Informal-Sector Entrepreneurs, Development and Formal Law: A Functional Understanding of Business Law

Abstract:     
The informal sector represents 40-60% of Sub-Saharan Africa’s GDP, and employs as much as 93% of non-agricultural workers in Sub-Saharan Africa. Given the importance of this sector, and given the understanding that formal law does not penetrate easily or predictably there, classic business law alone cannot create for informal-sector nano-entrepreneurs an environment comparable to that enjoyed by a business person in the global North.

Reform of business law must focus on functionality: how to assist informal-sector businesses by increasing the predictability of transactions while limiting government abuse, all in connection with the formation, operation, and, ultimately, termination of businesses. The attack is two-pronged. Formal law can constrain formal-sector actors, such as some landlords transacting with informal-sector businesses, and mandate that formal-sector actors provide pro-business realities that Northern businesses enjoy, including sanitary work environments. With respect to the informal-sector nano-entrepreneurs, who tend not to be directly affected by formal business laws, but who do have a legal a quasi-traditional legal regime that affects businesses, formal laws that reinforce existing business norms will be the most effective in supporting North-style predictability. Further, a modern legal study focused on the formal sector suggests that, in Sub-Saharan Africa where the legal regimes tend to be highly centralized, formal law can be most effective for nano-entrepreneurs if it assists them in coordinating and, ultimately, in creating or negotiating for basic protections taken for granted by businesses in the global North.

Number of Pages in PDF File: 48

Keywords: informal sector, development, business

Accepted Paper Series