Archive for the ‘Africa’ Category

A Very Nigerian Opinion on E-Commerce and Online Fashion Startups

Folake Shoga shares her opinion on the recent spate of tech startups and apps mean to serve Nigeria’s fashion and fabric industry.

Two recent articles in Techpoint, the Nigerian online technology magazine, feature initiatives dealing with aspects of the clothing business. One is a startup letting studio space and equipment to makers, 360 Creative Hub; and one is an internet based fabric selling business, Fabricsphere. Reading up on the feasibility of these two initiatives has been an interesting experience, very much encouraged by the richness of Techpoint’s coverage of Nigeria’s tech and business ecosystem.

Having said that, as just a humble, occasional and above all provincial Nigerian, I’ll start by paraphrasing L P Hartley: “Lagos is another country; they do things differently there.” Sometimes, reading official accounts, reports etc of events in Nigeria really jarrs with one’s lived experience of the country (even though being as the standard of written professional journalism is generally excellent, this hardly every happens when reading the actual quality newspapers, Punch and The Guardian and their ilk.) In the aforementioned Techpoint articles some of the prices quoted for goods and services seem steep to me, which surely militates against takeup, but I am, as I said, provincial, and moreover brought up by Ijebu people. No doubt everything costs more in Lagos.

Startup culture is a thing in itself; current, progressive, innovative, aiming to breach new ground or disrupt! received conventions – although strictly speaking away from the comfortable global North there may already be more disruption going on than we are entirely comfortable with. But the term itself, startup, comes surrounded by an effervescence of aspiration, floating on an expectation of the power of a tech-determined state change in human affairs. “First we’ll click here, then we’ll be in tomorrow today already! Yay!!”

As recently as 12 years ago it was impossible to prejudge which casual, frivolous digital activity would end up as an engine of massive social change. Nobody could possibly have foretold, for instance, how a site for rating the comparative attractiveness of your female fellow students could have morphed into a giant data-gatherer, news disseminator and influencer of global public opinion. Or how a site for online shopping could evolve to be at the forefront of research into the logistics of drone technology and other automated delivery systems. So there is a hope and a hype around web-based startup culture, an eye for the next big thing, the next new system that will prove that from small beginnings come big changes. Nigeria, as a vast untapped market, has the potential to be a hive of new technology activity, and Techpoint in it’s many articles provides an interesting and thorough overview of the local scene, though concentrating almost entirely on Lagos.

Read On…

Work in Progress: An Introduction to the Informal Economy’s Commercial Environment


This topic is being shared in the form of a collection of essays on the following themes, each becoming hyperlinked on completion. Do bookmark this page for regular updates.


Introduction to Background and Context, some caveats apply
Fundamental Elements of Informal Sector Commercial Activity
Rural household financial management as a foundation
Linkages and Networks span Urban and Rural Markets
Underlying Principles for Financial and Social Contracts in the Informal Economy
Informal Sector Business Development Strategies and Objectives
Why A Blanket Approach to Formalization is not a Panacea
Disaggregating and Segmenting the Informal Sectors
The Journey to Formalization Cannot be Leapfrogged

 


Appendix:
Creating Economic Value by Design (John Heskett, IJD 2009)
Financial Behaviour Patterns Observed Among Households in Rural Informal Economy (IDRC, 2009)
More or Less: The Fundamental Principle of Flexibility” Slides (Informal Economy Symposium, 2012)
A Comprehensive Analysis of the Literature on Informal Cross Border Trade in East Africa (TMEA, 2016)

A Comprehensive Analysis of the Literature on Informal Cross Border Trade in East Africa

Download the comprehensive literature review (PDF) on informal cross border trade, in the context of the informal economy of the East African Community, the Democratic Republic of Congo, and South Sudan. This paper was supported by TradeMark East Africa during the period November 2015 to January 2016. A short extract from the preamble is given below:


For trade to be truly inclusive and sustainable, it must embrace the informal economy rather than excluding it. When John Keith Hart first coined the termi in the early 1970s, he did not distinguish between the illicit and licit aspects of the informal trade he observed all around him on the streets of Accra. In the decades since, this conflation has created more challenges than necessary, throwing up barriers where there were none.

As Kanbur and Keen suggestii, unpacking the basic concept of the “informal sector” and describing the various segments will lead to far greater returns on the resources invested and improve the outcomes and impact of the policies and programmes designed for each.

“Informal trade” across Eastern Africa can best be described as a web of interlinked networksiii serving to connect peoples and products across the region. Held together byiv trust, kinship and community relationships, it has been seen to be resilient, and persistent. Robust enough to survive natural disasters and manmade upheavals of the decades past, it is flexible, nimble, and responsive to patterns of abundance and scarcityv.

i Hart, K (1973), “Informal income opportunities and urban employment in Ghana”, The journal of modern African studies 11 (01), 61-89

ii Kanbur, R and M Keen (2015), “Rethinking Informality”, http://www.voxeu.org/article/rethinking-informality

iii Walther, O. (2015), “Social Network Analysis and Informal Trade”, Working paper for the World Bank

iv Hart, K (2000), “Kinship, contract, and trust: The economic organization of migrants in an African city slum”, Trust: Making and breaking cooperative relations, 176-193

v Bhan, N. (2009), “Understanding BoP household financial management through exploratory design research in rural Philippines and India”, iBoP Asia and IDRC

Samsung took its commitment to the African market very seriously

This article in the Financial Times caught my attention first for it’s mention of Samsung’s seemingly innovative adaptation to the harsh operating environment prevalent across the African continent. It reminded me of the very first exploratory user research programme I had been part of, for Samsung, back in early 2008. That was a seminal trip for me, 3 weeks by Landy through the bleakest parts of rural South Africa, in search of how people lived, worked, and played with their mobile phones.

Mobile phone repairman, Elizabeth, Eastern Cape, South Africa, January 2008 (Photo: Niti Bhan)

We discovered what I would now look back and recognize as a whole new world. This fieldtrip was the turning point in my career, and the prepaid economy project was the outcome of questioning many of the assumptions around what were then called “Bottom of the Pyramid” markets, which had been shattered, in my eyes, by this journey’s end.

Life is hard” became my mantra for the next couple of years, as I illustrated the vast chasm between the mainstream consumer market’s mindset of credit driven consumerism, and the cash intensive hitherto ignored reality of the townships and informal settlements. The article I wrote on the mindset and values of Africans in their guise as customers for consumer goods – who had not been conditioned by generations of advertising messaging since the poor (the BoP, the bottom of the pyramid)- went on to be cited by the late CK Prahalad himself in the revised 2010 Introduction to his seminal The Fortune at the Bottom of the Pyramid.

Next came the development of a holistic strategy to reach these untapped opportunities, with a semblance of a value system rather than be driven by the pure profit motive alone.

The core values, then and now, for a consumer appliance, device, or hardware, any durable really, was the following:

Simple
Easy
Endurance
Survivor/al
Commitment

If Samsung is established in its foothold in Africa today, and their appliances are designed to survive the environment and meet the needs of their African customers, then I am very pleased to read it.

That first photograph is of the slider that Samsung models being sold at that time had. And in Africa, as the repair guru holding the part was showing us – and two of Samsung’s own mobile design team members – was the weakest point of failure in their phones. Grit would get in and jam the part, and most such phones came in for repair within a few months of their purchase date.

Later, in London, where the Samsung Design Europe office was located, we walked into one of their phone shops – somewhere near Harrods, if I recall correctly, and asked about the longevity of their slider phones. The salesman gave us a long song and dance about how these parts had been tested to “slide” a thousand times before each model went on sale. Yes, I mused to myself, it had. In the dustfree laboratory conditions of their engineering unit, or the less harsh environment of London or Seoul. What about upcountry South Africa? Or Senegal or Kenya or even, India?

The 2009 models introduced for emerging market opportunities, such as those on the African continent almost a decade ago, were all candybars.

As for me, I’ve never stopped using a good oldfashioned “dumb” Nokia that stolid Finnish engineering and product development ensured would survive and endure anything – even being run over by a truck.

Cognitive dissonance and smartphones in East Africa

via twitter, a modern day kanga from East Africa

Its jarring to see high level INGO messaging still talking about “ICT4D” not doing it’s part to bring about technology driven transformation in rural or informal sector Africa when every other sign from the continent points to a mainstreaming of ICT that goes beyond the individual’s capacity to tweet.

The kanga is a traditional item of women’s clothing worn all along the Swahili coast of Eastern and Southern Africa. Probably originating from the monsoon driven textiles trade with the west coast of India long ago in the mists of history, the kanga is rather well known for incorporating Swahili proverbs and aphorisms within its design.

While traditional sayings might refer to love or social relationships, warnings and idiomatic sayings, this photograph of the kanga, now making the rounds on social media, which I’ve shared above, provides clear evidence of the ubiquity of smartphone technology and social media communication in local culture.

Surely your screenshot is waiting in your inbox isn’t a traditional proverb nor an age old Kiswahili aphorism.

How the African movable assets bill can unleash innovation opportunities for the rural economy

Somewhere in Kenya, 4th June 2012 (Photo: Niti Bhan)

As Kenya joins Zambia and Zimbabwe in ratifying a Movable Property Security Rights Act, there’s a sense that the floodgates to innovation in access to finance might be taking place in rural Africa, south of the Sahara and north of South Africa.

Kenya’s law also goes beyond the cows and goats and allows a borrower to collateralise future receivables arising from contractual relationships.

How it ends up being implemented will set the stage for the next big disruption in financial inclusion. In the meantime, let’s take a closer look at the opportunity space for innovation in the informal and rural economy that dominates these operating environments.

 

1. A whole new bank, designed to meet the needs of rural Africa

Last night, a tweet by Charles Onyango-Obbo struck me forcibly, and reminded me of our Banking the Unbanked proposal crafted for ICICI back in January of 2007.

The very fact that contemporary thoughtleaders in the Kenyan banking industry are unable to take the concept of livestock as collateral for loans seriously, taken together with the deeply embedded assumptions of the formal economy’s financial structure leaves the door wide open to disruption.

It would not be too difficult to conceptualize a rural, co-operative bank custom designed for the local operating environment. In Kenya, where the mobile platform provides clear evidence of the viability, feasibility, and desirability of innovative financial tools and services that work for irregular income streams and provide the flexibility, reciprocity, and negotiability inherent in the cooperative local economies, such a bank could change the social and economic development landscape overnight.

In fact, one could conceivably foresee this “bank for rural Africa” scaling far beyond Kenya’s borders.

 

2. Insurance sector must respond to banking disruption

The domino effect of disruption in the banking sector should kickstart the stagnant insurance industry that has been ineffectually attempting to scale outside of the formal economy’s neatly defined boundaries. Bankers willing to take livestock as collateral for loans will therefore require insurance on their movable asset as a surety against the risk of disease, or drought.

Current products tend to emerge from the international aid industry, seeking to insure smallholder farmers against the shock of losing their livestock to climate related disasters such as prolonged drought, or an epidemic of illness. There is a dearth of relevant and appropriately designed insurance products from the private sector targeting the needs of the rural economy. For all the talk of African urbanization, even the most optimistic projections show that East Africa’s rural population will continue to dominate.

Thus, this an opportunity ripe for the plucking, given the right mix of product, pricing, and promotional messaging.

 

3. Disrupting assumptions of Poverty and Purchasing Power

Whether it is Kenya’s significant non profit sector or the nascent consumer oriented markets, the redrawn lines defining assets, collateral, and the floodgates of access to finance will require a complete overhaul in the way the population is segmented and measured.

Once these hundreds of movable assets have been valued, insured, and registered officially, even the most reluctant banker must now count the pastoralist among his wealthiest local clientele, able to draw a line of credit against his true wealth to the tune of thousands of dollars without feeling the pinch.

 

4. Triggering a rural investment and consumption boom

From mabati for a new roof and simti for the backyard wall, to the latest model smartphone or pickup truck, the concurrent boom in investments and consumption provides an ample playing ground for new products and services tailored for the contextual needs upcountry. Finally, Farmer Joe can install that solar powered irrigation pump for his orange groves in time to reap the next big harvest. And Mama Mercy can think of building up a nest egg of investments faster from the income provided by her farmyard animals.

Kagio Produce Market, Kenya, April 2013 (photo: Niti Bhan)

This might turn out to mean upgrading to a breed of high yield milch cows or being able to provide them with better quality feeds and medicines, but the financial bridge that a well designed strategy leveraging this movable assets bill and it’s timely implementation could mean the difference between the brass ring or treading water.

 

5. Trade and Commerce will open new markets

Given that the Kenyan Movable Property Security Rights Act 2017 goes beyond livestock to include other stores of wealth and value creation, there will be an undeniable impact on regional and cross border trade. No trader will give up the opportunity to leverage their existing inventory if it qualifies for additional credit that can be plowed back into the business.

On the road to Bungoma, Western Kenya, February 2016 (Photo: Niti Bhan)

Trader’s mindset and the documented biashara growth strategies already in evidence point clearly to the productive economic use of this access to finance rather than passive consumption alone. As their business grows, they will require a whole slew of tools and services tailored to their needs. This could be as simple as a basic book keeping app or as complex as customized commodity (assets, livestock, non perishable foodstuffs, grains and cereals) exchange platforms that integrate the disruptive new services percolating through the entire ecosystem.

 

In conclusion

These few steps outlined above are only the beginning of laying the foundation for disrupting the current social and economic development trajectory of small town and rural Kenya. I see immense potential for both direct to consumer as well as business to business segments for forward looking organizations seeking a foothold in the burgeoning East African markets.

We, at Emerging Futures Lab, would be pleased to offer you customized white papers on the opportunities for new products, services, and even business models, based on this emerging financial environment recently signed into law by President Kenyatta. Contact us for an exploratory conversation on the scope and scale of your particular industry’s needs. Our experienced team can help you maximize these opportunities from concept design and prototyping all the way through to path to market strategies.

Livestock as movable assets and financial collateral: Collected insights

Mama Mercy’s farm, Nyeri, Kenya (Photo: Niti Bhan, April 2013)

Following in the footsteps of Zimbabwe, Kenya has just passed a law on the use of movable assets as collateral for loans.

President Uhuru Kenyatta has signed into law a Bill allowing borrowers to use household goods, crops, live animals and even intellectual property to secure commercial loans in a move aimed at boosting access to credit.

This is an important move, because unlike Zimbabwe, the “Kenyan Movable Property Security Rights Act 2017 paves the way for the formation of a centralised electronic registry for mobile assets that financial institutions can use to verify the security offered.”

The implications for the rural economy, entrepreneurial smallscale farmers, and the informal trade sector are enormous, and I will take a deeper look and analyze the implications in subsequent posts. First, I will begin by collating the past decade’s writing on the role of livestock in household financial management, clustered broadly by theme:

 

 

On The Role of Livestock
The multifunctionality of livestock in rural Kenya ~ literature review
“households will treat livestock similarly to a savings account or stock portfolio and typically (and perhaps reluctantly) only sell livestock to cover cash shortfalls when certain necessary expenditures arise”
The Role of Livestock Data in Rural Africa: The Tanzanian Case Study
Only provides evidence of the importance of investing in same
The role of the cow as an investment vehicle in India: Insights on Return on Investment

 

 

Emerging Futures Lab Original Primary Research
The Prepaid Economy project 2009: Original research on rural economic behaviour (IDRC & iBoP Asia) – Part 1
Observations & analysis of rural household financial behaviour – Part 2
Synthesis & Insights on rural economic behaviour – Part 3
Visual documentation from Philippines, India, and Malawi – Part 4
Rural Bottom/Base of the Pyramid and their cash economy

 

 

Application of insights for innovation in Kenya
Component parts of the rural, social economy
Seasonality as a factor in livestock export trade finance
Rural Kenya’s livestock and produce markets are a complex, economic ecosystem
Affordability, pricing strategy, and business models
Livestock’s role in path to upward mobility
From the individual to the community: the rural economic ecosystem (Dec 2013)
Importance and value of the informal food market
Creative ways to financial inclusion, by Michael Kimani

 

 

To Read More: Use this tag “movable assets” for all forthcoming analyses, and you can find a decade’s worth of my original research on informal economy, prepaid business models, literature reviews and ethnography here. The entire subject can be found under the category “Biashara Economics“.

Launching Our Digital Documentation Project: Ibadan’s Tailors, Traders, and Textiles by Nigerian/British artist Folake Shoga

finalcopyAfter months of hard work, I am very honoured and proud to announced our new digital documentation project by my friend Folake Shoga, a Nigerian/British multidisciplinary artist with more than three decades of experience.

She went on a journey of discovery through the twists and turns of the informal value web that holds together West Africa’s famed textiles and fashionably styled culture.

Her window to this world is centered around Ibadan, Nigeria, and she takes us through an illustrated, personally narrated documentary that spans the experience of getting a new dress, from choosing the right fabric, all the way through building a fashion brand.

Come and join us for this fascinating peek behind the scenes! You can also find this unique photo-documentary again on my portfolio page.

Not Disaggregating the Informal Economy Properly Hinders Development Efforts

Michael Kimani (@pesa_africa) brought this prize winning essay on the importance of understanding the informal economy to my attention, together with a snippet of text from our last inception report highlighting a major oversight that we believe is of critical importance.

Mike took issue on Twitter with the author’s very first sentence introducing his work as a PhD candidate in The Department of International Development, LSE, viz.,

I research smuggling, or ‘informal cross-border trade’.

and I offered to flesh out our concerns in a blogpost. Here’s the snippet Mike extracted from the tralac website:

C8oeVQ8XgAAnc-fNow, I won’t go into the full scale literature review on the challenge posed by the conflation of illicit activities such as smuggling with the licit yet unrecorded daily commerce in border markets as it’s clearly framed here on page 5 through 7 since the author is already in academia.

However, what I will do is just pull out Kanbur and Keen‘s specifically worded framing of the challenge of not unpacking the various elements of the informal economy as the first step towards understanding it better.

We think this is the wrong way to look at things. The key to policymaking towards informality is twofold. First, to specify more basic objectives, such as efficiency and equity, which transcend informality – informality and its persistence in itself is neither good nor bad. Second, to disaggregate informality into policy-relevant categories, rather than take it as an undifferentiated lump and then gauge policies by their impact on its magnitude.

Let’s take the problem of conflating smuggling with cross border trade in the context of Kanbur and Keen on Rethinking Informality:

In so far as any precise meaning is given to the term in discussions of taxation, informality is usually taken simply to mean non-remittance of tax due – failure to pay. But there are all kinds of reasons why a firm or individual might pay no tax. Maybe they are simply below the threshold above which they are legally obliged to; or maybe they are evading. Might not why no tax is paid matter for policy making at least as much as the fact of it not being paid? And how should tax systems be structured when it is recognised that their design may affect not only how much tax is paid, but the different ways in which it is not paid?

These questions lead, in our view, to a more useful strand of analysis than generalities about reducing informality.

or, in the case of this essay, to generalities about the need to understand the informal without distinguishing within it the various categories of trade that occurs across borders, both biashara and magendo.

As global firms (MNC) pull back from emerging markets, what does this mean for Africa?

tumblr_nwsbz0ytDw1qghc1jo1_500Last week’s issue of The Economist drilled down deeper to cover the retreat of globalization – at least in the most visible form, that of the multinational brands dotting cityscapes around the world. The retreat of the global company, they trumpet, the end of Theodore Levitt’s vision.

Credit Suisse takes a concise yet comprehensive look at these weak signals in their well-written report that frames the situation as a transitional tug of war between globalization and multipolarity – an inflection point, rather than a retreat. They make it sound like missing the turn at an intersection and having to come back to the traffic lights to figure out which way to go.

Duncan Green of Oxfam captured the essence well:

But the deeper explanation is that both the advantages of scale and those of arbitrage have worn away. Global firms have big overheads; complex supply chains tie up inventory; sprawling organisations are hard to run. Some arbitrage opportunities have been exhausted; wages have risen in China; and most firms have massaged their tax bills as low as they can go. The free flow of information means that competitors can catch up with leads in technology and know-how more easily than they used to. As a result firms with a domestic focus are winning market share.

In the “headquarters countries”, the mood changed after the financial crisis. Multinational firms started to be seen as agents of inequality. They created jobs abroad, but not at home. The profits from their hoards of intellectual property were pocketed by a wealthy shareholder elite. Political willingness to help multinationals duly lapsed.

Of all those involved in the spread of global businesses, the “host countries” that receive investment by multinationals remain the most enthusiastic.

The first thing to note is that the global MNCs being considered by The Economist are primarily the legacy ones  – fast food chains like McDonalds and KFC (Yum Brands) – whose shiny logos used to represent the liberalization of the closed markets of India and China.

Even at powerhouses such as Unilever, General Electric (GE), PepsiCo and Procter & Gamble, foreign profits are down by a quarter or more from their peak.

or the few examples of emerging market brands that have gone global such as China’s Lenovo which purchased IBM’s Thinkpad and India’s Airtel which bought into the African market.

What’s being touted as their competition are regional brands, who aren’t as stretch out globally in terms of their supply chains, and less vulnerable to currency volatility. Further, the majority of these global brands are heavily dependent on their B2C marketing and sales – the question of whether they ever managed to understand their new markets is a topic for another post.

And so, we ask, what will this mean for the emerging economies of Africa, who are only now seeing the first fruits of FDI? Who will come and develop their consumer markets?

India and China apparently. And strategically – through unbranded affordable commodities and the acquisition of successful regional consumer brands – rather than the legacy MNC approach influenced by Levitt. Even Japan recognizes this, as they seek to piggyback on the Indian experience.The economics of scale that propelled the first rounds of growth for the manufacturers of washing machines and the automobiles never did make sense infrastructurally for the majority of the African consumer markets.

Instead, the patterns pointed out by The Economist and Credit Suisse imply that opportunities will lie among regional stars – Equity Bank of Kenya, for instance, whose regional footprint is surely but steadily creeping outwards across the East African Community and trading partners – or, the telcom brands such as Tigo (Millicom) who innovate for each of their local markets.

The jobs and exports that can be attributed to multinationals are already a diminishing part of the story. In 2000 every billion dollars of the stock of worldwide foreign investment represented 7,000 jobs and $600m of annual exports. Today $1bn supports 3,000 jobs and $300m of exports.

Godrej, for instance would be considered a regional Indian giant rather than a multinational in the conventional sense of a Unilever or P&G.

Where [MNCs] get constrained is, they are driven by lot of processes that are global. For a smaller organisation like us, we are completely empowered; decision-making is quick and we can initiate changes very fast. We are more agile and have an advantage over them.

Yet their expansion outside India shows a “pick and choose” strategy of markets they’re comfortable entering.

The group’s acquisition strategy hinges on identifying unlisted companies built by entrepreneurs looking for capital, picking up stakes and working with them to scale up their businesses.

At least two homegrown Kenyan FMCG brands – skincare by a global giant and cosmetics by private equity – have been acquired. As have snack foods, spices, dairy products, and other products that cater to local tastes. The best known being Fan Milk of West Africa. Private equity such as Abraaj make no bones about going after consumer driven opportunities.

Given these choices, sustainable African businesses who understand their consumer markets have an opportunity to establish their brands and grow – with the financial help that’s strategically becoming available.While Chinese imports make the market highly competitive and price conscious, fish and tyres are substitutable goods in a way skincare and cosmetics are not.

African consumer companies – formal, informal, or semi-almost there-formal – need to hustle right now.

The retreat of the MNCs offers a chance to exhale, and expand, and grow, but the advent of the East implies waking up to the need for serious strategic thinking about domestic comparative and competitive advantage – one of which is incomparable knowledge of local consumers, culture, and needs, and critically, experience of their vast informal sectors and cash intensive economies.