Institutional and Social Factors Influencing Informal Sector Activity in Sub-Saharan Africa: A Nigerian Case Study

Abstract

The extant entrepreneurship literature is replete with competing narratives about the concept of informal sector (IS). Also, IS’ potential as a source of income and the behavioural tendencies of operators in the sector remain highly contested but under-researched. In particular, not much is known about the incentives and the motivations for engaging in informal economic activity from the perspective of Sub-Saharan African (SSA) context where a significant proportion of all economic activities are informal. Thus, the lack of conceptual clarity and consensus about the underlying factors driving individuals into informal economic activity constitutes a major knowledge gap. To fill this gap, this study seeks to clarify the domain of IS from a SSA viewpoint, and through this paves the way for a more holistic understanding of the behavioural tendencies and motivations of IS operators in SSA. Specifically relying on the institutional, social exclusion, and personality trait theoretical frameworks, the study demonstrates how a combination of separate yet related phenomena of personality traits, institutional factors, and more importantly, situational factors that manifest as perceptions of social exclusion serve as the incentives and the motivations to engage in informal economic activity in SSA. To achieve its goal, qualitative primary data obtained through thirty-eight semi-structured interviews were transcribed verbatim and analysed using Nvivo. Firstly, the study found that institutional ambiguity, institutional delinquency, institutional passivity, and institutional incongruence are sources of voids in Nigeria's institutional framework that influence an individual to enter the IS. Secondly, social exclusion regarding lack of access to requirements such as finance and formal education to start and sustainably operate a business influences people to enter into the IS. Lastly, the findings indicate that personality traits’ influence regarding the decision to engage in informal economic activities is dependent on individual circumstances. These are valuable contributions to the stock of knowledge about the IS. Particularly, the identification and categorisation of four specific institutional voids and partitioning of the sources of exclusion; the finding that in adverse economic circumstances personality traits could influence potential opportunity-entrepreneurs to start-up in the IS; the finding about the role of trade associations; and the new understanding about the collaborative dimension of corruption in the context of IS practice, represent a significant contribution of this study. These contributions are valuable not just in terms of creating new windows of research opportunities, but also for evidence-based policy relating to the IS that is appropriately targeted at relevant groups. This is in addition to facilitating collaborations for business support, enlightenment, improved business practice, and inclusive growth.