countries outside SSA (Fajnzylber et al, 2006, Schoar, 2009). Though we have no evidence on this point based on panels for Mozambique, attitudes of HE owners do indicate that this is also the case in Mozambique. Eighty-five percent of HEs in 2005 reported that they have no plans of expanding their enterprise (INFOR 2005).

Data from RICs and INFOR show that most households started their enterprise because it was their only option to enter the non-farm sector - in other words, “push” reasons.<sup>5</sup> Roughly six out of ten entrepreneurs surveyed in the INFOR 2005 cite push reasons for starting up, including lack of access to a wage job (table A4). This is not surprising given that most of the labor force – HE owners included - do not even have 7 complete years of primary education, and will usually not qualify for any wage and salary job in medium or large enterprises, even if such jobs were plentiful. There is no systematic difference in the level of education for those reporting a push reason compared to those that report a pull reason. In the RICS 2010 data, both primary and secondary motivations were queried. Among those that report a push reason as the primary motivating factor for starting an HE, two-thirds give a pull reason as a secondary factor. Those that give a pull reasons as a primary reason generally also give a push reason as a secondary factor. This suggests that a combination of push and pull factors propels households into this sector in Mozambique.

HEs are generally not required to be nationally registered. The INFOR survey shows that none of the sampled enterprises fulfill the INE (the national statistical agency) criteria for a formal registered enterprise. Sixteen percent of them were however registered with the local authorities in 2005. Further, as of 2009 (when tax codes were changed) only enterprises that have a turnover above 36 times the highest minimum wage in force are required to register and pay any kind of taxes, including VAT (Byiers, 2009). Based on this threshold, 88 percent of HEs observed in IOF 2009 are exempt from VAT and income taxes. Those required to pay VAT and incomes taxes are more frequent in urban areas, are more established, and are unlikely to be found among HEs operating at home or in the streets.

# **HEs and household welfare**

Many individuals in low-income countries are active in several sectors (owing to seasonality or other factors). HEs in these countries are common as both primary and secondary employment, and by not considering secondary employment a large share of HE employment is not counted, and the sector may be underestimated as a household income source. This is true in Mozambique. Although the structure of reported primary employment changed very little between 2003 and 2008, the livelihood structure did. Many households still had only farm income in 2008 (figure 4), but increasingly, rural and urban households are trying to increase total income through livelihood diversification into non-farm sectors while maintaining a farm income as well. Twenty percent of households reported having HE income in 2003, compared to 33 percent in 2009. This diversification trend was first observed in Mozambique in

> 5 Barrett et al (2001) defined push factors as risk reduction, diminishing factor returns, or response to crisis while pull factors are strategic complementarities, or superior technologies, skills or endowments which convey an advantage. Push factors may be enhanced by market failures such as lack of finance to stabilize consumption or income flows, while pull factors can be enhanced by local engines of growth.

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