LARGE INFORMAL FIRMS IN WEST AFRICA
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Interrelations between the Formal Sector and the Informal Sector In West Africa, the coexistence of the formal and informal sectors takes complex forms. At times, the two sectors are in competition; at others, they collaborate.
Competition and Cooperation between Formal and Informal Sectors As noted, it is hard to find a completely formal firm in the region’s economies. The only firms that meet all of the necessary criteria are branches of multinational corporations, banks and financial institutions, state-owned enterprises or parastals, certain professions (law firms, notaries’ offices), and a few large enterprises. All other firms participate at least minimally in the informal sector. Their informal activities are quite varied, covering undeclared sales or services, value added tax (VAT) collected and not remitted, and so forth. In carrying out these actions, informal firms generally act as subcontractors for formal firms. The customs clearance process for merchandise at ports and at airports provides a good illustration of this type of interaction. Normally, customs services are performed only by customs clearance agents; these agents are part of the formal sector, which implies a maximum level of transparency in their operations. In reality, many unauthorized agents work in this sector, collaborating with the legally authorized agents. These informal actors offer to help clients to clear merchandise from the port at much lower costs than if they were to deal with authorized customs agents. Because they are not recognized by the customs agency, these fraudulent agents must use the seal of an authorized agent. In return for use of the authorized agent’s seal, the informal agent passes on a portion of the fees he collects for clearing clients’ merchandise. This practice is common in ports throughout the region and is well known even to customs officials, as they made clear in our discussions with them. The authorized customs agents that we met justified their collaboration with informal firms on the grounds that the latter have the most contact with clients and thus control a good part of the demand in this sector. Collaboration between the formal and informal sectors is also prevalent in the construction sector. Large contracts for public works can only be acquired by formal enterprises. To win a contract, a firm must produce documents proving that it is in compliance with regular income taxes and that it has the means to finance large investments, pending payment by the government. Formal firms often subcontract with informal firms to do most of the construction, including hiring workers, in exchange for a lump-sum payment from which they pay laborers and retain the surplus as profit. The acquisition and provision