Informal Firms in Mozambique: Status and Potential

Gemechu A. Aga, Francisco Campos, Adriana Conconi, Elwyn Adriaan Robin Davies and Carolin Geginat

No 9712, Policy Research Working Paper Series from The World Bank

Abstract: 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.

Keywords: Financial Sector Policy; Business in Development; Labor Markets; Common Carriers Industry; Plastics&Rubber Industry; Construction Industry; General Manufacturing; Textiles; Apparel&Leather Industry; Pulp&Paper Industry; Business Cycles and Stabilization Policies; Food&Beverage Industry (search for similar items in EconPapers)
Date: 2021-06-24
New Economics Papers: this item is included in nep-ent, nep-iue, nep-mfd and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://documents.worldbank.org/curated/en/72826162 ... us-and-Potential.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:9712

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().