The interplay between formal and informal firms

and its implications on job in francophone Africa: case studies of Senegal and

Benin

Pr Ahmadou Aly Mbaye Professeur titulaire à l’UCADNancy Benjamin World Bank

University of Cape Town • School of Economics

PLANPLANI- Francophone Africa: a homogenous bodyII- The employment market in the nations of

the franc zone: a strong formal/informal duality

III-Cases of fierce competition between formal and informal: pharmaceuticals, used car imports, and moto-taxis industries

IV-Trading and outsourcing relations between formal and informal

V- The interactions between the formal and informal from our survey’s data

VI-The dominant factors of the rivalry relations or of the market between formal and informal: an econometric analysis

VII- Lessons learned

I- I- Francophone Africa: a Francophone Africa: a homogenous bodyhomogenous body

Business setup procedures and taxation in selected francophone African countries

Countries Business setup Taxation Number of procedures

Duration (number of days)

Costs (% of income per

head)

Require minimum capital (% of income per head)

Payment (number per year)

Duration (hours

per year)

Total to be paid (% of

profit)

UEMOA              

Bénin 8 29 126,8 264,5 55 270 65,2Burkina Faso 3 13 46,8 353,9 46 270 42,7Côte d'Ivoire 10 32 130 184,6 63 270 44,4Guinée-Bissau 9 9 42,2 338 46 208 45,9Mali 4 8 86,2 331,9 45 270 51,1Niger 9 17 112,8 572,8 41 270 44,3Sénégal 4 6 64,4 192,3 59 666 45,5Togo 6 38 142,3 435,6 50 270 48,9CEMAC              Cameroun 5 15 35,8 168,3 44 654 48,8Congo, République démocratique du

10 58 284,7 0 40 336 339,1

Congo, République du 11 161 55,3 80,5 61 606 64,5Gabon 8 57 14,5 22,3 26 488 43,5Guinée équatoriale 18 154 98,2 11,7 46 492 44,1République centrafricaine

8 22 172,6 444,1 56 483 67,4

Tchad 9 60 202 289,4 54 732 75,7

Country/Territory Political Stability and Absence of Violence/Terrorism

Control of Corruption

UEMOA Score Rang Score Rang

Benin 6,00 57,82 11,00 22,01

Burkina Faso 8,00 21,80 14,00 33,49

Côte d'ivoire 8,00 17,06 14,00 23,44

Guinée-Bissau 4,00 18,48    

Mali 7,00 6,64 13,00 25,36

Niger 6,00 9,95 11,00 35,41

Sénégal 8,00 43,13 15,00 50,24

CEMAC score rang Score Rang

Chad 6,00 15,17 10,00 6,22

Cameroon 8,00 28,44 14,00 9,57

Congo, dem. Rep. 6,00 2,37 12,00 5,74

Congo, rep. 6,00 29,86 10,00 10,53

Equatorial guinea 4,00 50,24 9,00 36,36

Gabon 7,00 58,77 5,00 0,00

Governance indicators in francophone African countries

II- The employment market in the nations of the franc

zone: a strong formal/informal duality

Rate of participation by gender in selected countries

Women MenCountry (Years) Période 1 Période 2 Période 1 Période 2

Afrique de l’OuestNiger (2001/2005) 39,5 87,9 39,2 90,6Togo (2006) 80,3 80,6Burkina Faso (1991) 77,1 90,9Senegal (2006/2011) 50,1 72,8 44,5 68,5

Benin (2002/2011) 65,5 69,8 78,7 74,0Ghana (2000/2006) 71,6 66,6 75,8 71,0Sierra Leone (2004) 66,5 67,6Liberia (2010) 57,8 64,0Côte d’Ivoire (1998) 48,4 82,1Nigeria (2004) 47,5 61,7Mali (2004/2010) 36,3 46,8 67,7 74,1Cap Vert (1990) 41,8 85,2Sao Tome et Principe (1991) 37,2 77,3Mauritania (2012) 28,8 63,9

Afrique centraleRwanda (1996/2001) 85,6 86,4 88,4 84,5RD Congo (2005) 70,5 72,3Congo (2005) 67,5 71,6Tchad (1993) 64,7 80,8

Cameroun (1996/2010) 61,0 64,2 77,1 74,1Gabon (1993/2010) 55,0 39,9 70,8 58,2

  Total Urban Rural

Benin 2,7 4,1 1,5

Burkina Faso 2,8 6 1,8

Cote d'Ivoire 2,3 3,6 0,7

Niger 3,9 4,9 3,2

Senegal 2,9 3,3 2,1

Population growth rate (annual average), 2010-2015

Source: Mbaye et al (2015)

Distribution of employment by formal/informal status

Source: Mbaye et al (2015)

Self-employment (% of firms)

III-Cases of fierce competition between formal

and informal: pharmaceuticals, used car imports, and moto-taxis

industries

The pharmaceutical market: coexistence of official and

informal drugs imports

Center for Purchasing of

Essential Drugs (CAM) in Benin

National Supply Pharmacy (PNA) in

Senegal

These agencies are responsible for :

Possibly reconditioning the productsEnsuring the availability of products at

the best prices Checking the quality of imported or

locally manufactured drugs Regulation of pharmacies

Purchasing Groups

Central and general

hospitals

Distribute essential generic drugs

Households

Black markets

Public distribution system of drugs

Local producers

Wholesalers

Pharmacie, Private clinics and health

center

RetailersConsumer

Private distribution system of drugs

Gasoline distribution market

Petroleum products

Illegal imports from Nigeria

Zoua Zoua in Cameroun

Kpayo in Benin

2009

Formal Gasoline distribution in Benin

  Formel Informel Total  volume

(cubic meter)

value (billion CFA)

volume (cubic meter)

value (billion of CFA)

volume (cubic meter)

Value (billion of CFA)

Gasoline 36900 212,175 732355,35

219,707 769255,35

431,882

Lamp oil 8000 4,32 56131,098

33,679 64131,098

37,999

Diesel 148000 82,14 262511,83

137,819 410511,83

219,959

Total 192900 298,635 1050998,3

391,204 1243898,3

689,839

Imports of petroleum items in Benin (2009)

Foreign exporters and domestic importers

Very large capital, operate in the illegal areas and through intermediaries

Importers

Not officially recognized

wholesalers

Two categories:Intermediate wholesalers

that operate as commercial agent

Independant wholesalers have means transportation such as pick-ups ans small boatCarriers

Large importers bring gasoline by ship; the bypass customs and bring gasoline in motocycles specially modified

RetailersBuy from wholesalers/imports through a complex distribution. Retail is an activity that involves a single individual who may assited by their parents or famility in cases of unavailability

informal Gasoline distribution in Benin

Automobile trading market: new cars versus used cars importing

Used car dealers

Oover 10% GDP, are intended to cover the needs of Benin’s domestic market

In 2014, on nearly 150,000 vehicles imported

Distribution network of used vehicles

ImportersCustoms brokers

Other actors in the Chain

IImports come mainly from Europe and the USA

Over 150 importers in the park10 employees who are charge

recovery of vehicles at the port and washing of the vehicles

Formal brokers who approved by customs

Informal brokers who are not licensed and their formal counterpart to make customs for their clients

SellersGuards driversPark administration

personnel

Public transportation service market: the motorcycle taxis in Douala

Approved importers Distributors Mechanics and spare

parts dealers

Parks babysitting and

washers

Owners of motorcycle taxis

Drivers of motorcycle taxis

IV. Trading and outsourcing relations between formal and

informal

City Dakar Cotonou

Firms using different size counterparts as

clients

52,50% 33,33%

Share of firms selling

to

Big enterprises 1,67% 12,50%

Small enterprises 36,67% 21,67%

Appreciation of the

trend of

subcontracting over

time

Increasing 64,52% 90,00%

Decreasing 6,45% 2,50%

Stable 16,13% 7,50%

share of firms working with intermediaries(%)

 City Sales to the

government

Trading with households

or household enterprises

Dakar 10,17% 77,50%

Cotonou 31,67% 65,00%

Share of firms trading with the government, households and household enterprises

Dakar Cotonou

Insurance 3,33% 2,50%

Building and public work 16,67% 27,50%

Commerce 31,67% 42,50%

IT materials 1,67%

Customs clearance 1,67%

Kitchen utensils 3,33%

Carpentry 12,50%

Other 41,67% 15,00%

Total 100,00% 100,00%

Sectors affected by subcontracting

  Fixity of workplace

Taxation Registration Access to bank loan

Honest accounts

More than 5 employees

Social Security

Dakar 53,68% 56,52% 59,46% 65,00% 55,56% 73,81% 80,95%

Cotonou 77,50% 33,01% 43,75% 37,50% 35,71% 54,55% 53,85%

Firms trading output to smaller enterprises, by informal criteria

    Fixity of

workplace

Taxation Registration Access to

bank loan

Honest

accounting

More than 5

employees

Social

Security

Dakar Very

satisfactory

93,88% 95,65% 93,02% 91,67% 94,87% 93,55% 94,12%

Not

satisfactory

4,08% 0,00% 6,98% 0,00% 2,56% 6,45% 5,88%

No response 2,04% 4,35% 0,00% 8,33% 2,56% 0,00% 0,00%

Cotonou Very

satisfactory

80,65% 82,35% 85,71% 100,00% 84,00% 88,89% 85,71%

Not

satisfactory

9,68% 14,71% 9,52% 0,00% 14,29% 11,11% 7,14%

No response 9,68% 2,94% 4,76% 0,00% 4,00% 7,14%

Appreciation of level of punctuality and professionalism of small firms in their relation to bigger counterparts, by criteria of informality

    Fixity of

workplace

Taxation Registration Access to

bank loan

Honest

accounts

More than

5

employees

Social

Security

DAKAR Excellent 15,38% 16,00% 17,65% 0,00% 16,67% 36,36% 42,86%

Good 42,31% 44,00% 35,29% 20,00% 44,44% 27,27% 42,86%

Fair 26,92% 24,00% 35,29% 80,00% 22,22% 36,36% 14,29%

No response 15,38% 16,00% 11,76% 0,00% 16,67% 0,00% 0,00%

Cotonou Excellent 100,00% 100,00% 100,00% 100,00% 100,00% 100,00% 100,00%

Good 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%

Fair 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%

No response 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%

Levels of loan recovery from smaller firms, by criteria of informality

Relationship Dakar CotonouFriend 34,69% 67,50%Relative 2,04% 12,50%Same kinship network 4,08% 2,50%Same religious network 2,04% 5,00%Professional 57,14% 12,50%Total 100% 100%

 Dakar Cotonou

Existence of loans 41,94% 97,50%Type of loan In cash 88,89% 100%

In kind 11,11%Modalities of repayment Weekly 3,28%

Dayly 14,75%Monthly 80,33%Other 1,64% 100%

Appreciation of level of repayment

Good 40,74% 100%Excellent 14,81%Fair 29,63%Other 14,81%

Relationship to the subcontracted firms

Loans granted to subcontracted firms

Distribution of big firms with level of productivity obove median productivity which trade or not with small

informal

Distribution of firms bigger than average, which trade or not with the small informal (%)

Distribution of firms which express confidence in the future an trading with small informal (%)

Distribution of firms which express intention to move to another sector an trade or not with small informal (%)

Share of exporting firms which trade with small informal (%)

Share of firms exposed to competition with small informal among those with productivity level above median

Share of firms with size above average which are exposed to small informal competition (%)

  Exporting Big firms exposed to small informal competition

Big firms not exposed to small informal competition

Dakar Yes 3,4 15,5No 96,6 84,5

Cotonou Yes 7,7 19No 92,3 81

Ouaga Yes 4 8,6No 96 91,4

Douala Yes 14 13,5No 86 86,5

Yaoundé Yes 4,5 16,3No 95,5 83,7

Libreville Yes 11,5 10No 88,5 90

Share of exporting firms exposed to small informal competition (%)

Share of firms with professional membership which are exposed to competition from small informal (%)

  Existence of a professional membership

Bigger firms exposed to small informal competition

Bigger firms not exposed to small informal competition

Dakar Yes 30,5 36,2No 69,5 63,8

Cotonou Yes 9,7 37,5No 90,3 62,5

Ouaga Yes 15,4 19,4No 84,6 80,6

Douala Yes 25,6 40,5No 74,4 59,5

Yaoundé Yes 9,1 23,3No 90,9 76,7

Libreville Yes 11,5 20No 88,5 80

VI-The dominant factors of the rivalry relations or of the market between formal and

informal: an econometric analysis

  (1) (2)Variables statut3 statut4logProdvte -0.243*** -0.0531

(0.0910) (0.0601)logTaille -0.338*** -0.297***

(0.128) (0.0804)logSalaire -0.108* -0.0401

(0.0632) (0.0508)logAge -0.389** -0.0753

(0.182) (0.126)client: grandes entreprises -0.490**

(0.227)fournisseur: grandes entreprises 0.0166

(0.216)Entreprise exportatrice -0.715 -0.454

(0.760) (0.380)Accès au prêt bancaire -0.277 -0.330

(0.378) (0.234)Secteur d'act. (Ref. Commerce)BTP 0.0169 -0.637

(0.797) (0.448)Autres Industries 1.082*** 0.279

(0.416) (0.264)Services 1.175*** 0.228

(0.406) (0.273)Constante 3.889** 1.969*

(1.630) (1.085)Observations 472 440

Standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1

An econometric analysis of the determinants of partnership (trading or subcontracting) and competition between formal and informal

An econometric analysis of the determinants of partnership (trading or subcontracting) and competition between formal and informal

  (1)

Variables statut4

logProdvte -0.0739

(0.0610)

logTaille -0.164**

(0.0834)

logSalaire -0.0334

(0.0508)

client: grandes entreprises -0.386*

(0.226)

fournisseur: grandes entreprises -0.107

(0.218)

Entreprise exportatrice -0.358

(0.379)

Accès au prêt bancaire -0.323

(0.236)

Firme utilisant e_mail -0.697***

(0.224)

Souscription à la sécurité sociale -0.700***

(0.255)

Constante 2.737***

(1.054)

Observations 439

Standard errors in parentheses

*** p<0.01, ** p<0.05, * p<0.1

VII- Lessons learned

One general remark one can make in the light of our results is that the main obstacle to subcontracting in Africa is the regulatory framework.

Most of the countries we have investigated have developed outsourcing fairs which are suppose to connect big and small firms in outsourcing ventures.

And labor codes do not encourage such ventures. Big firms which outsource to small ones to benefit

from lower labor costs are exposed to huge fines in case an issue arises between the outsourced firm and its staff.

Positive interactions between formal and informal firms, in terms of trade or outsourcing, only involve low technology intensive sectors (trade, services, building and public work).

In areas where more technological capabilities and more human capital and better organization are needed, outsourcing to small businesses is almost no-existent.

mainstream outsourcing in business relationships, African governments should seriously consider reforming the labor code to make it less restrictive, and encourage bigger firms to diminish labor and other related costs through subcontracting..