1. The Informal Sector in Francophone Africa: Firm size, Productivity and InstitutionBy
Nancy C. Benjamin (The World Bank)
And
Ahmadou Aly MBAYE (University Cheikh Anta DIOP of Dakar)

2. Introduction
Significance of the informal sector in Africa and very little consideration given to big informal actors
Sample designs shaped by a narrow and misleading definition of informality as small scale individual or household, ignoring the “large informal” sector.
In this study, we use firm-level data collected on 900 formal and informal businesses in the capital cities of Benin, Burkina Faso and Senegal, complemented by more qualitative information gathered from semi- structured interviews of major stakeholders in the three cities as well as secondary data compiled from the national income accounts.
A second phase of more in-depth interviews with selected major stakeholders focusing on the large informal sector was carried out in 2009.
The predominance of the informal sector in Africa, and the existence of large informal firms in particular, highlight some major issues inhibiting African development.
Our study also found that informal businesses are less productive than formal ones and that the productivity gap is much smaller for large informal firms than for small informal firms, again suggesting that large informal firms have the requisites to formalize but choose not to do so.

3. Informality as a Continuum
The size of activity criterion
The registration criteria
The access to bank credit criterion
The mobility of the workplace criteria
The existence of honest financial statements criterion

4. The informal sector in West African economies: scope and major characteristics
Growth rates of value added in the formal and informal sectors: Benin

5. The informal sector in West African economies: scope and major characteristics
Growth rates of value added in the formal and informal sectors: Burkina Faso

6. The informal sector in West African economies: scope and major characteristics
Growth rates of value added in the formal and informal sectors: Senegal

7. The informal sector in West African economies: scope and major characteristics
Share of Value Added contributed by informal businesses in the secondary sector: Senegal

8. The informal sector in West African economies: scope and major characteristics
Share of Value Added contributed by informal businesses in the secondary sector: Burkina Faso

9. The informal sector in West African economies: scope and major characteristics
Share of Value Added contributed by informal businesses in the secondary sector: Benin

10. The informal sector in West African economies: scope and major characteristics
Sectoral Distribution of Informal Employment in Benin, Senegal and Burkina Faso (%)
Activity sector
Agr.
Mining
Mfg.
Constr.
Transp.
Commer.
Other.Serv
Educ/
health
Govt
Other
Benin
52.7
0.3
6.7
2.8
4.6
17.4
12.2
0.5
0.1
2.6
Senegal
48.1
0.6
6.0
5.3
3.4
23.7
7.4
0.8
0.0
4.5
Burkina
81.1
1.8
1.1
9.4
1.2
1.3

11. Monthly salary per person
The informal sector in West African economies: scope and major characteristics
Monthly Salary per Person in the Formal and Informal Sectors in the Three Cities
Monthly salary per person
Less than
35 000
35 000 to
Over
Total
Dakar
Formal 2% 7%
91%
100%
Large Informal 6%
16%
77%
Small informal
41%
18%
21%
25%
54%
Cotonou
24%
47%
29%
44%
48%
66% 9%
51%
35%
14%
Ouaga
40%
33%
27%
28%
50%
22%
10%
53%
31%

12. Figure 1: informality as a continuum : the six different levels of formality
Figure 2 : Share of firms failing to meet various criteria of formality

13. Large informal businesses in West Africa
Their major characteristics
An accounting system based on fake
Very odd organizational structure
High mortality rate of firms
Short longetivity
Their dynamics of transition
Where do they come from?
Do they tend to formalize?

14. Survival rates of firms in Ouagadougou
Surviving
Disappeared
Formal
76%
24%
Informal
54%
46%
Total
64%
36%

15. Evidences of their existence
Evidences from our survey data
‘’It should be clarified that the transition program for informal enterprises is not meant to apply to those large-scale enterprises, particularly in the importing sector, that evade taxes. These enterprises have no need for any special benefits. They exist only with the tacit agreement of powerful supporters in the government, and their existence should be considered a costly form of corruption rather than a special case for a developing economy. To remedy this problem, the government needs to launch a program to enforce the tax and the other laws against these enterprises.” Scott Jacobs

16. Proportion of firms for which imports are larger or lesser than sales, by industry

17. Some very famous cases
Khadim BOUSSO
Cheikh Tall Dioum and NBA
Moustapha Tall
Bocar Samba Dieye
The NANA Benz in Togo
The big wholesalers and retailers in the Dantokpa Market (Benin)

18. Characteristics of the informal sector
Some Descriptive Statistics for the Three Levels of Informality in the Three Countries
Share in total country sample
Average sales
(millions CFA francs)
Average Number of Employees (including temporary workers)
FORMAL
Dakar
24%
833
9.6
Ouagadougou
13%
615
21.2
Cotonou
23%
725
22.1
LARGE INFORMAL
16%
117
4.5
11%
155
6.1
15%
319
22.6
SMALL INFORMAL
60% 13
4.2
76% 11
5.4
62%
5.8

19. Characteristics of the informal sector
Sources of financing for firms in the three cities
Method of Financing
Internal funding or undistributed benefits
Bank credit
Loan from a family member of friend
Savings, gift, inheritance
Dakar
Formal
64%
20% 4%
12%
Large Informal
62%
16% 8%
14%
Small informal 2%
26%
Total
13%
Cotonou
76%
15% 7%
68% 0%
70%
Ouaga
67%
19%
55%
23% 9%
56%
59%
10%

20. Characteristics of the informal sector
Proportion of firms with access to public utility services

21. Characteristics of the informal sector
Annual durations of electricity outage in the three cities
One week or more
Between one week and one month
More than a month
Dakar
Formal
59% 2%
39%
Large informal
60% 5%
35%
Small informal
64% 7%
29%
TOTAL
62%
33%
Ouaga
97% 3% 0%
96% 4%
89% 6%
91%
Cotonou 8%
32%
45%
52%
34%
22%
44%
42%
16%

22. Characteristics of the informal sector
Self-Employment in the Three Cities
Owner of the enterprise
Another individual
Corporation
Myself
Dakar
Formal
55%
25%
20%
Large informal
54%
19%
27%
Small informal
65% 6%
28%
TOTAL
61%
13%
26%
Cotonou
44%
30%
43%
18%
39% 5%
51%

23. The Informal Sector and the Institutional Environment
Characteristics of the informal sector
The Informal Sector and the Institutional Environment
Connection between big informal actors and the Mouride brotherhood
High perception of poor use of tax revenue
Minimizing risk of being exposed to fiscal harassment
High perception of poor enforcement capabilities
High perception of the level of costs associated with a reliable accounting system
High perception of the level of taxation
Difficulties linked to tax collection

24. Do you think the government is using tax revenue rightly?
Level of confidence in the good use of public resources
Do you think the government is using tax revenue rightly?

25. Do you think tax payment expose you to fiscal harassment?

26. Rules governing social protection
Level of enforcement
Rules governing social protection
Honest tax filing

27. Assessment of the quality of the tax collection service

28. Three factors affect firm’s choice of formal or informal status
State failures and the informal sector
Three factors affect firm’s choice of formal or informal status
Benefits of formalization, including the quality of public services and differential access to these services for formal and informal firms
Cost of formalization in the form of higher taxes and regulatory compliance costs
Extent to which informal firms are sanctioned for failing to comply with tax and regulatory obligations

29. Productivity Differences Between Formal and Informal Firms

30. PRODUCTIVITE DES SECTEURS INFORMEL ET FORMEL
Dakar
Ouagadougou

31. PRODUCTIVITE DES SECTEURS INFORMEL ET FORMEL
Cotonou

32. Regression of the log of labor productivity (lprod) on formal/informal status and other explanatory variables
Lprod
Coef.
Std.Err. t
P>|t|
[95% Conf.Interval]
Capital labor ratio
0,096
0,027
3,550
0,000
0,043
0,149
Services
0,463
0,218
2,130
0,034
0,035
0,891
Trade
0,836
0,220
3,790
0,402
1,270
Buildings
0,709
0,425
1,670
0,097
-0,128
1,546
Legal structure
0,606
0,340
1,780
0,076
-0,064
1,275
Small informal
-1,401
0,239
-5,860
-1,872
-0,930
Big informal
0,658
0,295
2,230
0,077
1,239
_cons
13,054
0,521
25,050
12,028
14,080
Number of obs =286 ; F( 7, 278) = 22,05 ; Prob > F = 0 ; R-squared = 0,36

33. Regression of the log of labor productivity (lprod) on formal/informal status with interaction of explanatory variables
Lprod
Coef.
Std.Err T
P>|t|
[95% Conf.Interval]
Capital labor ratio
0,100
0,027
3,720
0,000
0,047
0,153
Small informal*financial services
2,362
1,401
1,690
0,093
-0,395
5,119
Buildings
0,706
0,423
1,670
0,096
-0,126
1,538
Big informal*commerce
-1,298
0,594
-2,190
0,030
-2,468
-0,129
Small informal
-1,090
0,278
-3,920
-1,638
-0,543
Small informal*commerce
-1,056
0,471
-2,240
0,026
-1,984
Big informal
1,086
0,364
2,990
0,003
0,371
1,802
Services
0,499
0,216
2,310
0,022
0,073
0,925
Legal structure
0,761
0,342
2,220
0,087
1,434
Commerce
1,788
0,440
4,070
0,922
2,654
_cons
12,694
0,530
23,930
11,650
13,738
Number of obs = 286 ; F( 10, 275) = 16,67 ; Prob > F = 0; R-squared = 0,38

34. Government policies, smuggling and the informal sector
Comparison of Trade Taxes: Senegal and the Gambia, 2007 (Percent)
Gambia
Senegal
Difference
Flour
22.5
56.6
34.1
Sugar
103.8
81.3
Rice
16.8
22.7
5.9
Tomato paste
28.3
Cigarettes
58.0
97.7
39.7
Soft drinks
39.8
48.2
8.4
Milk (canned liquid)
44.8
22.3
Condensed milk
27.1
4.6
Cooking Oil
Mayonnaise
5.0
Toilet soap
Candles
Matches
Tea
37.3
9.0
Canned sardines
Shoes
Fabric

35. Government policies, smuggling and the informal sector
Selected Import Barriers in Nigeria, (Tariff Rates in Percent or Bans)
1995
1997
1999
2001
2003
2005
2007
Edible oil
Banned 55 40
Poultry meat 75
Beer
100
Wine 20
Milk Products 50
Tomato preserves 45
Used Clothes
Tires
Wheat dough
Used Cars*
Sugar 10
Cloth and Apparel 65
Tobacco and cigarettes 90 80
Rice
110

36. Government policies, smuggling and the informal sector
Imports by Selected Re-Export Items (Billion CFA francs)
2004
2005
2006
2007
Used Cars
150.5
178.7
264.2
327.7
Rice
50.4
90.9
104.4
151.7
Textiles
44.7
60.1
57.0
82.9
Used Clothes
27.8
32.7
41.9
48.9
Palm oil
9.1
9.0
27.1
44.4
Frozen Poultry
29.7
26.0
23.6
38.5
Batteries
20.4
23.5
29.6
34.5
Furniture
4.7
6.6
14.5
28.6
Sugar
8.0
9.8
13.2
13.4
Clothing
4.1
10.7
2.3
8.8
Cigarettes
1.9
3.8
5.7
Prepared Tomatoes
0.7
2.4
4.6
Used Tires
3.5
4.2
4.5
Cardboard
4.3
3.7
3.1
Sub-Total
359.7
460.9
593.9
800.2
Share of GDP
22.4%
23.6%
26.6%
32.4%