# **1 Introduction**

Non-farm enterprises are ubiquitous in rural Africa. These enterprises tend to be small informal businesses providing a wide range of goods and services from or nearby the household residence, or on a village market (Nagler and Naud ́e, 2014). Although described as “non-farm”, many are linked to agriculture and are often located on a farm (Rijkers and Costa, 2012). Almost one-in-two rural households (42 percent) operate such an enterprise<sup>1</sup> and the income from these enterprises contributes between 8 percent (as in Malawi) and 36 percent (as in Niger) of household average income (Nagler and Naud ́e, 2014). Over time this share has shown a tendency to increase, rather than decrease as some development economists of the 1960s and 1970s had expected (Lanjouw and Lanjouw, 2001; Reardon et al., 2006; Davis et al., 2010; Haggblade et al., 2010; Rijkers and Costa, 2012). It is estimated that 15 percent of Africa’s labor force works in non-farm enterprises (Fox and Pimhidzai, 2013).

Although these small, informal enterprises are an important feature of the rural nonfarm economy, a lack of knowledge remains with regard to (i) determinants of enterprise operation, (ii) productivity, and (iii) exit and survival of these rural enterprises. Providing answers to these questions will give insight into the _birth, life and death_ of African rural household enterprises and their economic roles that have been largely neglected in the scholarly literature. Around a decade ago Wiggens (2000) lamented that “little is known” about Africa’s rural non-farm economy, beyond an “embryonic set of ideas”. Today, although we know more about the magnitude and contribution of rural non-farm enterprises to household income, most empirical evidence is based on one-period, singlecountry, and rather limited survey data. The majority of studies have focused on urban areas, neglecting rural entrepreneurship (Naud ́e, 2011).

These knowledge gaps about rural entrepreneurship constrain policy making. According to Fox et al. (2013) enterprises in rural Africa may have to absorb at least 65 million new labor market entrants by 2020. As only the more productive enterprises survive and provide better jobs, policies to support rural employment creation would ideally need to raise the productivity of enterprises and reduce obstacles preventing households from utilizing productive business opportunities (Wennberg and Lindqvist, 2010; Owoo and Naud ́e, 2014). Given the informality of rural non-farm enterprises (between 91 and almost 100 percent are informal) we expect _a priori_ that most non-farm enterprises have low productivity, short life-spans, and do not contribute significantly to job creation. If non-farm entrepreneurship should be effectively supported by policy makers, then a better understanding of these aspects is warranted.

The contribution of this paper is to provide new and comparative empirical evidence to fill some of these knowledge gaps. We use the recently available, nationally representative Living Standards Measurement Study - Integrated Surveys in Agriculture (LSMS-ISA). The LSMS-ISA covers six countries over the period 2005 to 2013, namely Ethiopia,

> 1 The figures reported here, based on the LSMS-ISA are consistent with the figures of between 40 and 50 percent of household income in rural Africa that were found to originate from rural nonfarm activities by e.g. Lanjouw and Lanjouw (2001); Start (2001); Reardon et al. (2006); Davis et al. (2010); Rijkers and Costa (2012)

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