Archive for the ‘Emerging Markets’ Category

The African Informal Sector: GDP Contribution vs Scale of Human Impact

The informal economy in sub Saharan Africa (SSA) tends to be measured as a share of GDP, counting its contribution to the national economy. By this metric, Nigeria has the most economically empowered informal sector, contributing over 60% to the GDP. On the other extreme, South Africa, has one of the smallest contributions to the GDP from the informal sector, but the highest unemployment rate.

Yet both Nigeria and South Africa are neck to neck when it comes to the title of “largest economy on the African continent”, or place in the top 3. So what does this tell us about these IMF metrics being used to measure the informal sector?

The human impact story is missing from the equations

South Africa might have one of the smallest informal sectors in terms of contribution to their GDP, but the number of people generating their income from the informal sector is almost as large as Tanzania, whose informal sector contribution is more than double, second only to Nigeria.

WIEGO’s research, from which the above employment figures are drawn, highlights the social impact and scale of the informal sector in human terms. Already, the informal sector’s employment opportunities are growing faster than the much smaller formal sectors in most major African economies. New graduates and working age adults still need to find a way to put food on the table.

Its not enough to simply look at GDP contribution when it comes to the complex value embedded (and untapped) in the informal economies of these nations. Where social safety nets are scarce, and systems variable in their functioning, the human and social impact of the informal cannot be ignored in development planning and policy design.

Connectivity, Communication, and Commerce: The 3 Cs of Africa’s Smartphone Led Future

Recent headlines touted the decline in marketshare being seen by smartphones on the African continent, and the concurrent increase in sales of basic devices. Yet a closer look shows that this shift might only be numerical due to the opening of new markets in heavily populated DR Congo and Ethiopia – first time buyers are likely to start with entry level phones.

In fact, role of smartphones in Africa is not only likely to grow and evolve over the coming 3 to 5 years but its very likely that it will be connectivity apps driving their adoption. We Are Social’s latest report shows Africa’s internet user numbers have been growing by over 20% year-on-year.

The 4th C – the Challenge of Unquestioned Assumptions and Great Expectations

With connectivity and communication, commerce was expected to take off but anyone tracking the headlines would notice the challenges faced by African e-commerce platforms. Some point fingers to connectivity as the issue, expecting to reap benefits from scale of penetration. Others point to high costs of data and devices, or challenges with completing the transaction online.

Looking at the patterns exposed by all the reports and the articles makes one wonder whether it’s the underlying assumptions and expectations that are the real problem. The untapped market is hyped out of proportion by each new entrant who rush in with their disruption to revolutionize the African consumer, only to rush back out again when the traction fails to succeed. This has been muddying the waters of what could have been a considered thoughtful opportunity to transform the social and economic landscape.

Yet its not all negative. If someone was to ask me about how connectivity and communication are driving commerce in the African context, I’d point to the plethora of informal trade in goods and services being conducted daily across social media platforms. Everyday there’s a new product or service launched with a tweet. Groups on Facebook encourage and support the entrepreneurial journey. Cryptocurrency trading is making Kenya famous as a first mover.

The difference in traction seems to be that which is self organized and organic vs that which is institutionalized and/or introduced from elsewhere. The external pressure to succeed in the same terms as that visible in the Silicon Valleys might actually be a greater barrier to the sustainable development of the African online community led commerce, increasing pressure on founders and startups with every negative headline. Maybe the lesson from the informal organic growth online is that might actually be a matter of throw the technology at them and see what emerges without lifting the lid every other second to check progress?

Maybe all that is needed is more locally relevant content, such as already being seen emerging from Nigerian and Kenyan tech blogs, rather than the imposition of metrics and heuristics from developed nation contexts.

Mobile First Africa: Opportunity for Accessories that Boost Productivity on Smartphones

Long ago, when smart phones were still on their way to changing the world, I remember the product development of a host of accessories that would boost business productivity in a variety of areas for phone owners.

The projector phone was one such innovation, flopping back when it was launched due to the tech not having caught up yet. I bring this up because I read an article this morning that highlights a major challenge for the ‘mobile first’ African market.

“We hear about mobile-first Africa, it sounds sexy,” said Nanjira Sambuli, digital equality advocacy manager at the World Wide Web Foundation. “But how much meaningful work can you get done through your mobile. Are we creating a divide? We are not going to be equal if mobile is the only way. Because mobile is for consuming.”

Today, technology is far more advanced, and as China has shown us, far more affordable. Can a range of productivity solutions be launched as accessories for smartphones to disrupt the African SME market?

The Japanese are already ahead with their answers, such as this keyboard by Elecom. The products are all out there, I think its just a matter of identifying the opportunity and the price point for the African markets.

The continent tends not to be taken as seriously for enterprise solutions as it could be. Informal sectors do not mean lack of purchasing power or opportunity space. Perhaps this is the sector that is now ripe for disruption by an enterprising entrepreneur.

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: https://bushsnobinafrica.wordpress.com/tag/maasai-mara-game-reserve/

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?

The Strategic Entry of China’s Transsion into the Vacuum Left by Nokia in Africa

Branded storefront in Karatina, Kenya (April 2013)

If you’re outside Africa, you’ve never heard of them before, but a mobile phone brand called Tecno has been painting Kenya blue ever since I started fulltime fieldwork there in late 2011. It was in Mombasa that I first noticed the name and wondered what it was about. Over the years, I saw the line up of phones even in the smallest market towns and began wondering if this brand would be the new Nokia of Africa.

Transsion, Tecno’s manufacturer, has two other brands on the market – Itel, and Infinix catering to different price points and consumer segments. What sets the company apart is that they are solely focused on the African continent and do not even sell in their domestic market of China. This was a strategic decision, as a recent article says, and their rapid success very likely due to the vacuum left by Nokia. They’ve customized completely for the African market, going as far as to develop cameras suited for local conditions, something no other phone manufacturer has done anywhere on the planet.

“For African consumers, a main medium of entertainment is photos – they love to take selfies and share them with friends. The traditional camera was not optimised for the African consumer because often, for those with darker skin, the photos don’t come out well especially in low light. We did research using over 10,000 photos of African consumers to create a special algorithm to optimise the camera to attract 30% more light on the darker face. We call this ‘Africa Focus’. It’s been heavily popular. It improved our cameras and won the hearts of Africans who like to take selfies.

In fact, Itel is so popular among traders in the Uganda Kenya borderland due to its low price and long battery life, that our research associate went as far as to capture the mound of Itel packaging seen on the rubbish heap.

They’ve brought in local languages and messenger apps. They’ve established a factory in Ethiopia to show their commitment to Africa, and they’ve set a full customer care facility – something glaringly missing from any other imported brand’s portfolio.

In my opinion, they’ve done what Nokia could have and should have done, cater to the emerging markets across the developing world where they’d originally begun connecting people.

And, they’ve shown us that it is indeed possible for a consumer product manufacturer to not only focus solely on the African consumer market but to make an outstanding success of it.

Update:

Quartz echoed the story to share the factoid that in Africa, not only have featurephones sold more than smartphones but Transsion’s brands lead the way.

Zambia’s inclusive approach to various sectors in the informal economy is worth noting

The Zambian government most recently announced that they would provide certificates to illegal (artisanal) miners in order to recognize and formalize their activities. In addition, they were being encouraged to form cooperatives – a legally recognized organizational structure – that would permit further benefits to this informal sector.

Compared to the challenges Ghana is facing with galamsey – the local word for illegal or rather, artisanal mining – one must sit up and take note of Zambia’s decision to lower the barriers to inclusion rather than build the walls higher to protect large scale formal extractive industries.

And mining isn’t the only sector to be so considered by the Zambian government. There was an announcement last year of their intent to legalize street vending – the bane of all developing country cities – and bring vendors – mostly women with families to support – within the formal employment and revenue net.

I looked for updates on this legislation and have yet to find something, though there’s lots of news on managing the street vending and hawking rather than the usual method of chasing them off the streets or confiscating their goods. That in itself gives me hope that we’ll see some pioneering advances from Lusaka.

In fact, there’s an article in the Zambia Daily Mail from a week ago that says “Its the perfect time for vendor training“:

Most of the traders on the streets are women who carry their children along due to lack of caregivers at home. For many women, this vending is considered an extension of their reproductive and domestic role. And so they are willing to risk it all and toil all day so that they could earn enough to cater for the following day’s orders and meals for the family.

However, many of these have dreams, big dreams to grow, provide and educate their children to a level where their offspring will never have to earn from the streets. And with the right training, many, with aspirations to grow their businesses and create a brand for their products, could benefit from financial and business knowledge that they could otherwise not be able to afford.

Some vendors have decided to change from trading in goods that are high-risk (these include foodstuffs such as vegetables and fruits) to those that have less risk such as clothing and other products. However, without any improvement in the level of knowledge of the new trade they are about to engage in, many are likely to fail, and they may return to what they know best, no matter how risky it is. It would therefore be prudent for organisations with the perfect know-how to take this opportunity to offer knowledge that will enable them to make the swap with better planning and more confidence.

Street vending is viewed by many as an economic activity for those with a low level of education. But what the cholera outbreak has taught us is that, if it is left without interventions, the negative effects will spread out and affect the whole nation.

The training I am suggesting could include assistance with regard to business registration, opening companies, tax remittances and branding of businesses, among other things.

I can’t help but underline all that is being said, and express my hope that other cities – Lagos, Nairobi, I’m looking at you – will take a leaf from Lusaka’s book.

India’s Hidden Middle Class and the MNC Conundrum

The Economist writes a rather breathless take on a theme very popular just over a decade ago – the Great Indian Middle Class so longingly hoped and wished for still hadn’t emerged to satisfy the consumption habits preferred by the global multinational brands. Where were they, the article shrilly asked, unquestioningly promoting China’s middle class as an MNC success and overlooking all the challenges documented theretofore.

There’s an undeniable consumer boom visible across India, I’ve seen it and documented it myself. The difference this time around is that its a “hidden middle” – hidden from the lenses that MNCs use to identify their preferred customer for iPhones and IKEA, pizza and burgers. Having worked for both an MNC – All India advertising for Hewlett-Packard India in 1996, and an advertising agency – McCann Erickson 1994-1996 during the first decade of market liberalization, I discover I’ve so much to say to this Economist nonsense that I’ll bullet point my thoughts below to grasp some order from the ramble.

  • One of the first things I’d noticed in the March 2017 trip was that the style and flavour of the markets we’d used to frequent had changed. There was indeed a consumer majority now but it wasn’t the global elite preferred by MNCs. Where once malls were full of western style wear, and one could identify a woman’s economic and social strata by her fashion choices, these lines had blurred and democratized so much so that the market itself had changed.
  • Aspirational purchasing meant that pricing had to suit the pocket of the ambitious though the clothes were local versions of global styles. Everyone in the city wore western wear, though obviously of Indian cut and make. What I saw happening was what India has always done for centuries – absorb the foreign influence and make it uniquely her own. Its been two decades and the time is about right for the unique Indian middle class to emerge.
  • This hidden middle harks back to the original concept of middle classes – perhaps a factory worker who is now paid enough to maintain a motorcycle, an ATM card, and all the mod cons in his one room home. Or, the now grown up children, educated in English, taking over the discarded jobs of the former English educated elite in the call centers and the banking halls, the plethora of hospitality outlets and airlines, to bring a sheen of polish that hitherto never existed for their parents’ generation.
  • This middle class prefers their spicy Indian food, dolled up in a fast food outlet, looking like a Big Mac but tasting like home. This middle class will add paneer to their pizza and cumin to their soda water. You won’t see them at all if you’re hawking your pineapple on your ham.
  • This middle is 300 million strong I’d agree with the Indian executives mentioned in the Economist article. They can sense it but they can’t deliver it up in the manner that the research reports and multinationals require. That’s why there’s a huge missing middle, the same reason why Africa’s consumers are invisible for the most part, they don’t look like the Consumer nor fit the segmentation attributes.
  • One quick example that ports across cultures and countries is the taxi hailing app divide – there’s a local variant, Ola, that’s 1/3 to 1/5 the price of the global giant, Uber. The Ola driver accepts a variety of payment mechanisms including cash. He said to us that Uber was more popular in the better parts of town and considered an upper class product, while Ola was for everyone, even his own wife. This kind of brand segmentation exists up and down the spectrum of goods and services, rooted as it is in elements of India’s heritage and culture. And the mass majority brands will always take the lion’s share of consumers away from any imported brand. Unilever is quoted in the Economist article but the company had been known as Hindustan Lever for decades before hand and has faced its own struggles with indigenous upstarts like Nirma.

And, I suspect, that global multinationals, barring a few who’ve been around forever and a day, may never really crack the Indian market, just like they haven’t really done what they’d set out to do in China either. An ideal moment, on the other hand, to rethink the consumption driven growth frenzy required of these brands.

NB: The shopkeeper’s sign claims to sell both wholesale and retail.

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.