A typical African informal market

Reimagining a new socio-economic fabric for African informal economies

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By Charles Dhewa

Lockdowns as a major method for containing COVID-19 has undoubtedly destroyed social fabrics that sustain most low-income economies. While governments have tried to soften the pandemic’s blow by providing cushioning allowances and other social safety nets to vulnerable members of society including vendors,  Mukando or Stokvel and other forms of voluntary and savings clubs will no longer be the same. Vendors and other low-income earners who live from hand to mouth are wondering how they are going to repay loans they had taken before the pandemic arrived.

Social safety nets will not be able to cover ordinary people’s coping mechanisms. Where economies were functioning normally, many farmers, traders and other entrepreneurs were busy servicing loans taken from banks and Micro Finance Institutions. What is going to happen?

Importance of careful business profiling
The biggest challenge for policy makers is navigating difficult trade-offs between promoting public health and stimulating socio-economic revival while competing for limited resources. Widespread informality and information asymmetry in most African countries makes it easier for government to mistakenly subside what is in abundance and miss sectors that need critical help.  For instance food distribution remains an unsustainable option when it is better to provide resources to communities so that they can produce their own food in gardens, wetlands and production zones. 

Teasing out all these issues requires careful profiling of people, communities and available resources. A biggest headache for countries like Kenya and Zimbabwe where the informal economy employs more than 80% of the population is how this economy can be re-opening during the lockdown and post-COVID19. The importance of careful profiling of economic actors in the informal economy cannot be over-emphasized. The following is how a detailed and meaningful profile will look like for each actor:

Profile elementJustification (why it is important)
Personal details 
Name and sexName is about identity. Who are we dealing with?  In the final analysis, sex reveals the extent to which the informal sector is dominated by women, for instance.
AgeThis has economic implication for business. What has been the impact of closing businesses on youth in response to COVID-19? What is the impact on the elderly pensioners?  How many young people have become unemployed due to the lockdown?
Marital StatusCOVID-19 has had a different impact on the married, unemployed single mothers and widows.
Household SizeHousehold size has an influence on the pace at which small enterprises can recover from the pandemic. For most SMEs, more than 90% of the business income is more of a salary for the household.
Level of EducationThis has a bearing on the introduction of financial literacy and provision of technical skills.How many graduates and school drop outs are in the informal sector?
Home Address (Location)Where do informal traders and SMEs stay? If staying in Epworth, why do they prefer selling to Mbare? What are the business factors for staying in Epworth and doing business in Mbare? This is a description of the ecosystem.While policy makers may want to be directed by availability of land and by-laws in allocating work spaces, traders and SMEs know what should be considered in setting up a business.They know the behavior of their customers and target market.
Mobile NumberThis is becoming a key unique identifier.
 
Business Information 
Business Name and LocationWhere is the business operating from?This assists in mapping and revealing the concentration of SMEs.
Is the premise a. rented from i. private property ii. Council property. owned c. home This will assist in assessing risks. If one is renting at a private property, does the by-laws allow or property owners are just taking advantage of desperate SMEs. In most countries private property owners have become more of tax collectors. What plans can be put in place to bring commodities closer to consumers and de-congest Mbare? How can some premises be combined into industrial parks that accommodate street vendors and those operating from home? If you chase street vendors you are saying where they bought is also illegal.
Year business startedThis provides landscape in terms of experience as shown by years.Are SMEs growing? What is dominating in terms of years?What is the age of the business? How old is the SMEs?If an SME has been running for 20 years but policy makers still do not recognize it, there is something wrong with government policy not with the SME. One cannot continue to be called informal merely because s/he has not been given works space or there is no supportive legislation. For instance what company registration is needed for brick molding? Youth enterprises should not be called projects but enterprises.
 
Average monthly sales How much is a SME contributing to the economy? Such information will provide a basis for clustering. It will also lays the foundation for creating a growth path. If someone has been in business for 20 years but sales are going down, it could signal lack of adaptation or existing knowledge has reached a limit.
Number of employees: a. full time b. part timeThis is a key component of economic growth.By closing SMEs, how many families have been affected?Any support required may not just be for the business but enhancing employment creation.Job losses need to be accounted for as SMEs may not be able to sustain full-time employees post-COVID19.
 
List of assets and estimated value This shows production capacity and contribution of the SMEs to national economic growth.
Do you have any running loan? If yes state amount and lender?What is going to happen to enterprises that had acquired loans pre-COVID?Their reputation with financiers is likely to get sour?If more than 60% had loans, how are they going to be repaid?
What kind of support does your business currently need? Provide detailsThis is critical. Most countries do not have fluid needs assessment management systems for the SMEs sector. In most cases there is an assumption that SMEs need loans when they probably need knowledge and skills.Some have their own knowledge and should not be locked in five day training courses. Others are always learning from each other and can produce items without having gone to college.

 Equipment  
As technical people, SMEs know what equipment is lacking.In clustering SMEs, policy should be informed by existing type of equipment or come up with special grants that can enable SMEs to import appropriate equipment. A supply chain for equipment can anchor rural industrialization with no need for every aspiring entrepreneur to visit the capital city for everything.

Clustering as a success factor

The above profile is critical for clustering business according to services and products.  The SME sector should work hard to classify commodities towards clustering. Profiling is important for systematic formalization. The informal sector is already in motion and most SMEs in urban centers are now very dynamic. If government policy says passports can be applied online from today, everybody will apply. Likewise, SMEs should be able to take advantage of ICTs by filling in their profiles online and send completed forms digitally without travelling to towns and cities for such simple processes.




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