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Bloggers Discuss Africa's Informal Economies

Africa's informal economies have for long generated intense research and debates, primarily within academic and professional circles, i.e., university professors, students, economists, and economic development professionals. A most welcomed development is the recent foray of Africa's blogosphere into this discussion. Just as a side note, I guess it doesn't hurt to mention that the business section of Africa's blogosphere shares a similar line with the academic and professional circles mentioned above.

However, this is not what makes this story so fascinating. But, perhaps something which is fascinating is that the bloggers have done something which the academic and professional communities have not been able to do: expand the discussion outside of academic circles and into real world settings.

So with that said, let's move to the actual bloggers who are discussing informal economies in Africa.

Let's start with the grandmaster of Africa's economic development blogosphere, Emeka Okafor who talks about the “go ahead” spirit of the informal markets:

 

“The Made in Africa Exhibition stated that:

In Mali and Senegal, those who have work in what we call the formal sector of the economy are almost wholly limited to the urban elite…The informal economy includes much of the trade that takes place in the markets and that offers possibilities for those who are inventive and possess sufficient “go-ahead” spirit”

From there we move on to IBM, via their Global Innovation Outlook blog, as they discuss the roadblocks that Africa's informal entrepreneurs face:

“The existence of informal economies is not inherently a bad thing. In fact, many in the room saw these businesses as emblematic of Africa’s burgeoning entrepreneurial spirit. And it serves as a means to put food on the table for millions of Africans.

The problem is that these businesses have trouble growing, employing more people, and creating more wealth, because they have to continue to operate under the radar of regulatory bodies. They also have no access to financing, or the basic business training and skills that could help them improve the business.”

 

 

Loomnie, who blogs from Germany and originally hails from Lagos, Nigeria makes the connection between rural and informal economies in Africa:

“Think about this: most of Africans are rural dwellers… then wonder about how much government and the formal economy ever penetrated into rural Africa. People have been, and still are, involved in economic activities that are not captured by the official economic figures of the government. Even researchers into the informal economy in African countries, who have devoted much time to studying the informal sector in urban areas, have not paid sufficient attention to the livelihood of rural dwellers.”

Next we go back to Nigeria again with Imnakoya, who writes an insightful piece about the bottom of Nigeria's economic pyramid:

“As I mulled over the Robert’s documentary, the question that kept popping in my mind was what can be done to assist the several micro businesses operating in the slum? This is the “true bottom of the Nigerian pyramid” – and believe me you, none of the government economic policies have much meanings here, in fact majority of those not been designed to empower the folks here at all. What can be done beyond the mere “policy statements of micro-financing or micro-lending”

Here is someone who is taking a brilliant idea regarding informal economies and putting it to work in Africa, Nii Simmonds who lives in the United States but has his family ties in Ghana tells us how to grow Africa's informal sector:

Most workers who work in the informal sector have close ties to agriculture; picking fruit, tilting land, tending cattle, milking cows, and etc. Also, there are the craft industries; making mask, beads, bracelets, clothing, and etc. What if we instituted cooperatives (co-ops) for different industries in Africa that would act as a corporation on behalf of the workers in the informal sector?

Now here is a post that I have been mentally revisiting since my first read. It is about a term, which Ethan Zuckerman wrote about recently “incremental infrastructure.” It reminds me of something that I learned about during Carol Pineau's documentary, whereby an entrepreneur community becomes involved in building infrastructure for their benefit but as a byproduct others benefit from that infrastructure as well. Here is what Ethan had to say:

My friend and colleague Mike Best has challenged me on the idea of whether the examples I’m offering are really “micro” enough. By that definition, he’s most interested in “picoinfrastructure”, ways that small communities can build data infrastructure for a few thousands of dollars, not the single-digit millions I’ve pointed to in my examples from the mobile phone business. The examples Mike is offering mostly outline a model of “self-provisioning”, one where you’re building a network to meet your own needs because no one else has built that infrastructure. Where self-provisioning meets incremental infrastructure, I think, is where you overbuild for your personal needs with the goal of selling that capacity to your neighbors. Mining and oil companies self-provision infrastructure all over the African continent. Visit a gold mining center in Ghana and you’ll find infrastructure that outpaces that in many secondary cities. But that infrastructure isn’t shared and resold – it might be vastly more cost-effective if it were, and would likely address some community concerns about the impact of extractive industries. That said, I can imagine incremental infrastructure being built at mini, micro and pico-levels. A farmer investing in water pumping equipment that could irrigate both his fields and neighboring fields might be builting pico-level incremental infrastructure, while a mobile phone company that built power plants to provide energy to mobile phone base stations, and used excess capacity to run irrigation pumps might be working on a micro or mini scale.

So far you have heard from bloggers who are either entrepreneurs or at one time were full time business persons, but now let's hear from someone who writes on a similar topic but from a very unique perspective: Sokwanele. Sokwanele is a Zimbabwean civic action support group that aims to address the needs of the everyday Zimbabwean. This post looks at the rise of Zimbabwe's informal gold mining sector:

“The then Mines Minister, Chris Anderson, said it was high time the panners were recognised as part of the informal sector. Instead of hunting them down, he said they should be encouraged to sell their gold to the reserve bank. He even suggested that small-scale miners should be paid a higher price than the market rate to prevent them from selling to the black market. Prospective panners were able to apply for permits to exploit the gold deposits from their respective councils.

The gap in production left by the near collapse of formal mining was replaced by the precious metal being brought in from the informal sector, with the Reserve Bank buying much of its gold from illegal panners.

However, the panners today sell their gold on the black market as the Reserve Bank pay well under the true market value.”

 

Next we visit another blog from Zimbabwe, this time we visit a timeless piece that the Zimbabwe Pundit did explaining why Zimbabwe will never get rid of the informal economy that its current government tries to forbid:

Enter Hernando De Soto the Peruvian economist whose lifelong research and work chronicle this strange phenomenon. His research substantiates the case against developing countries shunning the informal market to their own undoing as the informal market has solutions for many of the problems where the formal market is failing. Check out his two books, The Other Path and The Mystery of Capital.

The root of the problem is in the laws of the land. It's not enough to clamor for the protection of property rights; we need to hold our governments responsible for crafting laws that are accomodative of everyone and laws that make the formal market place easily accessible to all people. How do informals do that? They operate in their own market (which formals and the governmnent call “black) which has laws that are reasonable and negotiable by the informals. Don't worry Zimbabwe, the “black” market will be back. You can't destroy it by demoliting infrustructure, it is precipitated in the mind that's where it resides.

Finally, here is the post that started it all. It is from South Africa's Gavin Chait or Whythawk, as he is also known. This post echoes what was written by the Zimbabwe Pundit, but it goes into deeper detail into not only the causes behind the informal markets but it also goes into what Gavin describes as the only cure too. It's a very good read. Here is an excerpt:

A centralised 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.

When individuals believe that the cost of supporting the state is less than the benefits they derive from that state then a central government is stable. When the state starts intervening in the economy and property rights are under threat then investors and business owners withdraw their support.

If they are capable of flight they will travel to other nations where they feel safer. If they are not they remove their investments to the informal market.

Informal vs Formal is subjective; technically we're discussing third-party property rights. An informal market is really a fragmented localised market where only people who trust one another directly are prepared to trade with each other.

2 comments

  • […] africa’s informal economies (tags: economy african africa) […]

  • Incremental or not, what Africa needs is Entrepreneurial Infrastructure

    By Andrew Mack

    In his piece last month about “incremental infrastructure”, Ethan Zuckerman makes a number of excellent points about the recent development of infrastructure in Africa. Using his example of the entrepreneur who put up cell towers in the Democratic Republic of the Congo, he rightly observes that there are opportunities to think beyond the traditional, top-down structures of infrastructural development.

    He cites the logistical and budgetary problems of many nations as they seek to build out not just the famous “last mile”, but in cases like DRC, many of the basic earlier miles that need to be in place if a country wants to be connected – by road, by power grid, or by wireless. And, while he doesn’t dwell on one of the real reasons for this failure – Government disorganization or outright corruption – he hints at it as a driving force which creates both the space and the need for other approaches.

    However, while the idea of incremental infrastructure is interesting, I would argue that at least to some extent, Ethan’s argument misses the larger point. It is not incremental infrastructure so much as “entrepreneurial infrastructure” that Africa needs and has shown it wants.

    By focusing on the example of cell towers in DRC, Ethan may have chosen the one item best suited for incremental infrastructure. But consider roads… if a community – or a firm – decides to build an incremental piece of road, and who pays? Who maintains the road? Who sets the safety standards (as road accidents are an epidemic in many African countries today)? And what if the road doesn’t connect in to a larger grid? Clearly, while cellphones may not need coordination to function, most other pieces of infrastructure – roads, energy, etc. – do. And they need standards.

    Moreover, there are issues of economy of scale and policy. Consider the case of neighboring Uganda. In Uganda, cellphone licenses were bid out, encouraging competition, and cellphone use has grown from some 5,000 lines in 1998 to more than 2.6 MILLION today. The major carriers have invested – and made – millions, and I would argue, have done more for Uganda’s development than most of the major donors over the last decade. A licensing regime that favored incremental providers might have brought service to a few villages, but today, CelTel is the largest taxpayer in the country, serving the entire nation and recently, offering no-roaming service across the sub-region – in Kenya, Tanzania, and recently also in DRC. An incremental approach would not have been able to provide this service, pure and simple.

    What we need to do is re-orient our thinking, I believe. Rather than focusing on the challenges – and there are many – we need to step out of our past frame and see the markets as what they are: big and underserved. What we need is not so much small (incremental) infrastructure as infrastructure that is constructed by people with an entrepreneurial mindset. If the Government of Kenya is prepared to invest in wiring classrooms and has both the scale and technical savvy to pull it off, that’s great. If the private sector can do it better, then the Government should act as facilitator. In some instances, a public-private approach will be the best.

    Without question, Ethan makes a good point about the effectiveness of many large projects in Africa, especially famous dam projects and the like. Still, this is not unique either to Africa, or to energy. Corruption and a lack of oversight will ruin a project, whether it’s managed by a poor African Government or Halliburton. Especially in infrastructure, the key is getting value for money. Everybody – Governments, the private sector, and consumers themselves – all need to think entrepreneurially.

    In the end, while small may be beautiful in many things, I wouldn’t want my own water system in Washington, DC any more than my friends in Lamu would want their own. What they want is a water system that works. Based on my observations from more than 20 years work on the continent, I would argue that a focus on the incremental could – while providing solutions in some areas – actually hurt efforts to build a more complete and more robust African infrastructure with the policies and investments to make it sustainable.

    While there will always be underserved areas where other options might not be possible, incremental infrastructure would be a poor substitute for the kind of top shelf, state of the art infrastructure Africans are looking for, the kind of infrastructure that could help them compete in the global economy.

    Andrew Mack is the Founder and Principal of AMGlobal Consulting, and a former World Bank official. He can be reached at: contact@amglobal.com

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