criteria of informality within each city (percent) 35 Table 2.5 Latent class model (cluster analysis) for Cameroon (proportion) 37 Table 3.1 Informal share of petroleum products in Benin, 2013 60 Table 4.1 Manager’s average age by status of firms (percent of all managers by sector) 81 Table 4.2 Literacy and educational background of business managers (percent) 82 Table 4.3 Average monthly salary in 1,000 FCFA 83 Table 4.4 Proportion of employees citing kinship with the job sponsor (percent) 85 Table 4.5 Working conditions according to the firm’s status (percent, unless specified) 86 Table 4.6 Proportion of employees with a work contract (percent) 86 Table 4.7 Distribution of firms according to informality status, the manager’s gender, and informality criteria (percent) 88 Table 4.8 Distribution of enterprises according to social security coverage and access to bank financing by manager’s gender (percent) 89 Table 4.9 Proportion of firms by sales volume according to the manager’s gender, average of Douala, Yaounde, and Libreville (percent) 89 Table 4.10 Firms’ perceptions of business by the manager’s gender (percent) 90 Table 4.11 Firms’ sector of activity by the manager’s gender (percent) 90 Table 4.12 Access to Infrastructure and Communication Technologies services by manager’s gender (percent) 91 Table 4.13 Enterprises’ method of financing (percent) 92 Table 4.14 Loan interest rates charged by banks 93 Figures, tables, and appendices ix Table 4.15 Proportion of firms affiliated with a professional association (percent) 94 Table 4.16 Perceptions of the administration of the tax system (percent) 94 Table 4.17 Share of firms doing business with different size counterparts (percent) 96 Table 4.18 Proportion of informal firms involved in subcontracting of formal sector goods and services (share by sector in percent) 96 Table 4.19 Relationships of business partners for formal and informal firms (percent) 97 Table 4.20 Financing of transactions with informal sector partner (percent) 98 Table 4.21 Productivity (sales per worker) of formal and large informal firms according to whether they subcontract with small informal firms, as a ratio to average productivity by sector (percent) 98 Table 4.22 Share of firms that export and do not export among those who do business with small informal firms (share of all firms within group in percent) 98 Table 4.23 Productivity (sales per worker) of formal and large informal firms according to whether or not they compete with small informal sector, as a ratio to average productivity by sector (percent)