Formalizing SMEs in Sub-Saharan AfricaSubmitted by Admin on Thu, 10/31/2019 - 10:11
In October 2019, a few months after conducting two field studies with several hundred employees in Madagascar and Senegal, I&P published a summary report on the challenges and impacts of the formalization of SMEs in Sub-Saharan Africa.
This report is primarily a practical document for entrepreneurs who wish to formalize their activities and for African investors and governments who are seeking to promote a formal entrepreneurial sector.
Why focusing on the topic of informality?
Since its creation in 2002, I&P has opted not to dedicate its resources to promoting and supporting the growth of a formal entrepreneurial sector. For the entrepreneur, formalization is vital once the company’s growth takes hold and I&P is convinced that there are substantial direct and indirect benefits for employees as well. Nevertheless, over the years, I&P has seen how complex and difficult this process can sometimes be.
I&P has therefore launched a study on this subject that combines quantitative analyses and qualitative comments of our entrepreneurial companies and partners, their employees, and our investment teams. This research has allowed us to capitalize on our knowledge and to provide an overall picture of what the path to formalization looks like. The most valuable part of this work relates to what is very rarely analyzed and even less frequently shared: the practical challenges companies face as they progress towards formalization.
"Our business gives us access to unique knowledge and insights which are essential to understanding how companies and their employees view public policies, as well as best practices for leading a business towards successful formalization. This study will therefore be of interest to entrepreneurs engaging in the formalization process, as well as to private and public investors who face the challenges of exiting the informal sector."
Jean-Michel Severino, CEO of Investisseurs & Partenaires
A report focusing on entrepreneurs and employees
The report is divided into three parts:
► The first part provides an overview on informality, introducing key concepts and figures. It points out that, while informality exists on all continents, it is particularly high in Sub-Saharan Africa, where more than 89% of jobs are informal (ILO, 2018).
► The second part focuses on companies and entrepreneurs and presents the methodology gradually put in place by I&P to support our partner companies in the formalization process. While analyzing the advantages of formalization for the enterprise, several reasons for choosing informality are also revealed via several testimonies by entrepreneurs.
► The third part focuses on the employees of SMEs and seeks to understand the impacts - positive and negative - that a formal job represents for these workers.
Reference: two I&P/FERDI studies on informality in Madagascar and Sénégal
Between August and October 2018, Investisseurs & Partenaires (I&P) and the Foundation for Studies and Research on International Development (FERDI) jointly conducted two in-depth studies on the impacts of formal employment in Senegal and Madagascar. About 500 employees of 10 different companies were interviewed, representing a wide range of sectors, job levels and capacities and contract types.
The studies have revealed some key achievements related to formalization (job sustainability, access to credit, social insurance...). They also highlight the complexity of the subject: the formalization process is far from easy for a small African company to undergo. It entails a number of disadvantages that can be in some cases prohibitive for entrepreneurs and employees alike.
These studies have provided valuable insights for I&P. Through this summary report, I&P intends to highlight the lessons learned from these studies and share best practices implemented by the team over the years.