Willingness to Formalize: A Case Study of the Informal Micro and Small-Scale Enterprises in Zimbabwe

Abstract

The rapidly growing informal micro and small-scale enterprise sector in Zimbabwe is an issue of concern because the government is still struggling to revive the economy from the effects of economic meltdown. Of main concern is the lost revenue through tax evasion. The growing informal sector is believed to be a result of the poor quality of certain institutions, high corruption levels in the country and lack of incentives to formalize. The objective of this study was to analyze the impact of growth constraints on the willingness to formalize by informal MSEs. Twenty internal and external growth inhibiting factors were analyzed using Principal Component Analysis (PCA) and a logistic model was estimated on a dichotomous variable of willing/not willing to formalize. The results show that willingness/unwillingness to formalize by informal entrepreneurs in Zimbabwe is significantly related to institutional imperfections and asymmetry of bureaucracy associated with the registration process, lack of access to technology, market and financial constraints and lack of entrepreneurial and management skills. Improving the bureaucracy of the registration process and access to technology may possibly increase the odds of the informal operators formalizing their businesses. However, improvement in market and financial constraints and entrepreneurial and managerial skills will decrease the odds of willingness to formalize.

Informal sector entrepreneurship, individual entrepreneurial orientation and the emergence of entrepreneurial leadership

“…Botha (2012) further confirms that the informal sector in South Africa is instrumental in providing employment opportunities for the greater population who cannot secure employment in the formal sector. In other sub-Saharan countries such as Zimbabwe, Central Africa Republic and the Democratic Republic of Congo, the informal sector has been noted to contribute over 90% of total employment (Galdino et al, 2018;Mukorera, 2018). Yet, very little attention is given to how informal sector entrepreneurship influences entrepreneurial behavior such as individual entrepreneurial orientation and entrepreneurial leadership, and vice versa (Gurtoo & Williams, 2009;Webb et al, 2013).…”

Evaluating Theorizations of Informal Sector Entrepreneurship: Some Lessons From Zamfara, Nigeria

“…In recent decades, the field of entrepreneurship has witnessed the growth of a burgeoning literature on informal sector entrepreneurship that has challenged the long-standing idealtype portrayal of entrepreneurs as super heroes by bring to attention the lived practice of entrepreneurship (Bigsten et al, 2000;Cross, 2000;Das, 2003;Gurtoo and Williams, 2009;House, 1984;Khan, 2018;Mukorera, 2019;Simon, 1998;Skinner, 2005;Tamkin 2009;Villanueva et al, 2018;Williams, 2013Williams, , 2015Williams, , 2018Williams and Gurtoo, 2011;Kedir, 2016, 2017;Williams, et al, , 2016aWilliams, et al, ,b, 2017Zuin, 2004). To explain this entrepreneurship in the informal sector, various competing theories have emerged.…”

The Impact of Formalization Program on Informal Household Enterprises Performance: Evidence From a Quasi-experiment in Nigeria

“…Economic growth, job creation, production efficiency, working conditions, and social protection were all seen as positive consequences in the formalization literature (ILO, 2015;Tijdens et al, 2015;Gatti et al, 2014;Fajnzylber et al, 2011;Berkel & Tarp, 2022). Contrary to these findings, a number of studies have documented negative association between formalization and firm performance (Rand & Torm, 2012;De Mel et al, 2013;Boly, 2018;Rocha et al, 2018;Campos et al, 2018;Benhassine et al, 2018;McCaig & Nanowski, 2019).The decision of an informal business to register is influenced by factors such as the quality of the institutions they deal with (Loayza et al, 2005;Williams & Kosta, 2020), the costs and benefits of registering (Diaz et al, 2018;De Mel et al, 2013), a lack of managerial skills (Mukorera, 2019), patriarchal norms (Thapa Karki et al, 2021), and human capital (Do and Vu, 2021).…”