Confusion about entrepreneurship? Formal versus informal small businesses

Abstract

A focus on supply-side economics and on factors determining economic growth is prominent in seeking sustainable solutions to sluggish international economic growth. There is renewed interest in entrepreneurship, business formation and growth. This paper is aimed at contrasting the growth performance and prospects of informal and formal small businesses, particularly the role of entrepreneurship in this regard. Descriptive and econometric modelling techniques are employed. In contrasting the entrepreneurial acumen embedded in small informal and formal business, it was found that innovative entrepreneurship represents the primary growth differentiator between these two business categories. The average informal business is established for survival, and its owner lacks natural entrepreneurial acumen, while small formal businesses show higher levels of growth instigated by an entrepreneurial spirit and mindset. The formal-to-informal business or entrepreneurship dichotomy creates a useful distinction for informing government policy choices. Small business support strategies should focus on businesses with embedded entrepreneurial acumen and hence the inherent dynamics to create and exploit new innovative economic opportunities resulting in the creation of employment opportunities and higher economic growth.

Key words: small business development, informal sector, business sustainability