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.

Keywords: informal sector, development, business