Technical efficiency of informal manufacturing sector enterprises: Evidence from the informal metal industry of Zimbabwe

Abstract

Using data collected from a sample of 442 informal enterprises operating at eight centres in three provinces of Zimbabwe, this study evaluates technical efficiency of selected informal sector metal manufacturing enterprises. An analysis of factors that influence such efficiency levels has been conducted by way of estimating a stochastic frontier (Cobb-Douglas) production function. The analysis finds that operations in the informal metal manufacturing industry are still highly labour intensive with 75% of gross value added coming from labour contribution. The mean technical efficiency of the informal firms has been found to be 0.72, implying that there is still scope for enterprises in the informal metal manufacturing industry to increase their production by 28% if they efficiently allocate available productive inputs using available technology. The main sources and determinants of the inefficiency were also analysed and identified as comprising location of the enterprise, age of entrepreneur, level of education, age of firm and experience of firm owner, which were found to have significant influences on (in)efficiency. The study recommends that public policy should create an environment conducive to aiding entrepreneurs to operate by way of relaxing regulatory requirements for formalising the business ventures of small firms and emerging entrepreneurs.