-Summary:

• Background and rationale:

In Sub-Saharan Africa as well as in North Africa, informality persists in practices as well as in the labor and production market statistics, despite numerous formalization policies or programs that have been deployed for several decades. In 2016, informal employment accounted for an average of 76.89% of non-agricultural continental employment (Bonnet et al., 2019), while informal production contributed to 36% of the official regional GDP between 2010 and 2018 (Ohnsorge Yu, 2022). Although slight decreases have been recorded in the last two decades, informality is destined to persist, according to Gutiérrez-Romero (2021), and optimistic macroeconomic scenarios are consistently out of step with this reality (Roubaud, 2013). Economic theory, especially models of dualist economy or structural change and urbanization, has long struggled to explain the persistence of the informal economy and especially its coexistence or even coevolution with the formal economy considered as an unsurpassable standard. It is now known that informal production units are both sources of flexibility and sub-efficiency for African economies. For example, informal employment allows a large part of the youth in Africa to find a job, especially for the many graduates who have difficulties in finding formal employment. However, at the same time, the financial and legal vulnerability of informal firms strongly conditions their future evolution, notably through the entrepreneurs investment behaviors.

In parallel, political interventions implemented over the last two decades have generally consisted of promoting the formalization of businesses and workers. The different types of interventions implemented, such as reducing entry costs and ongoing costs of formality, increasing its benefits, or strengthening the enforcement of taxes and regulations (Ohnsorge Yu, 2022; Jessen Kluve, 2021) have yielded very mixed results depending on the nature of the interventions (Ulyssea, 2020; Jessen Kluve, 2021; Floridi et al., 2020; Campos et al., 2023).

Since the 1990s, the perception of the role of the informal sector in the literature has nonetheless evolved, notably by giving increasing attention to small businesses and the efficiency elements of these informal units (Grimm et al., 2012). This evolution has been accompanied by growing optimism about their ability to create employment opportunities and contribute to the economic development of countries through informal activities and entrepreneurship. The paradigm of political action has also started to change, with the objective shifting from formalization at all costs to supporting informal activities in order to make them more efficient and contributory to the economy, including remaining informal. Whereas international institutions and public policies had traditionally focused on informal employment, the new paradigm also considers actions on the productive capacities of businesses and the investments underpinning them.

• Conceptual and Theoretical Framework:

This project is part of this paradigm shift by focusing on how the interaction between legal and social norms shapes and influences the behaviors of informal entrepreneurs and the performance of their businesses. Among these behaviors, investment plays a central role as it sits at the crossroads of the companys size and efficiency trajectory and the complex play of legal norms (corporate law, tax law, and social law) and social norms (informal redistribution, risk aversion, etc.) that affect the entrepreneur.

At the heart of the issue is the opposition between intensive and extensive investment. Intensive investment involves acquiring equipment, technology, and skills aimed at improving productivity, quality, and competitiveness of businesses. This improvement in productivity and quality can also facilitate informal businesses access to financing sources, thereby contributing to their growth and development. This may encourage businesses to comply with norms and regulations to access new markets and opportunities, thereby promoting formalization. However, several studies converge on the idea that the informal sector tends to move primarily towards extensive investment. In this type of investment, financial surpluses are mainly devoted to household needs, followed by the simple reproduction of productive activities and the creation of other small activities parallel to the main activity. Informal entrepreneurs also use extensive investment as a means of protecting their assets from fiscal and community predations, with the multiplication of small investments in diversified activities allowing these assets to be made invisible. While they provide protection against predation or they also have a redistributive function through the jobs they create, these investments do not allow for productivity gains and growth on intensive margins, that is, on the main activity of the business, and only serve to increase the informal sector and, consequently, economic vulnerability.

Figure 1: Conceptual framework of the project

As shown in Graph 1 which describes the conceptual framework of the project, informal entrepreneurs therefore navigate the demands and constraints of both formal and informal norms to make their investment decisions. By ensuring protection, generating trust, or coordinating investments, the interaction between legal and informal norms is a crucial element in the evolutionary dynamics of informal businesses and activities. However, it can also be a possible factor of inefficiency if the norms generate contradictory injunctions or incentives, or if certain norms prevail despite not being the most economically efficient. In parallel, the effectiveness of norms depends on the knowledge entrepreneurs and workers have about them. This is an issue of access to law, but also of how these norms are perceived by actors, notably in terms of cost or benefit. The benefits of illegality (and the costs of legality) are well known to the actors, usually revolving around the protection informality offers against fiscal constraints. The costs of illegality (and the benefits of legality), on the other hand, are not always well understood. They are both individual and collective. The first noticeable advantage of formalization – that is, the transition to legality – lies in the legal protection which limits the need to secure assets through extensive investment and making activities invisible, which negatively affects the prospects for growth and formalization of their activities. Another advantage of formalization is collective and lies in increased visibility of public expenditure and governmental services. The collective benefits of legality often remain unknown due to a lack of transparency or underestimation of the public expenditures financed by taxes from the entities concerned. Increased visibility of these expenditures, for example in terms of access to electricity and infrastructure, can influence informal businesses to formalize or opt for legality instead of remaining informal.

• Research Questions:

The project aims to address several related questions:

- How do legal and social norms condition the investment in informal production units?

- What practical norms do informal entrepreneurs develop as substitutes for legal norms to cover the risks associated with these investments?

- What level of security, both actual and perceived, is guaranteed by this interplay of norms?

- What types of investment and productive performance or employment do these strategies promote?

• Methodological framework:

Figure 2: Methodological Approach

As shown in Figure 2, the current project will utilize various phases of analysis to fully understand the linkage between norms and the advantages and costs of informality/formalization for informal entrepreneurs. It is initially essential to thoroughly comprehend the local legal context governing the activities of these units, through joint efforts between jurists and economists. Next, measuring the effectiveness of norms will lead us to explore access and perception issues entrepreneurs have towards these norms and the protections they offer, incorporating economic, legal, and anthropological approaches. Which laws or programs are seen as predatory or punitive by the entrepreneurs? Which are perceived as protective? What are the perceived and actual levels of protection provided by these different mechanisms? It is also important to identify and understand the practical norms that informal entrepreneurs develop to adapt to these legal standards: circumvention, reinterpretation, optimization, etc. A deep understanding of these dynamics is essential for formulating effective policies in the realm of the informal economy. Lastly, we need to evaluate the effects of these perceived and objective protections on actual investment to identify good policies for protecting the informal sector.

• Work Plan:

These different research phases will be structured into two analysis phases and three Work Packages (WPs), each comprising one or several questions and a specific methodological approach:

WP1. Top-down Norms

-Q1. How do different legal registers (business, tax, social) interact in defining, perceiving, making visible, and legally treating informal units?

-Q2. What are the norms, definitions, characteristics mobilized by law to define and identify the informal = top-down norms?

-Method: Literature and legal corpus reviews

WP2. Bottom-up Norms

-Q3. What are the individual and organizational characteristics of units and informal entrepreneurs: skills, perceptions of obstacles, vulnerability... What are the practical bottom-up norms of informal entrepreneurs?

-Q4. How do investment behaviors expose informal units to top-down norms? What is the effectiveness of the legal constraint? What are the perceived risks and benefits (in terms of protection) by the entrepreneurs?

-Q5. What indicator of legal recognition effectiveness (objective and perceived protection but potential predation) can we construct based on our research? Gradient of legal recognition (protection) both actual and perceived/felt (survey)

-Objective measure: Degree of constraint/protection calibrated based on legal criteria

-Subjective measure: Degrees of constraint/protection perceived by entrepreneurs

-Method: Quantitative survey (400 companies) aimed at measuring effectiveness and perception of legal recognition

WP3. Norms confrontation

-Q6. What is the impact of objective and perceived protection on investment and performance? What is the significance of these norms in terms of production quality? If impact exists, the costs of illegality (lack of protection) must be prioritized over formalization.

-Method: Post-survey qualitative jurisdictional-economical study (50 companies) to explain certain mechanisms and to control for certain endogeneity issues

Field Selection. Secondary cities are an economic and social space that has been little analyzed from these perspectives. They are more representative of the conditions of production, employment, and consumption in Africa than metropolises. For entrepreneurs, the collective benefits of production taxes are easier to perceive here. Ideally, an investigation would target an activity sector deeply embedded within the local product system with strong integration into the legal sector. We believe the agri-food sector could be a good candidate: linked to both informal agriculture and the formal processing and competition from imports. The fieldwork will thus be located in Bouaké, the second-largest city in Ivory Coast with over 800,000 inhabitants. The Ivorian project partners are precisely researchers from the Alassane Ouattara University in Bouaké who will provide us with their network and local knowledge.

Interdisciplinary Nature of the Project. Studying informality in businesses in sub-Saharan Africa and Ivory Coast in particular requires an interdisciplinary approach. Indeed, to fully understand the complex dynamics of this sector, it is essential to combine perspectives from disciplines such as economics, sociology, anthropology, and law. This holistic approach enables the analysis of the multiple facets of informality, including its economic, social, cultural, and legal implications, thus offering more comprehensive and effective solutions to address the challenges associated with this phenomenon, which is the aim of this project. The current project will integrate economic, legal and socio-anthropological approaches to better grasp the complex interplay of norms and investment behaviors of informal entrepreneurs.

Scientific Partnership. To ensure the quality of data collected and its processing, it is crucial to integrate partners from Ivory Coast with academic expertise in social law and business law. These researchers will provide an in-depth knowledge of the local environment and context, including an understanding of local legal norms and practices. This partnership will augment data collection by offering relevant perspectives and tailoring collection methods to the specific needs and realities of the target populations. By integrating experts in the local economic and legal context, the project ensures a more contextual and relevant approach, thus enhancing its credibility and potential impact.