Should forest enterprises formalize? Insight from a multi-dimensional characterization of informal baobab enterprises

William Kwadwo Dumenu, Louis Gyekye Appiah, Carola Paul and Dietrich Darr

Forest Policy and Economics, 2023, vol. 150, issue C

Abstract: Knowledge of the structure and characteristics of informal forest enterprises is critical to determining the most appropriate course of action for their development and formalization. This study characterizes and develops a typology of informal microenterprises in the Malawian baobab processing sector; and assesses factors influencing their entry into the informal sector. Drawing on the analysis of firm-level data from 305 informal baobab processors, cost and complexity of registration, smallness (scale) of the business, and necessity-driven motivations were identified as key factors influencing informality. Coupling principal component and cluster analyses, three typologies of informal microenterprises were identified and characterized namely; high performance-survival phase enterprises (type 1), moderate performance-survival phase enterprises (type 2), and low performance-start-up phase enterprises (type 3). Annual net profit (earnings), firm age, and the extent of adoption of formal systems and controls explained the inherent segmentation. The segmentation suggests a dualism compromising of an upper- and lower-tier enterprises characterized by strong involuntary entry into the informal forest sector. For policy implications, we argue that the upper-tier enterprises (types 1 and 2) be targeted with business development programmes to promote their growth while, the lower-tier (type 3) targeted with skills development and social support.

Keywords: Informality; Involuntary exclusion; Dualism; Developing economies; Baobab; NTFPs (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:forpol:v:150:y:2023:i:c:s1389934123000308

DOI: 10.1016/j.forpol.2023.102935

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