Analyzing how to shift Informal Unit of Production (IUP) to formality:the case of Cameroon

Analyzing how to shift Informal Unit of Production (IUP) to formality:
the case of Cameroon

Ramses ZANG and Chadeney NDAPOU¹
Contact: [e-mail]

Abstract

For a country like Cameroon witnessing an informal employment rate of more than 90%, the shift towards formality requires an effective public assistance. This paper attempts to prescribe a way by which public funds could be less riskily and more efficiently allocated to IUPs according to their dynamism measured here by their profitability. The methodology used in this paper is the construction of a frame for assessing IUPs effectiveness with some of their positive core characteristics like education attainment of the owner and the sales, and a negative one, the costs. The main variables have been selected through a principal components analysis. A logistic regression has been used to estimate parameters necessary to complete the scoring equation aimed at identifying less risky and more efficient IUPs. As a perspective, it comes out that IUPs might be very motivated if a policy aimed at effectively allocating them public funds according to their dynamism is put in place. They could find more rationales to gather themselves for more effectiveness and greater probability to benefit from these funds, expand and then get access to bank credits.

1. Introduction

In Cameroon, the unemployment rate in 2005 was 4.4% according to the International Labor Organization definition. Besides how impressive this figure may appear, it hides a tremendous amount of precariousness and underemployment. Actually, underemployment touches more than three quarters of the potential working force in Cameroon. Underemployment and precariousness comprise both the unemployed and the employed population earning less than the legal minimum wage or working less than 35 hours a week. This underemployment is essentially nurtured by the informal sector that employs more than 90% of the actual working force. In fact, the underemployment rate was 70.6% in the non-farming sector and 86.8% in the informal farming sector. It is important to notice that this situation has been favored by the economic crisis of the 80s. Moreover, many evidences now show that one of the huge unanticipated drawbacks of the Structural Adjustment Policy focusing on the reduction of public spending has deeply affected the labor force in the sense that it has led to the reduction of the Government' s staff, so far the main formal employer. The private sector was at that time too under-expanded to absorb the bounce of job seekers. The country has therefore witnessed the development of an uncontrollable urban informal sector and the rise of precarious jobs. It is more than a necessity nowadays to try to cancel all this precariousness and informality that not only entertains harsh labor conditions and poverty but also perpetuate disconnection between public policies and people in real need. A way of doing that is to accompany dynamic informal units susceptible to earn the status of small formal production units to do so faster and comfortably. Cameroonian authorities, in the global framework of fighting against poverty have put in place in 2002 a structure, «Projet Integre d'Appui aux Acteurs du Secteur Informel (PIAASI)» aiming at ensuring the promotion of the informal economy. This action, managed by the Ministry in charge of labor and professional training is translated into the financing and training of actors of the sector in concern. Thanks to resources from the Heavily Indebted Poor Countries Initiative, the PIAASI was launched in 2005. It was essentially focusing on very small projects for self employment and

¹ Engineers in Statistics and Economist

microenterprises like artisanal activities, very small scale esthetics, catering, shoes repairs, farming, etc. The authors of this paper want to show that such an action must be extended to the IUPs the most dynamic in order to take them to the scale of small formal enterprises. With This purpose, the present paper will realize a partition of IUPs in Cameroon using the survey 1-2-3, phase 2 of 2005 to distinguish stagnant units from dynamic units that could potentially evolve to become formal enterprises. We will therefore design a set of characteristics that could allow a public policy to efficiently finance such IUPs. We will use discriminatory procedures from SPAD software and logistic analysis from STATA software to make available the more relevant variables that differentiate stagnant from dynamic IUPs. Moreover, we intend to provide a set of parameters and characteristics gathered in a scoring equation that could allow any anonymous IUP to be appropriately ranked in each group provided some of its characteristics.