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Should forest enterprises formalize? Insight from a multi-dimensional characterization of informal baobab enterprises

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  • Dumenu, William Kwadwo
  • Appiah, Louis Gyekye
  • Paul, Carola
  • Darr, Dietrich

Abstract

Knowledge of the structure and characteristics of informal forest enterprises is critical to determining the most appropriate course of action for their development and formalization. This study characterizes and develops a typology of informal microenterprises in the Malawian baobab processing sector; and assesses factors influencing their entry into the informal sector. Drawing on the analysis of firm-level data from 305 informal baobab processors, cost and complexity of registration, smallness (scale) of the business, and necessity-driven motivations were identified as key factors influencing informality. Coupling principal component and cluster analyses, three typologies of informal microenterprises were identified and characterized namely; high performance-survival phase enterprises (type 1), moderate performance-survival phase enterprises (type 2), and low performance-start-up phase enterprises (type 3). Annual net profit (earnings), firm age, and the extent of adoption of formal systems and controls explained the inherent segmentation. The segmentation suggests a dualism compromising of an upper- and lower-tier enterprises characterized by strong involuntary entry into the informal forest sector. For policy implications, we argue that the upper-tier enterprises (types 1 and 2) be targeted with business development programmes to promote their growth while, the lower-tier (type 3) targeted with skills development and social support.

Suggested Citation

  • Dumenu, William Kwadwo & Appiah, Louis Gyekye & Paul, Carola & Darr, Dietrich, 2023. "Should forest enterprises formalize? Insight from a multi-dimensional characterization of informal baobab enterprises," Forest Policy and Economics, Elsevier, vol. 150(C).
    • Handle: RePEc:eee:forpol:v:150:y:2023:i:c:s1389934123000308
    DOI: 10.1016/j.forpol.2023.102935
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