The informal sector accounts for a major share of African economies' GDP, employment and firms. Most national surveys of the sector focus on informal employment rather than the structure of informal businesses, with sample designs oriented to small scale individual or household firms. Here, firm‐level data are used, collected on 900 formal and informal businesses in the capitals of Benin, Burkina Faso and Senegal. Data from these surveys, complemented by semi‐structured interviews of major stakeholders in the three cities as well as data from national accounts, document huge enforcement problems, leading to the emergence of large informal actors coexisting with smaller informal businesses. While there is a significant difference in productivity between formal and informal firms, the productivity gap is much smaller for large informal firms than for small informal firms, suggesting that large informal firms have the pre‐requisites to formalize but choose not to do so.

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This paper examines sub‐Saharan Africa's (SSA) bilateral trade and cost competitiveness with China. We document an extraordinary imbalance in the structure of bilateral trade in that China overwhelmingly exports manufactured products to SSA and almost exclusively imports primary products in return. Our principal means of assessing the competitiveness of SSA's manufacturing sector vis‐à‐vis China are measures of relative unit labour costs (RULC). We find that African RULCs declined over the 2000s as China's wages rose faster than Chinese productivity while the reverse was true for the SSA countries in our sample. Nevertheless, RULCs vis‐à‐vis China remain very high for many SSA countries. High RULCs along with weaknesses in the business climate suggest that most SSA countries are unlikely to be competitive in labour‐intensive manufacturing any time soon.

Typescript prepared by Minna Tokkari at UNU-WIDER. UNU-WIDER gratefully acknowledges the financial contributions to the research programme from the governments of Denmark, Finland, Sweden, and the United Kingdom. The World Institute for Development Economics Research (WIDER) was established by the United Nations University (UNU) as its first research and training centre and started work in Helsinki, Finland in 1985. The Institute undertakes applied research and policy analysis on structural changes affecting the developing and transitional economies, provides a forum for the advocacy of policies leading to robust, equitable and environmentally sustainable growth, and promotes capacity strengthening and training in the field of economic and social policy-making. Work is carried out by staff researchers and visiting scholars in Helsinki and through networks of collaborating scholars and institutions around the world.