The Size and Nature of                 Informal Entrepreneurship                             and                      How ...
Presentation Track•   Definition & Research Questions•   What we did?•   How we did it?•   What will we do?•   When will w...
Defining Informal Entrepreneurship            (ILO, 2011)
Q1: What is the size of informal           entrepreneurship in Pakistan?I.   What percentage of small businesses are opera...
Q2: What are the motives for Pakistani     entrepreneurs to operate in the informal economy?I.     Are they all doing so o...
Q3: What policy measures can be used to tackle         informal entrepreneurship in Pakistan?I.   What are the barriers to...
What we did?
Sampling Frame                LAHORE CITY                               InstantlyManufacturing      Retail     Consumable ...
2        5   71        4   6    3
Manu.        Retail    Restaurant                                              Manu.          Retail    Restaurant  0     ...
How we did it?
Questionnairei.    Demographicsii.   Business Introductioniii.  Size of Informalityiv.v.      Motives of Informality      ...
Pilot Field Survey• Three research teams• Convenience sampling• 10 face-to-face interviews in EACH sector• Outcomes:  – Re...
Quantitative Field Survey•   Three teams of researchers•   Two research associates•   Time span: 3.5 months•   312 face-to...
Qualitative Field Survey• Research Team (PI & RA)• 15 face-to-face in-depth interviews  – Five in each sector• Time span: ...
Survey Administration• Weekly meetings with the PI and  questionnaires submission• Follow-up calls to the respondents(appr...
What we got?
22,000 data points         &500 open comments!
What will we do?
Data Analysis: A mixed method approach     Qualitative           Quantitative                              Frequency      ...
Cross TabulationsQ No.          Description                 Q No.               Description B      Age                    ...
Statistical Model                    Inability to enter  Tax morality                               Age       Income   Edu...
Decision Matrix for the Level of Informality                                            Tax                      Legal sta...
When will we do it?
Future Direction                         ACTIVITTY                    TENTATIVE DEADLINE1   Submission of interim report  ...
What we found out?
DemographicsEducation                Employment StatusNo education        2%   Employer                    41%      Primar...
Business Type
Business Introduction                       Life Span of Business  Less than 5 years   5-10 Years               10-20 year...
Size of Informal Entrepreneurship                               Legal Status                  20                          ...
Size of Informal Entrepreneurship(cont.)
Ease of Doing Business
Ease of Doing Business                  Problems with Government Departments OtherCustom  Food                            ...
Ease of Doing Business
Tax morality and risk detection                                                           Acceptability            Riskine...
Tax morality …..Should the government register      businesses like you                                 Yes               ...
Reasons to remain informal                        Motives                        PercentageDo not need/want to register my...
Qualitative Remarks“The law is too complicated and the people who implement it also have a “price” and                 the...
The Size and Nature of Informal Entrepreneurship in Pakistan and How to Tackle It by Dr. Muhammad Shehryar Shahid , Univer...
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The Size and Nature of Informal Entrepreneurship in Pakistan and How to Tackle It by Dr. Muhammad Shehryar Shahid , University of Central Punjab, Lahore

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Presented on February 10th, 2013 at the Second Research Competitive Grants Conference in Islamabad, Pakistan.

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The Size and Nature of Informal Entrepreneurship in Pakistan and How to Tackle It by Dr. Muhammad Shehryar Shahid , University of Central Punjab, Lahore

  1. 1. The Size and Nature of Informal Entrepreneurship and How to Tackle it?M Shehryar Shahid, PhDDirector, Centre for Entrepreneurship and SMEs (CESME)University of Central Punjab
  2. 2. Presentation Track• Definition & Research Questions• What we did?• How we did it?• What will we do?• When will we do it?• What we found out?
  3. 3. Defining Informal Entrepreneurship (ILO, 2011)
  4. 4. Q1: What is the size of informal entrepreneurship in Pakistan?I. What percentage of small businesses are operating in the informal sector?II. How does their percentage vary by sector?III. Do all such businesses practice the same level of informality, or does it vary across different enterprises and sectors?
  5. 5. Q2: What are the motives for Pakistani entrepreneurs to operate in the informal economy?I. Are they all doing so out of necessity? Is it a survival practice in the absence of alternatives? Or are they doing so more out of choice?II. Is it always an ‘economic motive’ that motivates small Pakistan entrepreneurs to engage in informal work?III. Are there any social/cultural factors that influence the likelihood of entrepreneurs to participate in informal business practices?IV. How do their motives vary across different sectors?
  6. 6. Q3: What policy measures can be used to tackle informal entrepreneurship in Pakistan?I. What are the barriers to formalization faced by informal entrepreneurs in Pakistan?II. How do the barriers to formalization vary across different sectors?III. What should be done to formalise the informal sector – deterrence or enabling option?
  7. 7. What we did?
  8. 8. Sampling Frame LAHORE CITY InstantlyManufacturing Retail Consumable (5 Zones) (7 Zones) Food Items (7 Zones)
  9. 9. 2 5 71 4 6 3
  10. 10. Manu. Retail Restaurant Manu. Retail Restaurant 0 15 15 45 15 15 Manu. Retail Restaurant Manu. Retail Restaurant 10 10 10 25 10 15 Manu. Retail Restaurant Manu. Retail Restaurant 10 05 05 10 20 20 Manu. Retail Restaurant 0 25 20 2 5 7 1 4 6 3
  11. 11. How we did it?
  12. 12. Questionnairei. Demographicsii. Business Introductioniii. Size of Informalityiv.v. Motives of Informality Ease of Doing Business Totalvi. Risk Detection and Tax Morality questions:vii. Employment and Workersviii. Business Environment 75 i. Competitive ii. Regulatoryix. Problems and Prospectsx. Financing and Support Structuresxi. Policy Recommendations
  13. 13. Pilot Field Survey• Three research teams• Convenience sampling• 10 face-to-face interviews in EACH sector• Outcomes: – Respondents were quite honest and forthcoming – Development of shared language – Elimination of a few personal questions – Re-ordering of questions
  14. 14. Quantitative Field Survey• Three teams of researchers• Two research associates• Time span: 3.5 months• 312 face-to-face interviews at business premises• Average interview time: 25-30mins• Excellent response rate! – (312 out of 330 responses)• Weekly submissions and random follow-up calls (approx. 30 calls)
  15. 15. Qualitative Field Survey• Research Team (PI & RA)• 15 face-to-face in-depth interviews – Five in each sector• Time span: 1.5 months• Average interview time: 60mins
  16. 16. Survey Administration• Weekly meetings with the PI and questionnaires submission• Follow-up calls to the respondents(approx. 30 calls)• Random visits of a research associate
  17. 17. What we got?
  18. 18. 22,000 data points &500 open comments!
  19. 19. What will we do?
  20. 20. Data Analysis: A mixed method approach Qualitative Quantitative Frequency Interview charts/tables statements Cross Thematic tabulations coding Ordinal Logistic Model
  21. 21. Cross TabulationsQ No. Description Q No. Description B Age Versus 2.4 Legal status I Income Versus 3.1 Number of registrations Legal status/number of D Sector type Versus 2.4/3.1 registrations 2.8 Start-up motivations Versus 3.1 Number of registrations 2.4 Legal status Versus 3.7 Type of account keeping 3.1 Number of registrations Versus 3.10 Tax morality D Sector type Versus 3.4 Informality motives Number of registrations/legal 3.4 Social/cultural motives Versus 2.4/3.1 status Number of registrations/legal 3.4 Economic motives Versus 2.4/3.1 status 3.9 Ease of registration Versus 3.1 Number of registrations
  22. 22. Statistical Model Inability to enter Tax morality Age Income Education formal economy Sector Corruption Subcontracting Ease of doing Tax level business Level of informality Risk of Ease of detection registration Awareness Individual level Institutional levelCompetitiveness Resistance towards Structural level government
  23. 23. Decision Matrix for the Level of Informality Tax Legal status Book keeping registrationFormal Limited Liability Formal Account 5 Yes 4Enterprise Company Keeping 1 Own-account Worker No written 1 accounts 2 Sole Proprietorship Informal 2 records forInformal 3 Ordinary Partnership personal use Yes/NoEnterprise Simplified 4 Registered Partnership 3 accounting formats Unregistered with 6 Employees 5 Others
  24. 24. When will we do it?
  25. 25. Future Direction ACTIVITTY TENTATIVE DEADLINE1 Submission of interim report 28 Feb 20132 Data analysis (quantitative and qualitative) 31st May 20133 Policy survey 30th June 2013 •Lahore (03-05 interviews) •Karachi (03 interviews) •Islamabad (03-05 interviews)4 Review of international policy literature 15th June 20135 Policy seminar in UCP May 2013 (subject to the availability of speakers)6 Compilation of policy survey results 15th July 20137 Final report 30th August 20138 Application for grant extension
  26. 26. What we found out?
  27. 27. DemographicsEducation Employment StatusNo education 2% Employer 41% Primary 13% Own account worker 59% Secondary 48% Diploma 16% Age University 21% 15-24 3% 25-35 54% 40-64 42%Formal Job 65 and More 1% Yes 4% No 96% Household Income Less than 20,000 17.71%Main Earner 20,000 – 30,000 36.46% Yes 76% 30,000 – 40,000 26.04% No 24% 40,000 – 50,000 8.33% More than 50,000 11.46%
  28. 28. Business Type
  29. 29. Business Introduction Life Span of Business Less than 5 years 5-10 Years 10-20 years More than 20years 35% 26% 28% 11%
  30. 30. Size of Informal Entrepreneurship Legal Status 20 31 24 43 Own-account business Sole Proprietorship Ordinary partnership Registered partnership Unregistered with employees
  31. 31. Size of Informal Entrepreneurship(cont.)
  32. 32. Ease of Doing Business
  33. 33. Ease of Doing Business Problems with Government Departments OtherCustom Food Percentage Tax Labor LDA 0 5 10 15 20 25 30 35 40
  34. 34. Ease of Doing Business
  35. 35. Tax morality and risk detection Acceptability Riskiness 18% 2% Highly acceptable 15% Somewhat acceptable 50% Not acceptable 32% very risky somewhat risky not risky 26% Do not know57%
  36. 36. Tax morality …..Should the government register businesses like you Yes No
  37. 37. Reasons to remain informal Motives PercentageDo not need/want to register my business 70%All the similar businesses are not registered 40%Non-registration is a common practice in my country 29%The state does not do anything for the people so why 23%should we obey the lawOther 19%Registration system is corrupt 10%Taxes are too high 8%
  38. 38. Qualitative Remarks“The law is too complicated and the people who implement it also have a “price” and then they will help the bribing person to abuse the law” “The Labour Department gave me a challan because I do not close the shop on any day of the week … It restricts my business freedom”“The law saves only the powerful and the rich, they know how to use the loop holes”“A simple submission of traffic challan takes 4 steps, which is more frustrating than the fine itself, let alone filling tax return” “I have heard from other shop owners that getting NTN is very complicated, so I did not try” If we give the bill with tax inclusive, the customers demand to make a “kacha” bill without tax” Departments force regulations only for few days, then no follow ups. I out the tax number on display but means nothing after few days”

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