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

Data were obtained from the National Institute of Statistics of Cameroon² and were resulting from the 2005 survey 1-2-3 which had as objectives the follow-up of employment, informal sector and household consumption. We used the phase 2 that focuses on the informal sector by collecting data on the working conditions, manpower, contribution of the informal sector to the economy and issues and perspectives of that sector. The phase 2 is theoretically supposed to happen every four years. It will then be possible to update the parameters of the model we are proposing according to that periodicity.

As we mentioned above, the PCA was used for the variables specification. 4,815 IUPs were involved in the process. The first two axes were representing 58.5% of the total variability. When plotting the IUPs according to these two axes, the results suggested that they were relatively very close each other as shown on the graph 1 below. In fact almost all IUPs are surrounding the mean point.

Nevertheless, some points are found very far from the mean point suggesting that they are witnessing a relatively high level of activity with sales cros sing the threshold of the FCFA 1,000,000 (US$ 2,500). Theses points are represented by crosses proportional to the size of their activities. Variables were also represented in the correlation circle (see graph 2). This graph shows that almost the whole variables are very well represented, the arrows designating each being very close to the borders of the circle on the factorial plan. We can observe four groups of variables. The first is the set raw materials and intermediary consumption, the second, number of worked hours and the salaries, the third, variables indicating the gross benefice and the fourth, sales and costs.

We will finally keep only three variables representing each group: the sales, the number of hours worked and the costs per month. To these variables we will add control variables like education level of the owner, his age and the age of the IUP.

4. Findings and Results

From the curves below, we can notice that the informal non-farming sector (60%) has become since 2003 the main occupation of the population, crossing over the farming informal sector (38%). The public and the private formal sectors are stagnating since the 90s.

	Employment %	Mean age	Females (%)	Male (%)	Years of di	Experience within h i
Urban
Public	10.5	39.7	31.8	81.1	12.3	9.6
Private formal	11.8	36.1	20.4	79.1	10.9	5.9
Informal non-farming	67.4	31.2	45.4	66.4	7.0	4.5
Informal farming	10.3	37.2	57.4	52.0	5.2	12.6
Overall	100	33.3	42.2	67.9	7.8	6.0
Rural
Public	2.6	39.4	25.8	79.7	11.3	7.5
Private formal	2.0	35.9	15.4	79.3	7.6	6.7
Informal non-farming	22.5	31.9	55.0	44.3	4.3	6.2
Informal farming	72.9	33.3	52.7	35.3	3.2	12.2
Overall	100	33.2	51.8	39.3	3.8	10.6
Cameroon
Public	4.9	39.6	29.5	80.6	11.9	8.8
Private formal	4.7	36.0	18.9	79.1	9.9	6.2
Informal non-farming	35.2	31.5	49.8	56.3	5.8	5.3
Informal farming	55.2	33.5	53.0	36.2	3.4	12.2
Overall	100	33.2	49.1	47.4	4.9	9.3

Table 1 shows that across the country, more than one worker out of two is a business owner
working as a self-employer or with very few employees. In the rural area, almost one third of

the working population is family helping without effective salaries. The working class which is the more representative in developed countries accounts only for 8% in the whole country and 20.3% in urban area. Not surprisingly, the formality of positions goes side by side with the number of years of schooling.

Visible underemployment is a situation characterizing workers unwillingly involved in less than 35 hours a week in their main activity for reasons linked to their employer or to a bad economic situation. It was touching 12.2% of the working class in Cameroon in 2005. It is twice higher in the non-farming working sector than in all other sectors. It increases according to the level of education. A high working time could be also translated by a form of underemployment occasioned by the lowness of the productivity. This form of underemployment is called invisible underemployment and is usually estimated by the level of income. In Cameroon, the invisible underemployment rate is defined as the percentage of the working class earning less than FCFA 23,500 (US$ 65) a month for 40 hours worked a week. This rate is estimated at 69.3% of the actual manpower. It is within the informal sector that underemployment is more crucial with more than six persons out of 10. The underemployment affects more the rural area than the urban area. In the contrary of visible underemployment, invisible underemployment decreases with the level of education. The sum of these two forms of underemployment and the unemployment yields the global underemployment that touches three quarters of the potential working class in Cameroon. This problem is the more critical of the Cameroon employment issues because many trained young people declare exercising informal jobs to survive while hoping for a more stable and better rated job corresponding to their qualification and/or their level of studies.

Table 2: Rates of underemployment according to institutional sector, the gender and the area

Institutional sectors		Visible			Invisible			Overall
	Urban	Rural	Cameroon	Urban	Rural	Cameroon	Urban	Rural	Cameroon

Public	7.3	10.1	8.4	3.1	17.4	8.6	10.3	26.8	16.7
Private formal	6.4	5.6	6.2	13.6	31.8	19.0	19.3	34.2	23.7
Informal non-farming	17.1	23.1	19.9	54.4	66.8	60.1	64.8	77.5	70.6
Informal farming	15.6	7.6	8.0	70.2	85.7	84.8	75.1	87.5	86.8
Gender
Male	12.1	11.8	11.9	37.8	71.5	60.7	50.9	77.2	68.3
Female	18.2	10.5	12.4	56.6	85.2	78.2	70.9	88.3	83.6
Overall	14.7	11.1	12.1	45.7	78.6	69.3	68.3	83.6	75.8

The effectiveness of an IUP corresponds to its ability to create jobs in order to raise its production and make profits. The level of gross profit has therefore been considered in this paper to categorize IUPs. Meanwhile, table 3 below shows other possible criterions that we could have taken. The nationwide gross profit median is FCFA 28,000 (US$70) per month; a very low profit which mainly characterizes IUPs in Cameroon. But this median profit is stretched from a minimum of FCFA 82,000 (US$165) losses to a maximum of FCFA

8,899,000 (US$18,000) earnings with a standard deviation of FCFA 199,429 (US$400). We can also notice that those with employees are the more performing. A qualitative criterion could be settled on that aspect if credits have to be attributed to IUPs.

Table 3: Performances of IUPs per type of occupation and per type of area (monthly in ,000 FCFA)

		Sales	Production		Added value		Gross profit
	Mean	Median	Mean	Median	Mean	Median	Mean	Median
Type of occupation
Self employment	133.8	47	77	36	43.7	19	43	19
Non salary job	173	65	110.9	46	58.2	22	54.7	21
Salary job	704.3	300	529.9	200	328.3	122	254.3	85
Mixt	650.6	255	601.9	255	304.8	171	226.7	112
Overall	173.8	57	110.2	41	62.4	28	57	28
Urban area
Self employment	206.5	90	112.3	56	66.9	34	65.6	32
Non salary job	283.3	117	187.2	84	96.5	44	89.9	38
Salary job	897.1	301	625	280	360.7	172	274.1	112
Mixt	683.7	311	643.7	311	326.9	197	241.1	120
Overall	275.2	105	168.3	69	95.5	41	86.5	37
Rural area
Self employment	83.2	31	52.4	26	27.6	12	27.2	12
Non salary job	109.1	45	68.9	37	37.2	16	35.3	15
Salary job	463.5	200	411.2	150	287.8	100	229.5	61
Mixt	504.3	113	445.9	113	222.5	69	172.7	41
Overall	104.6	37	70.5	30	39.8	14	36.9	13

Table 4 displays some of the characteristics of the two groups generated. The more effective group is in almost all aspects averagely greater than the less effective except in terms of age of the owner and duration of exploitation where we could not find significant disparities.

The parameters of the logistic regression are shown on table 5. The second column provides the estimated coefficients; the fourth one displays the probability of rejecting the nullity of the coefficients; and the last one shows the marginal effects of every variable. Sales, hours spent at work, costs and to a lesser extent, education levels are all significant at a threshold of 5%. As expected, costs affect negatively the effectiveness of IUPs; this should be interpreted cautiously though, because great expenses sometimes mean higher production for higher sales and higher profits. This means also that the Government can effectively alleviate (0.24) the informal sector by reducing or canceling some of their taxes to favor their entrance into formality. The variable that influences the most is the amount of sales with an odd ratio of 0.25. The time spent at work is almost neutral in terms of impact on the effectiveness. As we can notice from the last column, marginal effects are very low for all the variables at stake.

Number of observations = 4809 ; Prob > chi2 = 0.000; Log likelihood = -5 17.70446; Pseudo R² = 0.8447

Table 6 below shows that 96.9% of the IUPs have been well ranked from the logistic regression while only 72.3% were so with the Wilks' test approach.

We can therefore easily compute for any anonymous IUP the score of effectiveness S;

S = 0.03Education + 0.25Sales - 0.24Costs, and rank it according to it final score in order to efficiently allocate them credit for their expansion to a formal activity.

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

3. Data and variables specification

4. Findings and Results