THE GREAT FRONTIER OF AFRICA: THE INFORMAL SECTOR
It has been six months since the first case of the Covid-19 virus was reported in China and the world is still struggling to deal with the consequences of the virus. While Africa had some lead time to prepare for the inevitable arrival of the virus due to the delayed spread of the virus to the continent, the difference in economies and politics make it hard to draw many relevant lessons from the responses in China or Western countries.
While governments are using self-isolation as the first line of defense, this strategy doesn’t favor Africa’s informal sector which makes up 41% of the continent’s GDP. These informal economy workers mostly rely on face-to-face interactions and survive on daily incomes. Ultimately, they are the ones who have been hit the hardest by the economic consequences of the pandemic. Despite the economic relief efforts of many African governments, most of these interventions either do not apply to the informal sector or just don’t reach them. For example, informal businesses are not profiting from tax relief since they don’t normally pay the full set of formal taxes.
Though the informal sector makes up a significant portion of the economies in developing countries, it is most often excluded by governments. Part three of the webinar sought to look at the informal sector as a powerhouse. South Africa’s informal sector for instance, is massively disrupting the formal sector: their spaza shops are turning over about 200 billion rand a year, by comparison the formal sector is turning 250 billion rand a year. Their kasi fast food outlets generate about 90 billion rand in turnover a year, which is seriously challenging the likes of KFC and McDonald’s. There are many of these examples across Africa, unfortunately, the informal sector has always been overlooked.
According to GG Alcock, author of Kasinomics, the informal sector is the next great frontier of Africa and across the continent and it is undergoing a revolution. It is unrecognized because it’s either invisible or massively fragmented due to the multitude of individual little businesses that often mask the massive scale of it. Covid-19 has actually fast-tracked the revolution of the informal sector.
What are some of the responses of businesses in the informal sectors?
Despite the doom and gloom that has been portrayed around the hopelessness of the informal sector and their workers, it is arguably the sector that has easily changed and adapted to the crisis the fastest, out of necessity. They were some of the first businesses to adapt to new social distancing regulations, simply because they had the most to lose – if they don’t work for a day, they directly can’t feed their families for that day. In South Africa for example, small local businesses are using modern tech like Facebook and WhatsApp to change the way they conduct business. For example:
1. After the lockdown was initiated in Johannesburg, Semphakathini Bakery based in Soweto bought trolleys with parasol umbrellas and started delivering bread to interested customers. They managed to continue fulfilling orders by advertising on Facebook and WhatsApp to the local community in their suburbs, and deliveries were tagged to Google Maps locations and the quantity of bread ordered.
2. Local food outlets in South Africa are also starting to upload their menus online on both Facebook and WhatsApp and people are using these platforms to order food directly.
Advantages of small businesses
1. The ability of small businesses to be agile by bunkering down and pivoting their businesses to adapt rapidly, is something that large corporations are unable to do but should aspire to emulate.
2. Customers often want lots of small amounts of supplies, but in regular frequency. That said, small businesses should look to build route-to-market models with this in mind. This will lead to the need for better infrastructure like databases with geolocations, online payment methods and ordering systems which use platforms like WhatsApp and WhatsApp bots.
3. While the informal economy is not yet fully technologically driven, which can be seen as a stumbling block, this scenario presents a massive opportunity to grow these business both now, and in the future.
One is the most important industries to most traders is the micro lending industry, which has been in lock-down as well at a time when most people need loans. Unfortunately, informal sector businesses may need to take from their businesses in order to survive and the hardest part will be how do they restock their businesses? The bigger opportunity is around how governments will provide credit guarantees to either suppliers or to banks to enable this credit. The problem is the credit that these businesses might need are small amounts but very few entities are structured to loan money on a small basis. In order to eventually rebuild the informal economy, we need to figure out how to supply a multitude of small amounts of money to traders.
About the Author:
Margaret Nakunza is from Intellecap Africa passionate about development work.
“I feel, sharing stories of individuals and organizations’, resiliently fighting different problems in the formal/informal sector, using their unique solutions, across Africa, can offer learnings and hope, in the times of COVID-19 pandemic”
She’s worked on different projects- event management for a Kenya-based charity organisation, HESICH; Social Impact Award program for youths in Nairobi and handled communication and marketing strategies for grassroots organizations of Kenya. She is currently an Associate at Intellecap, responsible for communication and marketing at the Sankalp team. Additionally, she is also part of the team that is handling the communications and marketing for a project with World Bank and the Government of Kenya.