Hi, here is something which has been gaining a tremendous amount of traction lately- it is the discussion on informal market economies vs formal economies in Africa. Namely, if there was a place that companies, organizations, governments, and individuals should direct there energies and resources for their benefit and for the continent’s where should it be-to Africa’s formal economies or to the continent’s informal economies?
This question or debate has been directed not only to developing economies on the African continent, but also those outside of the continent. Fortune 500 companies in the US have been asking themselves this question too, as I recently witnessed at IBM’s Global Innovation Outlook on Africa in Atlanta, GA that took place this past July. But perhaps nowhere has this debate been gaining more steam than in Africa’s blogosphere.
Emeka, Omodudu, Imnakoya, Mr.K, Hash, Robert Shaka, Adjetay, A B Kargbo, J Arrey, and Nii Simmonds are just a few of the names which have contributed to the thoughts and discussion on Africa’s informal economies. Now someone that I have corresponded with several times on this topic with is Whythawk-aka Mr. Gavin Chait. And if you are a.) from South Africa or b.) a follower of development economics in Africa then this fellow needs no introduction. However, I still thought it appropriate to include a snippet of his bio before proceeding:
Gavin Chait specializes in economic and enterprise development. He both creates systems for economic and business generation and then project manages these through the implementation phase.
Gavin has worked with the University of Cape Town Department of Management Studies in the Faculty of Commerce to develop student entrepreneurial consulting projects. He has a close relationship with the Department of Economic Development and Tourism working on projects as diverse as tourism development and support; and the 1000 x 1000 Project in which 1 000 individuals were given the opportunity to start a business for R 1 000 each. Gavin assisted with the initial project scoping and development of his original idea for implementation at such a large scale. He further wrote the training and feedback manuals to be used in the event and project managed the event.
Essentially what Mr. Chait has done is memed or tagged me, but instead of writing about myself this meme is actually about expressing our thoughts on Africa’s informal economies. Thanks Gavin! So in keeping the conversation alive I am tagging the following:
- Black River Eagle
- Branded
- Joshua Wanyama
- Emeka
- Omodudu
- Imnakoya
- Mr.K
- Hash
- Robert Shaka
- Adjetay
- A B Kargbo
- J Arrey
- Nii Simmonds (host of the next Africa Enterprising Blog Carnival)
- Jen Brea
- David McQueen
- Coldtusker
- Oluniyi David Ajao
- Juergen Jay Nagler
- Frederic Tape
- Bankelele
- Ryan Shen Hoover
- PLUS the Africa Enterprising Group members not mentioned above
Ok, so here is an excerpt of the post that inspired the discussion, which Gavin, Hash, and I later decided might make a good meme:
Benin Mwangi, who blogs about doing business in Africa, asked me recently: “should the discussion be about how to get the informal sector to become part of the formal sector or should it be how to cater to the informal sector?” This in an excursion into the morass of African poverty and development.
The short answer is: neither; ending poverty has nothing to do with the informal sector.
This is not to dismiss the question, which is an important one. With the failure of most centralized economic policies and governments in Africa the informal sector is the largest employer and service provider in most of the continent.
However the question conflates symptoms with causes. For starters, how do informal markets even come to be?
The break-down of property rights
A centralized state exists largely to protect contract and the enforcement of property rights. Individual rights and the welfare state are a relatively recent development. And you can’t have these without taxes. And taxes don’t exist without businesses and incomes to tax. And those incomes and businesses require contract protection and the enforcement of their property rights.
So where do I stand on this topic? Well, while I may agree with the reasoning behind the formation of Africa’s informal economies that Gavin eloquently outlined in the quote above, I do believe that the informal markets should be the focus of attention. However, not in the way that Mr. Chait understood me to say. Which is to say that my reference was to private business looking to the informal sector, not government involvement.
The premise is that in Africa’s informal market settings you can easily have several layers of formal participants acting as “go-betweens” between formal and informal businesses. What this does is raises prices, without changing the output, while lowering the income of informal export-oriented market producers. This is made possible by several factors; the two that I would like to address are infrastructural gaps and a very uneven flow of information-with the informal producers historically being on the weaker end of the information flow. With the recent relative abundant flow of mobile phones into Africa’s rural areas, however, the tide is beginning to change-at least on the information front. As a result agricultural producers who receive food commodity price updates by mobile are able to reduce the layers of middlemen involved in transactions and get closer to the end-user.
I think the discussion should be on how foreign companies could team up with these participants to reach new markets and on how they could move around the middleman , to go deeper within the supply chain and closer to this informal sector. I do agree with Gavin though, that paying more attention to the causes of the informal sector would be more productive for a government than focusing solely on eliminating the informal market.
Also, I would like to add that Whythawk’s analogy of someone in a wheel chair crawling before walking is very apt. It reminds me of George Ayittey’s call to Africa’s cheetahs to embrace indigenous solutions and technologies as a means to market participation before investing in complicated solutions. This is something which is extremely practical, it embraces the idea of “scratching where you can reach”. This is where I think Africa’s informal market participants are right now, which again is why I think that they deserve attention.
Here is an excerpt from Imnakoya, where he talks about enabling the producers behind the informal economies:
The beauty of this approach is that the discussion becomes multi-
faceted (political, policy, social, private vs public sector, etc) and
breaks out of the rarefied arena of just talking about “business”. It
also incorporates the several angles already suggested above. And it
can be easily (hopefully) synthesized into actionable points/agenda
that we/someone/TED Cheetahs can explore (point #3 from Omodudu)
further.
And here is another excerpt from another blogger, Emeka, actually coming by way of a comment that he made on an earlier post:
What leads to or has led to good governance in most parts of the world has been the growth of alternate power bases with the accompanying increase in financial power. Be it the burghers of the middle ages in Europe or the middle class in military ruled South Korea there was a common factor—an empowered class that derived its wealth from a growing capital base—Until you build that class of individuals or they build themselves you might as well be whistling in the wind. Must the growth of this group be directed top-down by aid and or fiat, not necessarily so,in fact they rarely do get built that way. Once again we have quite a few examples of disenfranchised expatriate populations that were able to achieve this feat,in fairly hostile environments: The Non-resident Indian,Chinese and Jewish Populations are the better known examples. Are there African corollaries? Yes the unrecognized Mourides of Senegal for example, or within Africa the numerous populations that have spawned informal industrial clusters.Have we recognized their promise and looked for means to strengthen their nascent steps ? No we have not. The point here is that we need to strengthen and build on those areas of strength and recognize them for what they are. With a growing stake in even an informal economy the individuals demand and over time obtain the means to implement the governance that we seek.Governance like every thing else has to proceed from bottom up and not the other way round.
The two above excerpts sort of echo’s why I think we, private folk, should be looking at the informal sectors. Imnakoya’s part about how the informal sector analysis opens the discussion up to wider issues is sage. Also, what Emeka says about the bottom up approach is very timely and often I think that we forget that people through trade and ownership precede governance. Governance comes in when the demand to protect property and foster an enabling trade environment outweigh the costs. So again, I think that foreign businesses can look to the informal sectors as customers and suppliers, by doing so they will be fostering development. On the other hand, Africa’s governments should focus on collecting taxes to build infrastructure and enforce property rights .
So that’s my take on it. What do you think? Let us know with your comments or by being part of the meme. Thanks!
photo courtesy of Allposters
