Archive for the ‘Assumption filter’ Category

Lessons for development from the demand driven investment strategies of the informal sector

This shopkeeper in Laare, Kenya provided me with deep insight on how investments in expensive inventory are managed in a heavily cash based economy. He runs a consumer electronics store stocking everything from solar panels, music systems, spare parts and batteries, through to mobile phones and accessories.

His purchasing decisions are based on visible consumer demand, he said, preferring to stock what he calls “fast moving items” that sell and keep the cash flowing than to risk tying up capital in something that might not sell. For instance, he pointed to a dusty 5W solar panel, this has been sitting here for a year since most customers in the area prefer buying 20W or larger.

In this context, “fast moving items” are not the same as the marketing term “Fast Moving Consumer Goods” or FMCG which refers to over the counter perishables and consumables like tea, shampoo, biscuits or soap. Instead, they refer to the product range that sells in the local market, and as my visits to electronics stores in different parts of Kenya back in 2012 quickly showed, each market had different price points and products which tended to be “fast moving”.

In a more economically challenged region, it was black and white 14″ TV sets, smaller solar panels and no name Chinese mobile phones, while in the wealthier region around Kilgoris as we see in the previous post, its flat screen Sony Bravias and very large solar panels that sell.

Local demand drives decisions, and thus business growth strategies and investments. Can this insight not also inform development strategies?

The Economist has just published this article on how fish farms are experiencing a boom in response to the growing demand for food from the big city:

The task of feeding that huge population has not been accomplished by the government, by charities or by foreign agricultural investors. It is the work of an army of ordinary Bangladeshis with an eye for making money. Mr Belton’s research shows that the number of fish-feed dealers in the main aquaculture areas more than doubled between 2004 and 2014. So did the number of feed mills and fish hatcheries. Mr Belton has found similar trends in Myanmar, where the fish farms are often larger than in Bangladesh, and in India.

As well as transforming landscapes in a large radius around Dhaka, the fish boom has changed many people’s lives. Aquaculture requires about twice as much labour per acre as rice farming, and the demand is year-round. Many labourers who used to be paid by the day are now hired for months at a time. Seasonal hunger, which is a feature of life in some rice-farming regions of Bangladesh, is rarer in the watery districts. People are eating more protein. Mohammad Shafiqul Islam, a feed dealer, points to another advantage. Because food is now so cheap in the cities, migrant workers are able to send more money back to their families in the villages.

I believe this element of assessing local or regionally accessible demand for a product or commodity before investment is often missing even from the private sector influenced “making markets work” philosophy now prevalent in development strategies. Too often, the “market” is framed as an international one, and an e-commerce platform devised as the bridging solution. Local intermediaries are demonized as “brokers out to squeeze profits at the farm gate” without once considering their role as infomediaries of supply and demand. The very information networks that provide the shopkeeper with guidance on what would sell and what to order are often erased and replaced with an app. Little or no attention is paid to existing consumer demand nor any attempt to link to the existing ecosystem. The informal becomes invisible.

How many of these pilots fail to sustain themselves once the project’s funding cycle ends?

Why the African Consumer Market is NOT the same as the African Middle Class

Consumer goods store, Kilgoris, Kenya (March 2012)

The biggest challenge faced by consumer facing companies looking at the African Consumer Market is the age old positioning of the “middle class” as the ideal target audience. This middle class is segmented by the same attributes as the original middle classes who formed the consumer markets of the developed world.

This is the outside of the same store. Its located in a town called Kilgoris, situated at the edge of densely populated Kisii in western Kenya, and the sparse land of the nomadic Maasai pastoralists.

When you consider the range, the variety, and the price of the products displayed for sale, and compare it to the small dusty town with just one modern building, you wouldn’t imagine that solar panels worth USD 200 or Sony Bravia flatscreen TVs would be selling like hotcakes. But they do.

No dealer in a heavily cash based consumer market such as upcountry Kenya would tie up his working capital in expensive consumer electronics if there wasn’t a demand for it that meant the products sold quickly enough to keep the cash flowing in. My assumptions were completely upturned by this shopkeeper’s insights – it was the Maasai making purchases after attending the weekly livestock market.

A maasai manyatta Source:

They’d pack 6 foot long solar panels, flat screen TVs, and satellite dishes onto the tops of hired trucks and take them off to their thornbush and mud manyattas. Yet neither you nor I would classify them by any of the traditional marketing department’s attributes as being part of the “middle class” consumer segment.

On the other hand, they were undeniably part of the African consumer market, and as the shopkeeper informed us, they were not only willing to spend on their homes, regardless of what they looked like from the outside, they could afford the best that he had to offer. He showed us his entire stock of kitchen appliances, water filters, jugs, mugs, and even children’s toys and fake flowers from Dubai! It is dealers like this who know best what their customers want and they range as far away as Nairobi to obtain the products in demand.

But I wonder if the marketers and the analysts still seeking the middle class have a clue about this huge market invisible to their eyes? And, whether, they’re looking in the right places?

Formalization is no panacea for micro-entrepreneurs, a liminal space is necessary for growth

Yesterday, my bank sent back a client’s payment though I’d presented the invoice and other paperwork. I’m a registered micro-business in the highly formal economy of Finland, and the bank I’ve been with since 2009 has upped their internal regulations after a spate of bad publicity surrounding the Panama papers. I’ve been caught in the middle of changing rules though the kind young man sitting with me at the bank did tell me I was neither alone in this nor was it rare among their customers. They’re going through changes.

We talked a little about the work I do among women entrepreneurs in the informal economies of East Africa, and he pointed out that Finland was a very difficult operating environment for startups and entrepreneurs. They recognize this. He observed that my experiences at this formal end of the spectrum could only help me with my work on the other end. I had to agree, though I left the bank empty handed, having been turned down by their corporate banking side as well.

Still, I haven’t come here to moan about my banking troubles so much as to point out that the young man was right. Neither end of the spectrum of formal and informal is healthy for a rapidly evolving newly born business or micro venture. Too little support and growth is slow and painful; too much regulations and you fall off the wagon everytime your business changes or their rules evolve.

What is needed and rarely articulated is a grey area between formal and informal – a liminal space if you will. One that allows for change and acknowledges the experimentation and iteration that is the natural part of the development process. A common cliche is to liken a young or small business (my small business is 12 years old) to a growing child who might sometimes have to burn a finger on a match to learn about fire.

What perhaps is needed is to codify this ambiguous moment or period and discover ways to fit that within the formal structures of a highly developed society, as well as adapt it as a stepping stone in the unstructured informal underdeveloped locale. These bridges need not be identical in details so much as concept – that an entrepreneurial venture’s nature is such that it needs room to move and grow unhampered whilst still receiving the support and facilities that it requires.

There’s hope yet for me, allegedly. The bank has set up a startup unit and I’ll call them today to see if there’s anything that can be done. Else I’ll have to look around for another bank. In the meantime, the taxes still have to be paid and the remittance problem solved. Wish me luck!

East African Imports in rural Rwanda?

This highway ‘storefront’ in rural Rwanda made me wonder if the trader had imported his goods rather than purchased them locally. And, further, if they were imports from Kenya.

First, unlike the majority of such roadside shops, he is dealing with multiple products – while all are related to home decor, they are made of vastly different materials – wood, ceramic, plastic flowers. This is so rare that one can say he’s one of the handful such displays I’ve seen. This gives rise to the conjecture that he’s spread his inventory investment across a price range – from a full double bed to a bunch of flowers – to cater to the range of customer expectations on the road. And, that in itself is a sign that he’s purchased them from different dealers as people tend to specialize in product lines they trade in.

Second, it resembles the product lines along Ngong Road in Nairobi far more than the what I saw being locally produced. That made me wonder if these had been imported across the borders – which also underlines the careful display and the choice of the highway to capture the attention of wider variety of customers with differing wallet sizes than just his hometown market.

Today, 5 years after that trip through Rwanda, I’ll never know, but I can wonder out loud, can’t I?

Trading economics: a new theoretical system

From the Financial Times, a snippet from a guest post by Wang Zhenying, director-general of the research and statistics department at the PBoC’s Shanghai head office and vice chairman of the Shanghai Financial Studies Association, summarising the arguments in his new Chinese-language textbook on economics.

“Trading economics” is one new theory emerging against this backdrop. Mainstream economics deduces the macro whole by extrapolating from the behavior of individual “representative agents”. Trading economics replaces this with a systematic and comprehensive analysis approach. It stresses that in an interconnected world, the interaction between trading subjects is the fundamental driving force behind the operation, development, and evolution of economic systems.

Trading economics first analyses the actions of trading subjects, then builds a dynamic trading network among trading subjects through trading relations, and finally reveals the operational rules of the economic system. The rules could be examined from two perspectives: short-term and long-term. The business cycle and price changes are examined in the short-term perspective. The long-term perspective would focus on the rules of economic evolution as well as changes in technology, knowledge, system, and network.

Throughout the history of economics, trading economics is the first and foremost theory to incorporate all economic phenomena into an all-encompassing logical system. It changes the long-standing scenario in the economics field, that is, the macro was separated from the micro, and the short-term from the long-term. Trading economics is a revolution of mainstream economic theories and is bound to exert a great and profound impact on all areas, including economic theoretical research and practical application.


NB: I thoroughly enjoyed reading this summary and expect to contextualize future research with some of the theoretical frameworks as presented here.



A Unique Path to Development Seen for the Informal Economy

Just recently I stumbled over this slim book < 60 pages that analyzed existing data sources in order to frame an answer to the research question they posed:

How did the informal economy―markets and the private sector―develop in the absence of legal and administrative frameworks to support it?

Some of the most intriguing insights extracted here:

And they echo my own statements regarding the East African Community that its the informal sector that’s growing faster and responsible for employing the majority of the population. This makes integration and bridging efforts between the formal and global together with the local and informal even more critical.

The path to integration as described in the book may not apply to the African economies but holds some unusual insights for those in eastern Europe which may struggle with some of the same issues of top down planning and grassroots income generation.

All in all, the step by step approach over the past decade to recognize, and thus integrate the informal sector was much appreciated and if you’re interested, you can download the book here.

TEDTalk video: Recognizing the value creation and economic contribution of the informal economy

My talk given at the TEDGlobal conference in Arusha, this August, went live on at some point during the night a couple of days ago. At that very moment, I was on a Finnair flight from SIN to HEL, so with a wee bit of delay, here’s the link to the video of the talk. Also available is a recommended reading list I curated, along with footnotes.

I just want to add that its high time we considered the informal sector as a commercial operating environment in its own right. This change of perspective will transform the way we think about poverty, it’s alleviation, and, importantly, open the doors to innovating products and services that can help boost productivity and revenues for micro, small, and medium sized businesses across the developing world, but particularly in Africa and India.

By doing so, we can recognize the economic contribution and value creation by women who make up the majority of such entrepreneurs, and put dollar values to their investment capacity and growth opportunities. As long as they’re lumped together under the umbrella term “informal sector”, with its unquestioned assumptions of low skill and low productivity, they’ll remain invisible, and solutions meant to support their development will never reach them.

Voices from the Pacific: Mirroring the Challenges of Informal Market Women Everywhere

ABOUT 80 per cent of all market vendors in the Pacific are women, and these earnings make up a significant portion of incomes of many poor households. In spite of their contribution to the local economy and to markets, women are often excluded from market governance and decision-making. ~ The Fiji Times

Following up from the previous post on cooperative and collaborative financial behaviour in rural and informal economic conditions where I’d stated:

The fact that both simple and sophisticated groups exist within the rural and informal economy imply that the factors that predispose people to turn to cooperative and collaborative solutions for managing their finances in conditions of uncertainty and unpredictability are thus related to factors external to the local culture or society, and have more to do with the similarity of the conditions inherent in the operating environment of the informal and rural economies of the developing world.

These include irregular cash flows from a variety of sources, multiple income streams over the course of the natural year, seasonality inherent in agricultural crop cycles, and lack of a social safety net.

I thought to share the snippet above on an article I came across from The Fiji Times about a Market Vendor Association gathering of women traders from across the island nations in the Pacific Ocean – all the way across our planet from the continent of Africa – and how familiar I found their words describing their obstacles and opportunities. Mama Biashara spans the globe with her trade.

This commonality only underscores our need to capture, document, analyze, and understand the operating environment of the informal economy, thus laying the foundation for its recognition as a very natural and organic response to similar conditions and constraints – a global phenomena, if you will, and thus, not just a local or regional embarrassment to be eradicated.

Savings Groups : Observations on Economic Cooperation and Collaboration in Rural and Informal Conditions

Recently, I was interviewed on communal rural economic behaviour, particularly socially cooperative ones  such as informal savings and lending groups. The questions posed were:

  • How has your opinion of savings group changed over time?
  • Why in your opinion, are people in Africa and Latin America countries (developing countries) predisposed to forming savings groups?
  • What is the importance of appreciating the indigenous financial services of the people of Africa (or anywhere else)?

I enjoyed the conversation reflecting on the lessons learnt over the past decade of primary research on household financial management within context of informal rural economies across continents and countries so much so that I decided to capture my reflections here as an integrated answer to both questions.

On the documentary level, nothing much has changed in the years since I first observed instances of cooperative economic behaviour in rural informal operating environments. Here’s a snippet from the Prepaid Economy Project’s report written in November 2009:

These complex webs of the rural community’s social networks of trust were obvious in the patterns of sharing and cooperation seen in every country. Groups would invest and save together, for example, the extremely sophisticated cooperative ladies lending circle which had expanded over time to include the services of a local bank in India; or the beekeepers cooperative in Malawi where half the annual profits were saved in a common account while the other half was equally shared.

Years later, we’re still documenting the complex webs of social networking and trust in informal economic ecosystems, and the wide variety of organizational structures for financial and economic management.

Its our recognition of the role of such groups, and their contribution to the resilience and the ability of informal economic actors to manage in volatile and uncertain conditions that has evolved, and changed. The layers of knowledge laid down over the years, across the geographies and cultures, now allow me to take a step back from the details of any particular context, and understand the patterns of cooperation, broadly, across continents and cultures.

Furthermore, our own increasing depth and breadth of understanding the highly interdependent networks of commerce and trade within the informal economic ecosystem – from farm gate to cross border trade – have led to us rethinking the concept of the end user, and questioning the assumptions implicit in the way user research is designed for fintech, financial inclusion, and other such related areas.

That is to say, the way my opinion changed regarding savings (etc) groups, over the years, has been to recognize their importance as the basic building block of the rural and/or informal economy in the developing country operating environment, rather than simply observing their behaviour as a means for individual household financial management, as we’d done in the very beginning.

Source Alice’s entire value web can be thought of as an informal economic microsystem

From the human centered design perspective (HCD, or UCD = user centered design), which is the basis for our work here at emerging futures lab, we have begun to consider that the “end user” of our design solutions might as often turn out to be the group, instead of the individual member of that group. This has been the biggest change in my opinion, over time, in answer to the first question

For the remaining two questions, I rapidly sketched this continuum of different types of “informal” groups engaged in financial behaviour as seen in cash intensive, rural, and informal conditions, seen below.

As we have recognized, regardless of continent or community, the group is a basic economic building block. What changes from group to group, depending on its function and its need in the community, is the sophistication of the organizational and money management structure.

On one hand is the simplest form of cooperation – people pool money that one member then receives as a lumpsum to use, only the mechanism of choosing whose turn it is may require some coordination. At the other end are sophisticated economic management structures often with formal registration and recognition.  This includes integration of formal financial institutions and their products – such as leveraging capital in the form of a fixed deposit in a bank for drawing loans, or their services, such as a designated officer from the bank attending chama meetings.

The fact that both simple and sophisticated groups exist within the rural and informal economy imply that the factors that predispose people to turn to cooperative and collaborative solutions for managing their finances in conditions of uncertainty and unpredictability are thus related to factors external to the local culture or society, and have more to do with the similarity of the conditions inherent in the operating environment of the informal and rural economies of the developing world. These include irregular cash flows from a variety of sources, multiple income streams over the course of the natural year, seasonality inherent in agricultural crop cycles, and lack of a social safety net.

Here’s another snippet from the original report of 2009:

Insights derived from the fieldwork lead us to believe that the key factor that makes the ‘prepaid’ transaction model so successful among the BoP is the fact that the decision making is in the hands of the individual. This model gives the end user significant control over time – frequency and periodicity and money – varying amounts, in the hands of the customer and thus fits in with their need to manage their varying cash flow from multiple income sources with a great degree of flexibility.

Furthermore, among rural communities, it was observed that social capital – that is, the community ties and extended networks – plays a significant role in the success of existing informal yet traditional means of borrowing, lending and sharing wealth and expenses.

That is, the negotiability, flexibility, and reciprocity, that trust enables within one’s social ties, is reflected in the prepaid business model that enabled mobile phones to spread rapidly around the world. And it’s this factor that provides the evidence for our assertion that an external business model or payment plan to be introduced into such an informal economic ecosystem succeeds when it resonates with existing forms and structures of financial and economic behaviour.

This is not only why its critical to first observe, document, and understand the existing solutions and behaviours in what may seem to be a financially excluded population, but it provides the keys to the design of sustainable solutions that are successfully adopted and utilized. The bottomline is that the “informal” or the rural isn’t adhoc or chaotic as initial observations might imply, but there are rhythms and structures inherent in the system that may, in fact, be invisible.

Is Your Product Ready for Africa? Why Kigali’s “Smart” Project Faces an Unforeseen Challenge

However, KTRN boss agreed that they share responsibility since they never conducted a profound market research to determine whether the gadgets are compatible with African weather.

“We sincerely didn’t realize that the weather would affect the gadgets”~ Public Buses Wi-fi: Harsh Weather, Incompatible Gadgets Interrupt Kigali’s ‘Smart’ Project, KT Press, 16th October 2017

This isn’t the first time I’ve come across a Korean device manufacturer completely unprepared for the exigencies of the African operating environment. Do we simply hear less about the robustness of Chinese electronic devices, for instance, or do we hold them to a lower standard? That’s a conversation for another day as its an entire screed in itself.

Here, I’ll just introduce our simple framework for ensuring you’ve covered all the bases when developing a new product for a market with very different conditions from your existing ones. Perhaps, it may provide food for thought for both the procurement side of the equation, when thinking about technical specifications and requirements, as well as the potential supplier side, when thinking about entering the African market.

Place: Feasibility

…inadequate infrastructure is a fact of life. Whether is variability in electricity supply in the urban context or lack of it in the rural. Things we take for granted in the operating environment in which these lenses were first framed – pipes full of running water, stable and reliable power, affordable, clean fuel for cooking, credit cards and bank accounts – are either scarce, inadequate or unreliable for the most part.

Feasibility, thus, takes on an entirely different meaning in this context. Each location or region (place) may have different facilities.

This rather obvious oversight has tripped up much larger manufacturers than this. Consider Whirlpool.

Emerging new markets, such as Rwanda’s, are rapidly adopting the latest technology. Is your product up for the challenge?