Multi-dimensional informality and heterogeneity of microenterprises in urban Africa

Abstract Drawing on a multidimensional framework, we develop the Composite Informality Index (CII) as a scalar measure capturing the degree of firm informality. CII outperforms both individual aspects of informality and binary formal–informal classifications in associating informality with firm performance. Our findings show that a positive entrepreneurial mindset is associated with more formal practices, while firms relying less on government tend to be more informal. Firm employment size is negatively correlated with CII. The relationship between CII and sales growth is inconclusive, while technology adoption and business partnerships play a more decisive role in driving growth. During the COVID-19 shock period, more informal firms demonstrated stronger sales performance. However, this advantage did not persist into the recovery phase, as the link between informality and post-shock sales growth was not statistically significant. Hence, higher informality does not necessarily confer greater resilience.