Factors influencing the intent to transition to the formal economy: A comparative study of informal youth entrepreneurs in Gabon and South Africa

Abstract

This study delves into the factors that influence the intent of informal youth entrepreneurs to transition to the formal economy in Gabon and South Africa. The informal sector, a significant player in the economies of these developing countries, is characterised by unregulated and unregistered businesses (Msomi, 2024). It plays a crucial role in providing employment and income for millions (Etim & Daramola, 2020). However, transitioning to the formal economy is often seen as a pathway to sustainable growth, increased productivity, and enhanced economic stability (International Labour Organisation, 2021). Through a comparative analysis, this research examines the determinants that motivate or hinder informal youth entrepreneurs in Gabon and South Africa from formalising their businesses. Key factors explored include entrepreneurial capital, including economic, cultural, social, and symbolic capital; attainment of legitimacy; entrepreneurial motivation; and institutional factors, including political stability, government effectiveness, and the rule of law. The study employs a qualitative approach, combining interviews with informal youth entrepreneurs in both countries. The findings reveal that South Africa should focus on financial and administrative support, funding opportunities, and networking, while Gabon needs to simplify legal processes and provide clearer guidance. Both countries should improve communication about government programs and strengthen institutional trust. Incentives like tax breaks could encourage formalisation. Education in entrepreneurship and legal systems is crucial for improving outcomes, and future research should explore digital entrepreneurship and the role of institutional trust in the transition from informal to formal sectors. The results of this research significantly enhance our understanding of informal entrepreneurship in Africa. They also provide policy recommendations to foster a supportive environment for formalising informal businesses. By addressing the unique challenges youth entrepreneurs face in Gabon and South Africa, the study aims to support the development of targeted interventions to facilitate their successful transition to the formal economy, thereby promoting inclusive economic growth and development.