estimates with a few countries where establishment censuses were available. Our methodology and estimates aim to address the limited information available on firm demographics in African countries. The results should be interpreted as a first attempt for these estimates that should be improved over time by adding a larger number of harmonized establishment censuses and representative surveys for providing more accurate and rich description of firms in the continent.

Our results suggest that as of 2020, there were about 12.7 million firms with more than one worker and about 232 million own-account businesses in which the proprietor constitutes the sole employee. Ninety-four percent of own-account businesses are informal, totaling 218 million informal own-account businesses. Conversely, 73 percent of firms with more than one worker are informal, amounting to 9.3 million informal firms of this type. The informality rate decreases as firm size increases: from 82 percent among micro-firms (excluding own-account businesses) to 66 percent among small firms, and 36 percent among medium and large firms with twenty or more workers. Distinguishing by formality status and size is instrumental in identifying businesses with growth potential, unlike those driven by necessity.

Our analysis is closely related to various studies emphasizing the relevance of firm characteristics to the economy. One important effort worldwide is the dataset assembled by Bento and Restuccia (2021). This dataset captures the average employment size of establishments in the manufacturing and service sectors, regardless of their formality status. Their findings suggest that manufacturing firms tend to be larger than those in the services sector, and each sector is larger in more advanced economies. They provide estimates of employment size for 42 of the 54 African countries. Another relevant study (Eslava et al., 2024) combines information from harmonized household and labor surveys with firm-level data to analyze the relationship between firms and inequality in Latin America. Informality and self-employment are widespread across Latin America, but even more prevalent in Africa. They are important in driving income inequality and slowing down technology diffusion (Levy, 2024).

This paper also contributes to the broad literature on informality in Africa. Informality varies in several dimensions (e.g., a firm can be formal in some respects and informal in others) and is sparsely captured by few national firm censuses and surveys in the region (Bonnet et al., 2019; Choi et al., 2020). Previous studies have identified key characteristics of informal firms (Loayza, 2016; Porta and Shleifer, 2008), but the literature primarily assesses informality in terms of its contribution to GDP or employment, neglecting the prevalence and significance of informality in micro and small firms (Ohnsorge and Yu, 2022; Quiros-Romero et al., 2021). Informal businesses are also associated with “the missing middle hypothesis” in Africa. Abreha et al. (2022) provide evidence of a missing middle in the size distribution of manufacturing plants in Burkina Faso, Camerron, Ghana, and Rwanda, resulting from the underrepresentation of informal firms. We expand the estimates of number of informal firms by size groups across the continent.

The rest of the paper is organized as follows. Section 2 provides an overview of the data and its limitations. Section 3 describes the methodology used to estimate the number of African firms and their characteristics. Section 4 provides the main results. We then describe the main results and some robustness checks. The final section outlines the main conclusions and further research directions.

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