Organising the informal sector and recognising its role as a profitable activity may contribute to economic development. This can also improve the capacity of informal workers to meet their basic needs by increasing their incomes and strengthening their legal status. This could be achieved by raising government awareness, allowing better access to financing, and fostering the availability of information on the sector.

Authorities’ awareness: Policy-makers in Africa should recognise the important role informal sector companies play in the economy. Associating the informal economy to criminal endeavours or tax evasion is not a good way to formalise the sector in Africa. There is a need for African governments to coordinate their policies and strategies in order to support the formalisation of the sector. Effective regulatory framework, good governance, better government services, improved business environment, and improving access to financing, technology and infrastructure are essential in this process. In that regard, development partners have pledged their commitment to support the formalisation process. This includes mainly the promotion of social protection to workers in the informal sector and support to small and medium-sized companies, which account for the bulk of Africa’s informal economy.

In addition, African policy-makers should be aware of the heterogeneity of the informal sector. According to a recent study on West Africa, governments should distinguish between small and large informal firms. The latter category plays an important role in the economy comparable to the role of major formal firms. Thus, African governments should adopt specific policies to bring large informal firms under formal regulation. For this, a systematic approach should be adopted in order to enforce a comprehensive regulatory regime including, for instance, registration for a formal tax regime.

Better access to financing: Limited access to funds is one of the major factors explaining the development of the informal economy. Facilitating access to formal financing channels such as micro-credit could be an overriding step to encourage informal entrepreneurs to shift toward more formal economic activities. However, raising the awareness of large conventional commercial banks of the potential of the informal sector is also essential.

Improving access to information: The fact that the informal sector has for a long time been neglected by policy-makers has not helped in generating knowledge on this sector. For instance, informal activities are often invisible in official statistics. In order to analyse the contribution of the informal sector in the economy, it is important to collect and maintain relevant information. This includes a wide range of information, such as the characteristics of actors, tax collection, impact on employment, working conditions, and productivity of informal companies.

Mthuli Ncube is the chief economist and vice president of the African Development Bank

That is, during the course of the original Prepaid project fieldwork conducted in late 2008 early 2009, I’d figured out a rough way to obtain a representative sample of the rural economy.  This was by

It is time to reengage the severely impoverished field of economics with the economy. Market economies springing up in China, India, Africa, and elsewhere herald a new era of entrepreneurship, and with it unprecedented opportunities for economists to study how the market economy gains its resilience in societies with cultural, institutional, and organizational diversities. But knowledge will come only if economics can be reoriented to the study of man as he is and the economic system as it actually exists. ~ Ronald Coase, Saving Economics from the Economists
 

The aim of the paper is to contribute to the empirical analysis of the process of transformation in traditional rural societies using a network perspective. A unique database on economic networks (land, labor, inputs and credit) collected in 60 villages of rural Gambia, where traditional non-monetary economic exchanges -gift economy- prevail, is used to study  the  behavior of  households involved in market transactions.

The empirical analysis is conducted at both household- and link-level … In all the econometric specifications I find support for the two main hypotheses: (i) Substitutability between internal and external exchanges, i.e. households with external economic links are less likely to be involved in economic interactions within the village; and (ii) Reciprocation  versus market, i.e. households with external economic links are less likely to be involved in reciprocated exchanges with fellow villagers. ~ Dany Jaimovich – Bakary Baludin

Part of the reason is that food products manufacturers, and in particular breakfast cereals companies, find it is cheaper to pack dry ready-to-eat (milk or water to be added) portions in strips of single-use sachets than in a plastic containers. The prices at which these are sold are in simple multiples – 5, 10 and 15, with the grammage being adjusted for these prices. This is the ugly side of the ‘bottom of the pyramid’ market, a foul term that ignores the mis-nutrition these food companies are responsible for in their pursuit of the price-conscious consumer (rural and urban alike). It also ignores the environmental aspect of such packaging, the costs of which are borne by towns and cities in the form of increasing per capita loads of plastic, packaging and laminated sachets. ~ Cornflakes and oats invasion, 10 rupees at a time.

Pre-paid minutes can be swapped for cash or spent in shops most easily in Côte d’Ivoire, Egypt, Ghana and Uganda, says Chris Chan of Tranglo, a Malaysian firm that facilitates “airtime remittances” to mobile phones. Airtime is commonly used as money in Nigeria, too. Hannes Van Rensburg, Visa’s boss for sub-Saharan Africa, says this is partly because regulators there have made it difficult for banks to offer the newer form of mobile money. ~ Airtime is Money, The Economist in January 2013

Irregular income streams from a variety of sources pose their own challenges to both buyers and sellers but offer an opportunity through the flexibility designed into business models for the informal economies where this pattern of cash flow tends to be much more prevalent.

Flexibility is key, as well as the ability to negotiate on “time” – frequency, periodicity, duration and “money” – amount. This works in the highly personalized transactions negotiated in most of the “developing” world but the challenge arises when those dependent on volatile cash flows meet “the system”, which cannot be negotiated with.

Between time and money in the equation of the underlying principle of flexibility is the “trusted network” or human beings. Facetime and financial flexibility have proportionate relationship to the success of a business model in such an environment.

It was when attempting to clearly distinguish between patterns of cash flow in the formal vs the informal economy, using the concept of the degree of control granted to the end user over the variables of time (duration, frequency, periodicity) and money (amount, cash or kind), that it struck me what kind of difference does control over timing mean for money.

That is, there is a complex value processing underneath each of the decisions on allocating available cash money, particularly in rural areas where cashless transactions can tend to be more common.

When one can control the timing of one’s payments – such as the advance purchase of airtime minutes to use a mobile phone – one’s income could be called dynamic. Within any particular set of calender based time eg a week or a month or a quarter; a vast majority of the lower income bracket cannot predict their total cash income nor feel confident enough to claim it. It can be affected by seasonality prevalent in their region, or it can be purely random volatility, one’s workshop burns down in an accidental fire. Uncertainty in the daily environmental conditions in which the majority of the informal economy operates is manifest in individual’s unwillingness to take risks.

Innovation is a risk. I trust my wealth in the form of a tangible cow that moos than some electronic numbers on a screen.

Though this is changing, its an interesting side note to see how its due to the establishment of the mobile phone and the prepaid business model’s enabling even those on irregular income streams without paychecks and the paraphernalia of formal structure that has lowered barriers to trusting mobile money systems.

Static income is that which is stuck, such as a fixed salary paid every calender period, regular in frequency, amount and periodicity.  While its a boon for security, it does not allow for the “jackpots” of chance to make that big enough difference to overcome the moment of inertia and leap for one’s aspirations.

For one of the most powerful commonalities among the lower income segments across the world is the power of their aspirations for the future. What may be an incremental change in the quality of life of someone in the developed OECD world – a better model car or a more exotic holiday – can be a windfall of opportunity applied towards some income generating activity.  Even the peon who scrimps and saves to send his children to English medium schools, or whatever passes for them in small town India, sees this as an investment in the future. A better job. More perks. His wife begins to sew or embroider, ready to start the dynamic income flow. Its unreliable for daily life but will provide the necessary extras when required.

Farmer Pedro by Jeroen Meijer, JAM visual design

If we were to arrive at a synthesized view of your average subsistence farmer, lets call him Pedro, how would we describe him? What is Farmer Pedro’s story?

He grows enough to keep body and soul going, his first priority is always feeding his own family before selling any grain to the market.

Perhaps this is the biggest difference in mindset between the funders, initiators and implementers of sustainable agricultural programs for the Bottom of the Pyramid and the farmers themselves.

Nobody in the fancy airconditioned rooms where people debate on the social and economic futures of milions has ever had to do something so fundamental for their family and their own survival. Farmers are entrepreneurs and businessmen in mainstream consumer culture whereas subsistence farmers are fathers and husbands first, who must take care of their family’s needs.

This is true even if the “farmer” in question is a woman.

The values gap concept is one from my consumer research among the Bottom of the pyramid or BoP markets, where the value propositions of the producers may not always translate across the social, cultural and geographical divide.  When locals speak of the introduction of foreign ideas as “alien matter to be rejected like an organ transplant gone bad” that is a signal to listen, not to brush it off as “co-creation”.

Top down empowerment is a non sequitor.

An electricity agent (Cashpower agent) next to Kigali market has 300 customers, only 10 of them buy for whole month (business clients). .Agent sales per day 50 000 – 90 000 RWFs, that is 62.5-112.5 €. Home tarif is 134 Rwf/Kwh

The amount a family spends varies at large scale. A household with TV, washing machine, iron etc may spend 80 000 RWF per a month, where as a family with no home electronics, ( a lamp and a phone to charge), spends 3000 RWFs per month.

What enables it?

Services with the same pre-paid model, airtime sellers provide the existing sales network as well as the consuming habit of buying often and according to the need.

Power shortages that happen in the evenings around 1800-1900 hours, a couple of times in a week and keep people used to and relaxed about blackouts, and the blackout caused by lack of Cashpower are not taken emotionally (as a muzungu like me did).

House girls. A single young man earning 200 000 RFWs ( 250 EUR) as a driver can have a housekeeper who cooks, cleans, shops, and is always there to run to buy electricity. In the families with fixed income, there is likely to be a house girl who is sent the corner shop to top-up the cashpower whenever it has ended. (fist s/he is sent to check the meter, then to the to top-up cashpower).

Mobile money. Both MTN and TIGO carriers enable to buy electricity through their mobile money service, thus one can top-up their meter without leaving the house.

Interesting Side effect

Better awareness of the consumption. Being an temporary member at local house, she knew in numbers (its more common to express the consumption in days and money, not in kWh) how much more is spent on heating up the water tank. Sometimes it takes 5 days to end the cashpower, sometimes it lasts for 8 days. This difference makes people wonder where all the rest got wasted, did they forgot the hot water tank on for the day, did they left the lights or iron on, have they watched more TV this week? It makes people more conscious about consumption.

(this is interesting as in Europe with the climbing prices there are many startups developing home monitoring systems to cut expenses ( actually to data mine). People in Europe are less aware of how much they use and on what they use than in Rwanda.)

Photos coming soon!

Meeting him was the highlight of the day for me. Having him come up to me after my little talk on the principle of flexibility, to say that he’d appreciated my insights, was the icing and the cherry on the cake. It makes all the hard work worth the while when you learn that you’re on the right track and not simply on a wild goose chase of speculation. Thank you, Keith Hart, for giving me that extra bit of encouragement.

From the first panel, Richard Tyson’s presentation on the dark side of the informal economy, from Somalian pirates to Sahelian terrorist networks, made a big impact. His key point, however, was that this particular flavour of the complex adaptive system that is our global worldview/economy is out of date now and very badly needs a refresh in order for more accurate responses to the challenges ahead.

From the second panel on the future of money, I was struck by Ignacio Mas’ presentation which focused on disabusing us of the assumptions made on the role of mobile money within the informal economy and how little of a real impact it has made beyond the social network of the individual in areas such as financial inclusion or small business.

And finally, the last panel, where it was Timothy Brown of the Shanzai blog who opened my eyes to the real thinking behind the business models of what we tend to assume as simply “cheap Chinese fakes”.

Finally, all the food for thought provided by the myriads of conversations with old friends and new like Cordy Swope, Ben Lyon,  Scott Smith, Steve Daniels, Aldo de Jong, and John Thackara himself.

Weights and measures, Village Rewalpur, Rajasthan India Jan 209

What is the role of flexibility as an inherent design principle for transactions in the informal economy? Why is it so critical to the success or failure of business models in this operating environment? What does flexibility primarily tend to mean in this context?

Uncertainty is the primary differentiator between the developed world’s systems that work and the developing world’s perceived chaos.  For your average rural (or even urban) resident, who manages on an irregular income stream, from a variety of sources, there is always an undercurrent of constant uncertainty – that of time (when?) and of money (how much?) – an inherent risk involved in entering into an agreement or a transaction.

A farmer’s self help group in Kenya’s Kisii region articulated the reasons for their reluctance to enter into any layaway plans or microfinance agreements, whether formal or informal. They felt too much of an uncertainty that was less specific and more existential. Weather or disease could harm their crops, they felt insecure about taking on loans or committing to layaway plans against future harvest gains.

The degree of flexibility inherent in the system that was able to hand over control to the end user, the customer, the greater the chances of successful retention of the customer rather than loss to dropouts and delinquents.

Flexibility of time and of money i.e. the opposite of the uncertainty of timing and cash flow, is a built in mitigation strategy against the risk of the random act of god or nature. The more rigid a system and stringent it’s requirements, the less its able to deal with the unforeseen situation.