What do small firms want? Insights from urban informal enterprises in West Africa

In many developing countries, especially across Sub-Saharan Africa, small and informal household enterprises are vital to providing jobs and supporting livelihoods. Most countries aim for more formal wage jobs, but the process of formal job creation is often slow — so informal businesses will remain key sources of income for many people. A recent paper explores who owns these businesses, what their motivations are, and what constraints they face. Its goal is to help policymakers better understand informal entrepreneurship and design more effective programs that support entrepreneurs’ success.
 

Entrepreneurship: A Choice Among Limited Options

Survey data collected from 1,526 poor urban individuals in Liberia, Niger, and Senegal suggests that most small business owners are motivated by opportunity and independence, not just lack of alternatives. Job satisfaction is high: 80% of entrepreneurs are satisfied, compared with 65% of wage earners. Seventy percent of enterprise owners see their current job as ideal, versus only 30% of wage workers. More than 80% of business owners want their children to also become small business owners, as do 80% of wage earners. These findings challenge the stereotype of informal entrepreneurship as an unhappy last resort, instead highlighting entrepreneurs’ agency, ambitions, and satisfaction.

Household enterprise owners are not averse to wage employment. Under current economic conditions, two-thirds of enterprise owners said they would accept a wage job if it paid the same as their current earnings. Sixty percent of respondents expressed that wage employment offers greater job stability. Even so, another one-third would not make the switch even if income were equalized.

That said, there is a shortage of higher paid wage jobs that are suitable for urban poor West Africans. More than 80 percent of household enterprise respondents say that they can make more money by running a business than by being an employee. A similarly high share value independence that comes with being one’s own boss.
 

Aspirations and Obstacles: What the Data Reveals

The survey data show that household-enterprise owners have the same ambitions as any entrepreneur: they want to expand their businesses, increase profits, reach new clients, and improve product quality. Unlike larger enterprises, they not only face business constraints, but they also confront personal hurdles to achieving those goals. The most significant challenges are a lack of capital, limited access to finance, family responsibilities, and vulnerability to shocks, such as illness or unexpected expenses. Over half of the respondents report taking no action toward their stated aspirations. When they do act, it is often through low-cost, short-term measures such as marketing, rather than hiring workers or investing in technology.
 

Considerations for Policymakers: A dual approach

These insights suggest that business formalization is not the answer that these entrepreneurs are searching for.  In fact, only about 5% of household enterprise owners are interested in formalizing their businesses through registration. Instead, to become more successful entrepreneurs, this group seeks access to finance, acquisition of entrepreneurial skills, and tools to manage shocks.

The findings suggest that a dual policy approach is needed: supporting existing informal enterprises while simultaneously pursuing structural reforms that lead to more attractive and accessible options for formal wage employment.

1. Improve current enterprise conditions in the short run: The data and literature point towards two intervention areas that have proven particularly helpful for small informal businesses.

• Comprehensive Support: integrated programs that combine social assistance with entrepreneurship training, financial literacy, coaching, and access to seed capital. Evidence shows that these programs, often called “economic inclusion” or “graduation” programs can increase income, business revenue, and assets of poor and urban entrepreneurs operating in difficult markets.
• Protection from Shocks: policies that strengthen resilience to family, business, and natural shocks. These can take the form of shock-responsive cash transfers, health insurance, or incentivizing savings through matching grants.
   

2. Advance structural reforms in the long run: At the same time, policies should support firm growth that yields better-paying, formal wage jobs. Structural reforms — such as simplifying business registration regulations, improving labor laws, and aligning tax incentives — help create conditions for formal job growth. As these reforms increase the availability of better wage jobs that are accessible to the urban poor, self-employed workers will begin to transition toward the formal sector, drawn by greater stability and more lucrative pay.

The paper provides data that illustrates that informal entrepreneurs are not a homogenous group of reluctant business owners. Many are satisfied, ambitious, and pragmatic, balancing family responsibilities with business growth. Their reluctance to formalize is not necessarily a barrier to development, but a reflection of their priorities and realities.

These findings are relevant not just for Sub-Saharan Africa, but for any region where informal businesses play a major role. For policymakers in developing countries, it is important to recognize the voluntary and aspirational nature of informal entrepreneurship, and to design policies that address both business and personal constraints faced by these business owners. This can take the form of multi-faceted programs that combine social assistance with business development to help entrepreneurs achieve their growth aspirations, as well as programs and policies to help business owners manage shocks. By listening to what small firms want, policymakers can improve livelihoods for millions.