The Informal Sector in Francophone Africa: The Other side of Weak structural transformation

This paper explores the relationship between slow structural transformation and the growth of the informal sector in francophone Africa, where formal firms and labor-intensive manufacturing have not grown as they did in Asia. We offer a set of explanations associated with the growth of the informal sector. At the same time we consider why formal-sector jobs remain limited, including high formal-sector wages relative to productivity, an unwelcoming business climate, and rent-seeking. High factor costs and policies that concentrate rents into a small number of hands reduce the incentives for modern, international firms to invest, which would provide an engine of modernization for the economy. Those who can neither afford the high input costs nor gain access to rents end up in the less productive informal sector, which necessarily absorbs the large number of new entrants into the labor force. The paper concludes with recommendations for policies that could accelerate structural transformation in francophone Africa.