Strategy Tools for Value Creation by Including Informal Entrepreneurial Ecosystems

There is a lot to unpack in the title of this post and not all of it might happen here today. Consider this the amuse bouche of my current thinking and writing, with the unexpected side effect of releasing the first faint sounds of music that’s been long hidden in my keyboard. The phrasing of the title is something that will probably twist and turn to better reflect intention and goals of the content but here is a situation where the content’s exploration is what will shape the title even as its first framing serves to give direction to the content’s discovery.

This is the first time I’m approaching this task as an experienced designer of human centered strategies for breaking new ground, rather than as a novice scholar attempting to discover a place in academic literature for my work.

What’s the context for my thinking behind the word salad of the title?

The African Continental Free Trade Agreement (and Area) – AfCFTA – launched on January 1st this year to the great expectations of its multi-trillion dollar potential as a single trading bloc for the entire continent. Analysis by Batswana scholar Chazha Ludo Macheng points out gaps in the framework as it stands now, from the perspective of its ability to address the inclusion of the majority in the current and future benefits of this historic trade agreement:

Although the AfCFTA does not incorporate a separate chapter on trade, ICBT and gender, the preamble of the agreement contains explicit reference to the importance of gender equality for the development of international trade and economic cooperation. Furthermore, article 3(e) emphasises the promotion of gender equality as one of the general objectives of the AfCFTA.

For reasons far too complex to summarize briefly in this blogpost (here’s my synthesis of 60+ research papers on Informal Trade in the East African Community, South Sudan and the Democratic Republic of Congo, Dec 2015), I am bypassing the rest of Macheng’s conventional suggestions, and approaching the challenge of inclusion and equality in the context of the AfCFTA from the strategic perspective of taking a systems approach.

Why take a systems approach to contextualizing informal trade in Africa as a driver for inclusion and equality?

Meagher (2018) offers perhaps the most salient view on the contemporary discourse around inclusiveness and the informal economy, particularly in the African context, although here she’s referencing frugal innovation rather than informal trade, the context is not unrelated as we’ll see:

Yet these fervent declarations of interdependence between formal and informal innovators are accompanied by a persistent tendency to ignore the realities of informal economies as organized systems with distinctive economic interests and dynamics of accumulation.

The salience of informal economic systems is particularly acute in Sub-Saharan Africa, where 66% of those working outside of agriculture have for decades, even centuries, earned their living in a wide range of informal economic activities (ILO 2013; Vanek et al. 2014). Over time, Africa’s vast informal economy has developed complex networks and informal commercial systems through which people have pursued their livelihoods and created sites of accumulation as well as survival (Gregoire and Labazee 1993; Little 2003; Lourenco-Lindell 2004; MacGaffey and Bazenguissa-Ganga 2000; Meagher 2003).

In the frugal innovation literature, an emphasis on inclusion, ‘co-creation’ and ‘partnerships’ is based on an assumption of complementarity between the formal and informal economies, in which linkages with multinational corporations, NGOs, governments and other formal sector actors can be used to overcome the limitations of informal economic arrangements at the bottom of the pyramid. There is little awareness within the frugal innovation literature that informal economic actors, particularly in Africa, are not necessarily small-scale, and not necessarily poor. (Meagher, 2018)

The fact is that there is little awareness within most literature regarding the nature of informal economic actors, and the dynamics of the organized systems within which they operate. And it is this lack of awareness of the existing systems that have the potential to make or break the inclusive and equitable goals of the AfCFTA. As Meagher (2018) says, the emphasis on inclusion is based on assumptions – primarily that of designed for purpose linkages imposed on informal economic actors, and that informal economic arrangements are limitations to be overcome. This latter point is the key, in my opinion, that has hampered all efforts for sustainable integration of the informal commercial systems with those in the formal economy.

Meagher’s point (2018) that informal economic actors in Africa are not necessarily small-scale nor necessarily poor, simply by virtue of operating in informal economic systems, requires unpacking in the spirit of Kanbur and Keen’s point (2014) that lack of disaggregation of the informal sectors hampers not only effectively policymaking but also efficacious design of interventions.

Impact at scale is impossible without considering the system as a whole and this requires understanding the nature of the informal economic system and how value flows within it, in order to address it most effectively for the purposes of facilitating trade, and thus enabling inclusive and equitable participation in the opportunities yet to be generated by the AfCFTA.

Inclusive trade ecosystems cannot be designed and imposed from a top down perspective, and based on assumptions alone. They must integrate if not mesh with the existing informal trade systems prevalent across the continent. Perhaps that is also why it makes sense for me to change my own language from ‘informal economic ecosystem’ to Meagher’s version: ‘informal economic system’ or ‘informal commercial system’.

Partnerships for Value extraction or Value creation?

This section has been created here as a waymarker for future exploration in subsequent thinking and writing and acknowledges the legacy of the work done not only by Meagher (2018, 2019) but also opens pathways for exploring the relationship between the operating environment (the place) and the enterprises in value co-creation eg. Sansone, Tartaglione,  & Bruni, (2015).

In Meagher’s (2019) examination of how global value chains (GVCs) alter the processes of value creation by reshaping the institutional systems that govern the livelihoods of poor rural workers in contemporary Africa, she highlights the extractive legacy of GVCs in the African context and their power to reframe what is valuable, thus distorting and crowding out alternative sources of value.

The incorporation of these workers into the chain becomes associated with different narratives of value, such that the value they create as workers is obscured by the philanthropic or ecological objectives they are seen to be serving. (Meagher, 2019)

This lens gives rise to the questioning of informal traders operating in the local, regional, and cross border levels as individual traders and/or marginalized and vulnerable women at the bottom of the pyramid. Meagher’s focus (2019) is on employees or informal workers “integrated” in GVCs in the form of labour, rather than as traders in their own right. This is an area that requires further research.

Value creators exist in the informal trade economic system – operating at the heart of self organized and self sustaining micro-ecosystems of demand and supply – and their existence as micro-enterprises with their own forms of commercial organization and operations has not been acknowledged or recognized, even if each informal economic actor within the value web might be an self employed entrepreneur.

Our exploratory study on the East African Community’s borderland trade ecosystem (Bhan & Gajera, 2016) provides some early evidence of the impact and role of the operating environment – the place (Sansone et al, 2015) in shaping business development and revenue growth strategies of the informal traders. That is, to go back to Meagher’s own point (Meagher, 2018), the informal economy exists with its own networks and commercial systems for enabling and supporting the creation and exchange of value through the ecosystem.

These are not individual actors disconnected from each other eking out a meagre livelihood but differently organized collectives of trade and commerce. And, by taking a systems approach, one can identify the value networks in informal cross border trade such as Walther (2014, etc) has done, and begin to visualize the scale and scope of the African trade system outside conventional definitions of formality and GVC integration.

Thus, considerations of working capital and cash flow management within informal trade’s commercial systems, or the use of mobile phones and mobile payments to facilitate long distance trade, as well other ecosystem level activities, can be contextualized as subsets of the operating environment and its study.

Sensemaking toolbuilding as an approach to ensuring AfCFTA’s objectives of inclusion and equality

Now, one can consider sensemaking (previous) as a strategy for inclusion and equality and/or equity in trade. From the global trade perspective, this implies the development of strategy tools for facilitating organizational sensemaking of informal trade’s commercial systems in the African context with the facility for “zooming in” from a high level system view to the details of the merchant level view on the ground. A picture replaces a thousand words and I present conceptual prototypes to explain what I mean by “zooming” into the continent’s informal trade networks and their commercial system at different levels of complexity and detail.

Figure 1: Walther (2014)’s visualization of the network of informal economic actors engaged in cross border trade between Niger, Nigeria, and Benin

Walther’s high level view shows the linkages for one tri-border region in West Africa. Inspired by this, we drilled down further to visualize the linkages of one trader within the context of her own borderland market. (Bhan & Gajera, 2016)

Figure 2: By Rinku Gajera, M.Des (Design Planning)

And then, drilled down further to visualize that one borderland trader’s own micro-ecosystem of supply and demand (Bhan & Gajera, 2018).

Figure 3: By Rinku Gajera, M.Des (Design Planning)

The details of value flows can also be “zoomed out” to continental region – such as the handmade representation (below) of the relative densities of value flows across the East African Community’s (EAC) borders. Approaching informal cross border trade in the EAC from the designer’s visual perspective for the first time, this was the tool I made to help me with rapid sensemaking of the complexity of cross border trade and identify patterns for the narrative synthesis of value flows in the regional informal trade’s commercial system. It captures data sourced from more than 60 articles and reports.

Figure 4: Visualization of the synthesis of data from 60+ literature on cross border trade flows in the EAC, by Niti Bhan, December 2015.

Much much more work remains to be done, on many levels, but this brief introduction to the framing of the concept should help guide the direction of analysis and synthesis of my umpteen data sets gathered over the years of concatenated explorations of this novel operating environment leveraging the sensemaking aspects of design.

References:

Igwe, P. A., & Icha-Ituma, A. (2020). A review of ten years of African entrepreneurship research. Research Handbook on Entrepreneurship in Emerging Economies.

Kanbur, R., & Keen, M. (2014). Thresholds, informality, and partitions of compliance. International Tax and Public Finance, 21(4), 536-559.

Meagher, K. (2018). Cannibalizing the informal economy: Frugal innovation and economic inclusion in Africa. The European Journal of Development Research, 30(1), 17-33

Meagher, K. (2019). Working in chains: African informal workers and global value chains. Agrarian South: Journal of Political Economy, 8(1-2), 64-92.

Sansone, M., Tartaglione, A. M., & Bruni, R. (2015). Enterprise-place relationship and value co-creation: advance in research. International Journal of Business and Management, 10(1), 50.

Walther, O. J. (2014). Trade networks in West Africa: A social network approach. The Journal of Modern African Studies, 179-203.

This entry was posted in Africa, Assumption filter, Base of the Pyramid, Design, East African Community, Economy, global, Literature review, Perspective, Research, Strategy, Sub Saharan Africa, Work in Progress and tagged , , , , , , , . Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

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