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1. What traders know: the (mis)perceptions of formal and informal cross-border traders

Author:
Paolo Falco and Eleanor Wiseman
Publication Date:
04-2024
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
ross-border traders face a choice between official and unofficial border crossings. The latter allow them to evade taxes, but expose them to other risks, such as bribes, fines, and arrest. We investigate the perceptions of cross-border traders about the risks of trading officially vs unofficially at the border between Kenya and Uganda. We find that traders overestimate the risks of trading officially relative to the same risks when trading unofficially. In reality, the measured risks of trading through the official border are lower.
Topic:
Borders, Risk, Trade, and Informal Economy
Political Geography:
Uganda, Kenya, and Africa

2. Employment transitions with high unemployment and a small informal sector: Examining worker flows during normal and recessionary periods in South Africa

Author:
Shakeba Foster
Publication Date:
04-2023
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper examines employment transitions in the South African labour market. Using the Post-Apartheid Labour Market Series, it analyses flows between the formal sector, informal sector, and unemployment, paying specific attention to how these flows differ during recessions. It explicitly considers heterogeneity within the informal sector by separately accounting for wage employment and self-employment as well as upper-tier and lower-tier informal sector segments. Transition probabilities are estimated using dynamic discrete choice models, and the extent to which transitions affect changes in real wages is estimated using a linear model. The results provide evidence of heterogeneity within the informal sector and segmentation between wage employment and self-employment. They also show a lag in the employment impacts following a recession. Finally, the paper provides suggestive evidence that the upper-tier segment of the informal sector acts as a buffer during recessionary periods by absorbing labour that would otherwise be unemployed or relegated to precarious lower-tier informal employment.
Topic:
Employment, Labor Market, Informal Economy, and Recession
Political Geography:
Africa and South Africa

3. Labor Informality and Market Segmentation in Senegal

Author:
Carlos Rodríguez-Castelán and Emmanuel Vazquez
Publication Date:
10-2023
Content Type:
Working Paper
Institution:
Center for Distributive, Labor and Social Studies (CEDLAS)
Abstract:
Understanding the selection of workers into informality is a policy priority to design programs to increase formalization across Sub-Saharan Africa, where nine out of ten workers are informal. This paper estimates a model of self-selection with entry barriers into the formal sector to identify the extent of involuntary informality in Senegal, a representative country in terms of levels of informality in West Africa and with one of the most rigid labor markets in the world. Results show that the desire of being formal is greater for workers with formal education, married and with a lower proportion of children under the age of 5 living in the household. The individual’s preference for the formal sector also grows with age at a decreasing rate. Results also show that labor informality is mainly a voluntary phenomenon with 30 percent of informal workers being involuntarily displaced into the informal sector. Results are robust to different model specifications, definitions of labor informality and heterogenous groups of workers.
Topic:
Labor Market, Informal Economy, Informality, and Segmentation
Political Geography:
Africa and Senegal

4. The impact of COVID-19 on urban informal workers in Maputo

Author:
Nilifer Anaç, Eva-Maria Egger, Sam Jones, Ricardo Santos, and Alex Warren-Rodriguez
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Informal self-employed traders in developing countries are vulnerable to shocks as they often lack access to social insurance or formal finance. This study investigates the impact of the COVID-19 pandemic on these urban traders in the capital of Mozambique, Maputo. Drawing on longitudinal phone survey data over six months, we find they experienced significant negative shocks to earnings, leading to a reduction in savings as well as worsening food security and assets. Individuals simultaneously affected by a municipal policy to remove informal traders from a central market were hit particularly hard as they lost their clients and market stalls. We simulate that a cash transfer equivalent to the government’s proposed COVID-19 response would have significantly buffered these shocks. The findings point to the need for a more shock-responsive social protection system, easy access to liquidity and provision of market infrastructure for informal traders.
Topic:
Urban, Trade, COVID-19, and Informal Economy
Political Geography:
Africa and Mozambique

5. Perspectives on the Formalization of the Informal Economy in Cameroon

Author:
Joel Moudio Motto
Publication Date:
10-2021
Content Type:
Working Paper
Institution:
The Nkafu Policy Institute
Abstract:
Informal sector practices are the third most frequently cited barriers – after corruption and administrative bureaucracy – for formal enterprises in sub-Saharan Africa (Moyo & Sibindi, 2020). To address this, many programs are being implemented to crack down on and penalize non-compliance. Policies are also being implemented for reducing registration costs and imposing taxes on informal activities and formalization campaigns (De Mel et al., 2014). The issues raised by these measures are fiscal and compliance issues. From this point of view, the non-participation of the informal economy in tax revenues limits the action of the State, hence the need to formalize, by organizing informal channels into associations or interest groups, despite the tax and standardization challenges.
Topic:
Economics, Governance, Tax Systems, and Informal Economy
Political Geography:
Africa and Cameroon

6. Barriers To Formalization Of Businesses In Cameroon: High Tax Rates

Publication Date:
02-2021
Content Type:
Special Report
Institution:
The Nkafu Policy Institute
Abstract:
Clearly expressed in its National Development Strategy 2020-2030 (SND30), Cameroon’s desire for the coming decade is to achieve sustainable growth driven by the manufacturing industry. Thus, the government hopes to increase (i) manufacturing value-added from 14.5% in 2017 to 25% in 2030 and (ii) the share of manufacturing exports to 54.5%. However, in the absence of an efficient industrial sector, the economy tends to specialize in the “end of the chain” activities, including extraction (mining and oil) and subsistence agriculture on the one hand and trade and services on the other. According to the Third Survey on Employment and the Informal Sector conducted by Cameroon’s National Institute of Statistics in 2018, nearly 90% of the Cameroonian labor force remains trapped in the informal sector. The sector comprises a set of individual companies – generally nonagricultural – that operate on a small scale and are not registered with the competent authorities. Many entrepreneurs choose to operate informally because of barriers to formalization. For example, businesses spend an average of 624 hours to make 44 payments per year to the tax authorities. The total tax rate remains one of the highest in Central Africa, at 57.7% of business profits than 47.1% in Gabon (World Bank, 2020).
Topic:
Labor Issues, Business, Tax Systems, Economic Development, Sustainability, Labor Market, and Informal Economy
Political Geography:
Africa and Cameroon

7. In business we trust: How trust works in informal economies

Author:
Neil Carrier and Hannah Elliott
Publication Date:
06-2018
Content Type:
Working Paper
Institution:
Danish Institute for International Studies (DIIS)
Abstract:
In many economies across the world, business operates partly outside formal state regulation. The concept of ‘trust’ can help us understand the social underpinning of business in such economies. Trust is particularly important in the provision of credit, which is a main driver of informal economies. But as the authors of this new working paper argue, trust is not a prerequisite for acts of trusting in business. Even people who trust in their partners in business do not fully trust their partners, and deals can be entered without trust. Doing this serves to generate trust in further dealings, even though such acts of trusting do not eliminate deceit and mistrust. These are some of the conclusions that Neil Carrier (University of Bristol) and Hannah Elliott (University of Copenhagen) draw in their working paper, Entrust we must. The role of ‘trust’ in Somali economic life. They base their conclusions on ethnographic work in Eastleigh, Nairobi, where Somali enterprise and capital investments drive a thriving, partly informal, economy. The Somali traders themselves talk much about trust, an important norm that creates moral impetus for acts of trusting. This DIIS Working Paper is part of the GOVSEA PAPER SERIES (Governing Economic Hubs and Flows in Somali East Africa) edited by Tobias Hagmann and Finn Stepputat.
Topic:
Business, Trade, Norms, Informal Economy, and Trust
Political Geography:
Kenya, Africa, and Somalia