Characteristics of Firms in Botswana's Informal Economy

Abstract

Botswana has a large informal economy which continues to grow at a rapid rate. The Government recognises the importance of the sector in reducing unemployment and poverty. The objective of this paper is to empirically identify the characteristics of the firms in Botswana’s informal economy. A binary logistic regression model is used to model the characteristics of Botswana’s informal firms, and data employed came from the 2015/16 Botswana Multi-Topic Household Survey (BMTHS). Findings indicate that informal firms in Botswana are likely to be situated in rural areas, they operate in their own households, as sole proprietors. Results further depict that, firms that did not need a loan when starting up are more likely to be informal, than businesses that used household savings or sold assets to start the business. Furthermore, it was also revealed that informal firms are less likely to have small businesses and institutions as the main buyer of their goods and services, as compared to individual buyers. The paper advocates for a policy that is tailor made for the informal sector, to address the specific challenges the sector faces. Government needs to boost the business environment in rural areas, to allow for growth of firms, and create more jobs.

Key Words: Informal Economy, Logistic Regression, Firms