Business productivity is fundamental to economic growth and businesses require a favorable regulatory environment to thrive. While registering a business is not necessarily required to complete business transactions, it offers benefits to both the firm (e.g., legal protection, access to formal credit) and government (e.g., regulatory oversight and tax revenue). However, most African small businesses are not formally registered.
A recent article, authored by Henry Kankwamba and Lukas Kornher, assesses the effect of business registration on firm performance in Malawi’s maize sector. The study uses panel data of 172 maize traders from central Malawi, and instrumental variable estimation on a systematically drawn sample. The study was conducted in five districts in the central region of Malawi: Lilongwe, Mchinji, Kasungu, Dowa, and Dedza, covering 15 markets in total. The central region of Malawi was selected because it the country’s major maize surplus area.
The study highlights three key results. First, most maize trading businesses in Malawi are not registered. Only 24% of all traders in the sample were registered. Second, registered maize businesses were four times less profitable than unregistered businesses. Across various indicators, results show that the industry is male dominated. Although most traders are not registered, those that participate in exports through informal means made more profits. Further, traders that diversify by selling other commodities also made significantly higher profits. The authors underline that in order to improve performance of businesses in the agricultural sector, the role of business registration should not be overlooked. Unless the business environment is reformed in favor of small businesses, it does not pay to register. Therefore, the study recommends reforming the ease of registering businesses, reforming tax policy, and devolving business registration processes to district councils. This could reduce informality and enhance the accountability of firms.
The article is available online here.
Henry Kankwamba and Lukas Kornher. 2020. “Business Registration and Firm Performance: A Case of Maize Traders in Malawi." Development in Practice. https://doi.org/10.1080/09614524.2020.1747985
Authors
Henry Kankwamba is a postdoctoral researcher at the University of Bonn’s Center for Development Research (ZEF). From 2012 to 2014, he worked as a Research Analyst with IFPRI-Malawi. Lukas Kornher is a Senior Researcher at the University of Bonn’s Center for Development Research (ZEF).
About ZEF
The Center for Development Research (ZEF) is an institute of the University of Bonn, Germany. It started its research activities in 1997. ZEF's researchers aim to find science-based solutions to development-related issues. ZEF’s research departments on Economic and Technological Change, Political and Cultural Change, and Ecology and Natural Resources Management conduct inter- and trans-disciplinary research in, for and with emerging economies and on global issues with its collaborating research partners around the world. ZEF educates doctoral students from all over the world in its Doctoral Studies Program. ZEF is guided by an International Advisory Board. Find more details here.
