Self-employment can be considered as a proxy to entrepreneurship in the emerging country context. Given the methodological differences of defining who a self-employed is, makes this proxy rather dubious to comprehend. Lack of formal employment opportunities, lack of jobs and weak market institutions to high extent determine the incentive to pursue the so-called “necessity-driven” entrepreneurial practices. According to the tradingeconomics, almost 40 percent out of total employed, where self-employed in Armenia, in contrast, more than half of total employed are self-employed in Georgia. This mode of employment means that individuals are working alone or with partners, where the renumeration is solely dependent on the profits that they make from the sales of good or services they provide. Depending on the methodological differences these activities can be both registered or unregistered endeavors, in certain cases, unpaid family workers, such as substance farming or retail practices are also included in the self-employment. To compare the statistics with the EU countries, the highest self-employment rate is in Italy with 21.8 percent of total employment. Having incredibly high numbers of self-employment in Georgia and Armenia indicate that the choice is mostly a survival strategy for those who cannot find other means of income, one can argue that it is also equally paired with entrepreneurial spirit and the desire to be one’s own boss.
There is no to little research done aimed at understanding the motivations and practices of the self-employed in both Georgia and Armenia. One such effort was supported by the Academic Swiss Caucasus Net (ASCN) project at the University of Friburg, Switzerland several years ago. Even though the research was concluded back in 2016, this was a longitudinal study taking place over the course of two-years in both Georgia and Armenia and represents an invaluable source of information which is still relevant today. The key obstacle in conducting studies of these type are access to respondents and identification of self-employed for the purpose of research. In many cases these individuals do not pay taxes and are not comfortable with talking about their sources of income and entrepreneurial activities.
As part of the aforementioned study, 600 self-employed were surveyed in Georgia, and 350 in Armenia. The self-employed in Georgia were mainly engaged in the field of agriculture, followed by trade, repair and other services. Most of them being engaged in the activities for more than 15 years and had learned what they were doing by practice on the job. More than half of them had general education, one third professional education and up to one fifth university degree. The mean age was 50 years. 60 percent of the self-employed claimed that they activity they were pursuing was “necessity-driven” due to lack of other job opportunities, at the same time, more than half of the surveyed described their activity as a “business”. Interestingly, when asked if they would quick what they were doing for the same revenue as an employee, more than half stated no, meaning that this attachment to their business activities is also driven by the motivation of being independent, maybe also by self-realization needs… for women self-employed (especially those who work from home), motivating factors such as being closer to their families is very important.
In Armenia, self-employed also shared similar characteristics, entrepreneurship “by default” was what characterized the surveyed self-employed. One in four from the sample said that they earn enough either to live comfortably or normally, almost 90 percent stating that they cannot save any money. Interestingly, in both countries, the lower the revenue the lower the share of those who label their activity as a business. Risk aversion, lack of motivation to grow and invest additional monetary and time resources was similar among the self-employed from both countries.
And yet, is self-employment a proxy to entrepreneurship in Georgia and Armenia? The answer is ambivalent, since self-identification as an entrepreneur is closely linked to the level of income, future prospects and motivations. In majority of the cases we can assert that the economic activity is aimed at survival and can be hardly labeled as an entrepreneurial activity. Meaning that the chances that this activity will grow, develop and transform into a formalized business activity are slim. Majority of the respondents do not believe in the need or possibility to put additional efforts to expand their business and take risks for expansion and development. These findings once again prove a very complex nature of entrepreneurship and entrepreneurial eco-system, which is highly contextual and depends on the social, economic and cultural characteristics and external environment as a whole. The boundaries between necessity and opportunity driven entrepreneurship are on the one hand clear and on the other rather vague.
There is a clear need to better understand the potential of the self-employed, who represent half of the economically active population. Through evidence-based research, well-tailored policy practices, and creation of structured eco-system possesses an opportunity to put this large part of economic resource in a productive use.
Author: Irina Guruli
The blog is produced within the Economic Policy Research Center’s (EPRC) project ACTION -Activating Civil Society Organizations through Training and Inclusive Operational Network. The project is implemented with the support of the Swiss Agency for Development and Cooperation.