An inclusive approach to regulating the second economy

Abstract

Purpose This study aims to examine the experiences and lessons from formalisation initiatives in four sub-Saharan African countries. Drawing upon the three main theories that explain the existence of business informality – the exclusion model, rational exit model and dual economy model – the study offers an alternative path to business formalisation. Design/methodology/approach The researchers adopted a descriptive-qualitative method, and through the triangulation of data, identified emerging themes and patterns. Findings The findings suggest that the informal sector has a small layer that responds to the simplification of regulations and a larger one that requires a different formalisation framework. This shift in paradigm, indirect or group formalisation, where business associations facilitate traceability (registration), self-regulation, access to resources and services for members was observed in all four of the economies studied: Kenya, Ghana, Rwanda and Tanzania. Research limitations/implications As with every qualitative study, subjectivity and interpretation inevitably affect the replicability and generalisability of the findings. However, the rich meanings emerging from the qualitative analysis of the text are critically insightful. Practical implications Developing countries should explore indirect formalisation. Provision of workspace and construction of business premises for informal operators should be given high priority. The model for building structures for micro enterprises should change in favour of ownership by the operators through their own associations or other private sector investors. Originality/value A pioneering study on cross-country analysis based on sub-Saharan African nations to unearth a new paradigm, a shift towards indirect or group formalisation.