Formalize to Grow? An Empirical-Institutional Approach to MSMEs and Business Development in Mozambique

Abstract

In Mozambique, an estimated 90% of micro, small, and medium enterprises (MSMEs) operate informally, raising critical questions about how formalization impacts productivity and competitiveness, and what barriers must be overcome. Grounded in Institutional Theory, this study reviews the literature on business formalization and presents empirical findings based on semi-structured interviews with artisan entrepreneurs in Maputo and cooperative leaders in Cabo Delgado. These qualitative insights are triangulated with robust statistics from the World Bank and national reports. Key challenges identified include excessive bureaucracy, high registration costs, and widespread perceptions that state benefits are limited or unclear. The study finds that the benefits of formalization — such as improved access to credit and markets — are modest for small and medium-sized enterprises and almost nonexistent for microenterprises, confirming that "benefits are not uniform." Based on these findings, the paper recommends public policies focused on administrative simplification, digital registration systems, and integrated support packages (e.g., credit linked to training programs). The analysis frames these insights within Institutional Theory, emphasizing how regulatory and normative pressures shape firm behavior. The conclusions advocate for flexible, context-sensitive formalization strategies that strengthen business competitiveness without disregarding the structural realities of MSMEs in Mozambique.