Determinants of Informal Sector Business Success in Botswana

Abstract

The informal sector plays a critical role in many countries as it provides alternative sources of employment and economic diversification. This paper investigates the determinants of the success of the informal sector in Botswana, using a logit regression model. The study uses data from the 2006/07 Informal Sector Survey conducted by Statistics Botswana. The results reveal that education of the business owner and age of the business enhance business success. Firms that have no employees are also more likely to succeed. Further, firms that operate in manufacturing, services, agriculture and construction sectors were found to be more likely to succeed than those operating in the retail sector. The study recommends that public policy should focus on assisting start-ups as they are more likely to fail, in order to reduce high business discontinuation rate. In addition, government should continue to implement its policy of universal education as more educated entrepreneurs are more likely to succeed in business. Firms with no employees are likely to succeed than those with more employees, suggesting that business owners are unable to manage their human resources. This calls for the introduction of programs aimed at capacitating business owners in the area of business management in general and in particular human resource management.