The Small Business Informality Challenge: Lessons Learned From Country Experiences and The Road Ahead of Egypt

This paper aims to present the lessons learned from country experiences in the area of small business (SB) informality (or extra-legality,) in order to provide Egypt and other MENA countries with a means for possible replication and knowledge for cross-fertilization. The SB informality phenomenon started to gain the attention of economists, politicians, sociologists and anthropologists a few decades ago. A dearth in literature, and its subsequent importance, stems from its ‘invisibility’ in many nations’ underground economies in the developed and, to larger extent, developing worlds. Country experiences show that developed countries have been successful in addressing the phenomenon by undertaking a number of policy instruments, while many developing countries have lagged behind in approaching this issue and devising innovative solutions. The exclusion of the informal sector from the formal economy of nations led governments cognizant of the phenomenon to adopt one of two approaches: SB support policies were either geared towards bringing SB informal entities inside the fabric of the legal economy, or deliberately leaving small businesses relatively unregulated space to grow, with the hope that this allows their innate inventiveness and contributions to local communities maximum stimulation. Valuable as it may be, it is not the intent of the authors to judge these approaches. Rather, the authors hope to look at success vs. failure criteria in state-policy programmatic designs, addressing such phenomenon while taking into consideration acceptable risk margins in policy reforms’ implementation. The first section of the paper is an introduction and overview; the second section offers a literature review on some topical, definitional aspects related to SB informality; and section three opens a discourse on adopted government policies in addressing the phenomenon. This is followed by section four containing a diagnostic of the status-quo of SB informality in Egypt together with identified constraints and opportunities. The proposition offered to MENA’s authorities is based, in fact, on lessons, pitfalls and experiences captured from country cases. However, this has to be adapted to each country’s cultural specificities and unique institutional setup. Finally, the paper closes with section five, a brief commentary for countries considering following a course of SB informality.