Posts Tagged ‘economy’

It’s way past the time to consider the Informal Economy as a distinct commercial environment

Brand stickers on avocados displayed for sale on a highway, Kenya. April 2013

Regardless of continent, it is now high time we accepted the informal economy (unformal or unrecognised or unorganized sectors) as a commercial operating environment in its own right.

The continued oversight is rapidly coalescing into a gaping void of hiccups and failures, by large companies, non profit institutions, and startups, alike. This issue goes far beyond “understanding the informal” or recognizing the fulltime professional status of the service providers that I’ve written about before.

It’s about the problems created by continuing to assume every individual is poverty stricken and struggling to make a livelihood simply because a significant portion of their commercial activity operates outside what is rarely defined but is assumed to be the formal, structured economy held up as the pinnacle of economic development.

It’s why academics can barely conceal their flabbergasted surprise that a person has a better quality of life, and a reasonably viable revenue stream in [gasp] informal market trading, or even agricultural work.

It’s why @pesa_africa questions the continued transplantation of e-commerce business models directly from Seattle to subSahara given that they’ve tended to wither on the vines.

It’s why market women and traders pay the price of daily harassment and abuse by those given authority over their peace of mind.

And, it’s also why the freshest produce gets to you first thing in the morning in Nairobi or Cotonou or Kinshasa.

This is not meant to be a paean to the hardworking women and men who keep the engines of commerce and trade humming in the harshest of environments with scarce resources and inadequate infrastructure.

It’s the first step in acknowledging yet another holdover from a colonial past that decades later still hampers and hinders the social and economic development that should have happened by now, by all rights.

It’s also the necessary counterpart to the recognition of agency required for design interventions to succeed once donor funding ends.

This theme is consistently covered in this blog in the category Biashara Economics and hashtag #biasharaeconomics

New Delhi Notes 2015

I was in New Delhi for just over a week at the beginning of June, visiting after a period of 3 years, and so many things caught my attention that I thought I’d do a round up of my observations, just like I did 10 years ago.

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Systems implemented and working. The impact may not be visible to a first time visitor or someone living through it. Immigration at the airport didn’t need me to fill in a disembarkation card anymore. As a citizen with a machine readable passport, I was ‘in the system’ already. The bank was virtually empty. I’d never seen it so desolate until I noticed this e-Lounge next door. My request for a debit card was handled instantly and the card handed over. Yes, I can use it for internet payments too. Ooh, I’m now part of the Great Indian E-commerce boom.

smallbankSo, Sanjay tells me all about ‘those purchases you make and then they send it to your house and you can use Paytm’ – e-commerce, without ever once using the world Internet, e-commerce or speaking in English. His own commitments (the last baby turned out to be twin girls) keep him from splurging on a smartphone but he keeps a SIM with his Whatsapp and Facebook accounts to use on his friend’s phones. Sanjay is my go to “aam aadmi” or representative of the emerging Indian middle class, in the classical sense. He’s a blue collar worker in maintenance, with a motorcycle, consumer electronics and a daughter in private English medium schooling. He only has vocational training and high school equivalency certificates.

IMG_2219This startup received 9 million dollars in funding and splashed out with billboards in key neighbourhoods. Brother in law who’s head of McCann Erickson in India tells me its the classifieds they use. And yes, this ad shows one of the unique issues of going online in India.

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Gentrification is everywhere. Even in the jhuggi-jhopdis. People’s clothes are brightly coloured and modern and cheap. I bought two excellent t-shirts for Rs 150 each ~ 2 euros and some odd cents, at least 40% cheaper than similar street vendor prices in ye olde shopping mecca of Singapore. I mean, branded coconut water kiosks, really?

smallmobilityThe Metro is bringing mobility on a scale that’s changing the landscape of the city. Another 3 years and where will we be?  What struck me was even with the worst heat wave in years, the power went off only once, that too for a couple of hours, something that had never happened before. Summer is always the time for load-shedding due to the higher consumption of air conditioning and other electricals.

smtaxiAnd if you have money, its app-driven public transportation for you. Ola is what everyone talks about. Apps are becoming commonplace. 10 years ago, when I was first told to keep an eye on the mobile phone and way it would change things, in everyday life, was this the future we’d envisioned for ourselves?

IMG_2200But for all that technology and infrastructure and systems, cash is still king with many shopkeepers laughing off mention of mobile payments and gizmos to stick to what they know. Paper and coins.

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The informal sector is still the provider of income and employment for the majority and the mindset of scarcity means the culture of repair, re-use, re-purpose and resell hasn’t gone anywhere. Even if its been glitzed up with spit and polish.

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Its never going to be “normal” or “conventional” but its definitely signs of social and economic development. India has come of age.

 

 

Sharing insights on the ROI of cow ownership with The Economist et al

Dung cakes provide free fuel for the rural housewife (photo credit: Goverdhan Meena)

While the internal rate of return (IRR) of a cow may certainly be in the high negative numbers, per the recent Economist note on research, there are other elements of the cost/benefit analysis that also need to be taken into account when considering the real value of owning livestock. There are differences based on region and locale naturally though the patterns of economic activity might resemble each other due to similar challenges. Here, I will mostly look at the rural Indian context.

1. Fuel

Rural households without access to the electric grid use firewood and cow dung cakes for cooking and heating in India. Cow dung as fuel is not used to the same degree of prevalence in rural Africa as it is in India. Above is a photograph of a typical village home in Rajasthan, western India. You can see the source of fuel, the black buffalo, tied up next to the work area. During the dry winter, dung is collected, mixed with bits of twig or straw and shaped into patty cakes by hand and then left to dry. After they have sufficiently hardened, they are stored for future use in their own shed.

Dung is slow burning and retains heat longer, while wood catches fire quicker so a combination might be used based on the day’s menu or if wood is not available. While labour cost has been calculated for the upkeep of a cow, it does not take into account the labour cost of foraging for firewood whereas the dung is both free of cost, plentiful and easily available right there at home. This pattern of juggling more expensive fuel with cheaper fuel (here, expensive and cheaper can also be said to be easily available or convenient and less accessible or time consuming to obtain) is prevalent in rural households observed in The Phillipines, in India, in Malawi, in Kenya and in South Africa.

2. Fertilizer

Organic, free, sustainable fertilizer. Enough said.

3. Milk

Even if the women in the household may not be able to afford a cow or it may be considered a man’s possession, she usually has a nanny goat or two for milk in the morning. When there is no access to the electric grid, nor home appliances to preserve it for longer than a day, then the best way to access fresh milk for the morning cuppa is directly from the udder. With larger livestock such as a buffalo or cow, the quantity maybe sufficient for cash sale to the ubiquitious chaiwallah if noone else. Milk and milk products such as yoghurt and cottage cheese (paneer) are a part of the Indian vegetarian diet. Sales provide an avenue for cash money, necessary to the most self sufficient farm, such as for mobile airtime or salt, oil and tea leaves.

4. Investment

An assumption that these recent discussions on the ROI of a cow or buffalo seem to be making is that the cost is that of a fully grown animal. Few lower income households could afford mature livestock and the majority would tend to purchase a young calf. Whether its subsequently fattened for food, such as in The Philippines or for milk and young, such as in India and Kenya, the comparative affordability of a calf is such that the value of the mature animal is considered a worthwhile return on investment. In an emergency, livestock is a walking fixed deposit, to be sold for ready cash. In parts of rural Kenya, livestock prices are known to be depressed at the beginning of the school year as parents prepare for fees, books and uniforms.

5. Status

When it does not make sense for you either purchase or park that shiny Mercedes in front of your humble home, how do you communicate wealth and status?

The walls are plastered with a mixture of cow dung and mud before the womenfolk decorate with traditional designs. Dung is considered a purifier and has myriads of uses. This household clearly sends a signal of its status in the village and its ownership of a producer of fuel, food and fertilizer.

As Singh notes, the respect and regard paid to cows in India is well known, but the importance to rural Indians of the dung and urine of this sacred animal is often ignored. “Cow dung is used as a cooking fuel, sanitizing cleanser, construction material, for insulating and waterproofing walls and floors in rural houses, as a cultural symbol in religious worship and the raw material for producing organic compost and generating electricity.

Discussion

Further discussion on the findings published in The Economist was by economists Daren Acemoglu and James Robinson, in a post titled “Cows, Capitalism and Social Embeddedness” where they say:

 What to conclude from this? Perhaps one explanation is to embrace the idea, once popular among some social scientists and recently gaining some further traction in more sophisticated forms among development economists, that poor people are irrational and cannot make decisions in their own best interests.

An alternative, however, is provided by the anthropologist James Ferguson in his book The Anti-Politics Machine that is a study of development problems in Lesotho in Southern Africa. There are many points to this book but one of them is to show that economic analyses that failed to take into account the social ‘embeddedness’ of economic behavior often come up with spurious interpretations of what is going on — and as a result, give irrelevant policy advice.

The consistent behaviour, call it socially embedded or irrational foolishness, that has been overlooked in these highly learned discussions is that of emphasizing self sufficiency and independence from the formal or cash based economy

Cattle are but one of the many means rural households utilize to ensure that they need the absolute minimum cash money outlay in their daily household expenses. Labour cost is rarely that of the head of the household, most cows will be looked after by youth or womenfolk on the homestead. What is a daily challenge for those who live on the land and off of it is the availability of actual coins and paper notes for conducting transactions. The seasonality of the harvest, yet another element that tends to be overlooked by urban educated professionals receiving salaries in digital money directly deposited to their bank accounts, implies that any significant amount of actual tangible cash money is also linked to that period of buying and selling on the market.

For the rest of the natural year, there are very few sources of cash money available to even the most self sufficient household, and this is a behaviour that is emphasized. Most everyone interviewed will proudly proclaim just how little they need for external purchases, pointing proudly to their sources of “free” fuel, firewood, daily milk or dairy, and of course non perishable staples like wheat or rice.

This pride in the rural resident’s self sufficiency and independence from what they see as the burden of ties to cash money requirements is not something that any amount of data collection, metrics or economic rationality can ever quantify nor replace, as The Economist suggests, with mobile money as an alternate savings mechanism.

Rise of tricycle pushcarts in Mexico

ClubOrlov has a guest post from a small Mayan fishing village in Mexico by a writer only known as Albert, who observes this informal economic activity and its players closely:

photocredit: author

What struck me is that I cannot recall a time in the past decade that I have been observing these vendors when there were more of them. Call it a sign of the times, but every few hours another passes by the front of my house, shouting out what he or she is selling. In the morning its newspapers and fresh, hand-made tortillas. Around lunchtime is it fresh garden vegetables, epizote, bread and other kinds of unprepared food. There might be a tricycle for fruits and juices, another for tomatoes, onions and peppers, another for potatoes, beans and rice. By late afternoons they may pass by with fresh sweetbreads, steaming hot tamales, or corn on the cob.

A man with his tricycle grinding stone offers to sharpen machetes, knives, scissors, shovels, or any other sharp objects. A man with a blender (12V but it could as easily be pedal-powered) makes cups of shaved ice with sweet corn or coconut.

You can buy a tricycle brand-new, assembled, already painted in taxi colors of orange and white, and be ready to take a fare straight from hardware store to wherever they are going. The price of a new Chinese-built trike is 3200 pesos, about US$229.32 at today’s rates. The board that goes across the bars for a seat was salvaged from the trash at no cost, but perhaps some cushioned fabric is sewn over to help you through the potholes. Typically a fare pays 20 pesos ($1.43) for up to a 10-block ride.

I asked a tortilla vendor who plies a regular daily afternoon route how much he sells in an average day. “100 kilos” is what he said. His corn tortillas sell for a 3-peso mark-up over the tortilla factory (and there are three of them within a 5-block radius). So if he sells 100 kg, he makes 300 pesos per day, enough to pay for the tricycle in just under 11 days. Perhaps his wife has a masa roller and automated oven at home and he makes his own tortillas and the margin is even better.

Stopping by the largest of the tortilla factories in town — a one-room addition to a family home, which now employs three women from outside the family to turn corn meal masa into machine-stamped tortillas — I inquired how many tortillas they make in a typical day. “Ocho o nueve,” she said, meaning eight or nine metric tons — 8000 to 9000 kilos — and remember, this is just one of three within a short distance, and many people prefer to make their own at home. The entrepreneurial drive explores for available niches and fills them. Many of these factories supply restaurants and grocery stores. Retail home sales pass through bulk buyers at the tortilleria, like my local trike man, who do just fine with the small margin people are willing to pay for the convenience of not walking around the corner.

I noticed that my man sometimes gets lucky and lands a really big sale, however. Maybe someone is throwing a big party (and this happens often) and needs 20 kg. Or a tendajón finds itself short on a holiday weekend and buys 50 kg. His route is pretty small, just a few blocks, but if his son could run his trike in the mornings, or a second trike in the afternoon when he is making his rounds, perhaps he could extend his family’s range and double their earnings. Then again, as I’ve seen, he’s not interested in that, preferring to live quite adequately on 300 pesos per day ($21.50) in a town where the average unskilled worker makes even less than that. Or perhaps he has another job already and is just enlarging the family’s income by putting in a few extra hours while schmoozing with his neighbors.

For me, I’d rather save 3 pesos and ride my bike a couple blocks to the tortilleria, but that’s mainly because, being a writer, I need excuses to force myself out of my chair. As times have become tougher for average people, I’ve also noticed more homes along my bike route opening their front rooms to make tendejóns or comidas economicas. A comida economica provides a home-cooked meal with table service, giving the buyer a plate of whatever the family is making that day. A tendejón is an informal home store. It might have home-grown pigs, chickens or eggs for sale, or garden produce. It shares the same root word, tener (to have), as the more formal store or mini-mart (tienda), but whether for legal reasons or just wanting to keep it more neighborly, a tendejón is an unpredictable collection of wares in someone’s living room, next to their Christmas tree and fluorescent blinking statute of the Virgin of Guadelupe.

Between the tendejón and the tienda lie the more formal abarrotes, or package stores, which usually sell cold beer, insect repellent and junk food. These are usually under a residence or in an adjoining building to the family’s principal dwelling. There are one or more abarrotes, tendejóns and tiendas on nearly every block.

Tricyclos are a common sight in much of Yucatán Peninsula, as they are in Asia, Africa, South America and other parts of the two-thirds world. In the United States you mention a tricycle and people think of Monty Python or Laugh-In. In the global south they are multifunctional and ubiquitous. You see them as fishermen’s friends, beach-roving gear-buckets for surfers, portable crepe parlors, bellhop cabin service, and the poor man’s moving van.
 

Our two shillings worth on the Kenyan ICT revolution

The World Bank’s Wolfgang Fengler has recently written a blogpost titled “Learning from the Kenyan revolution” referencing the penetration and use of not only ICT devices but also mobile money services. He makes optimistic predictions for the futures, viz.,

What are the lessons of Kenya’s ICT revolution for the broader economy of Kenya and for other countries? First, this revolution is not just for the young tech-savvy programmers that huddle at iHub. ICT is no longer a niche sector of the economy. It has become mainstream and affects virtually every actor and every sector of the economy. It’s misleading to talk about a so-called “new economy” because it has in fact changed the way the old economy is operating. Over the next years, the biggest innovations will probably come from the incubation of technology in “traditional” sectors. The financial sector is already in the midst of this transformation, with mobile money as the most visible sign.

This is truly a revolution on many levels observable and prevalent across socio economic strata – those who may choose set a different bar – without contextual understanding of the local landscape – are welcome to miss the boat when its left the harbour.

From small market towns in rice growing districts (where we’re told 3-5 mobile broadband modems are sold each month) to urban metro malls piloting pay as you surf (by mobile money) wifi hotspots in cafes and restaurants, the internet landscape (the ICT or even mobile landscape even) is rapidly evolving so much so that different parts of  the country display a fragmented distribution on the market maturity curve.

The two urban metros of Nairobi and Mombasa have plateaued (wrt to cyber cafes as the key access point thus leading indicator given their role as gatekeepers to access) and are showing signs of decline even as the number of personal computing devices imported into the country show 100% growth year on year. Increasing policy driven digitization of government and educational services – from tax return pin numbers to examination registration or even booking bus tickets – mean that the smaller population centers are now steeply on the growth curve, with signs in certain provinces that this diffusion will only spread further outward.

Couple this with more and more affordable and ubiquitious smartphones and data enabled handsets, those who otherwise wouldn’t require either computers or the internet for their work, are now going online due to the pull of social networks like Facebook. For an extremely socially connected and communicative society, this fact alone is driving data sales for mobile operators as the Facebook generation goes online – Kenya has an 85% literacy rate and the median population is in their mid teens.

Is it changing the way people do business or is it a revolution quite unlike one that could have emerged from Silicon Valley or Bangalore? I do believe so – as the critical mass of mPesa users as well as dropping costs level the playing field, enterprise level solutions traditionally the purview of large corps like an Oracle or a SAP such as payroll management and real time inventory control, are migrating – cheaply and effectively – on to the mobile platform, able to reach the hitherto unconnected or unbanked on irregular income streams such as manual laborers or the tiniest village kiosk.

It is this shift where the mobile platfom innovation will truly revolutionize – it has yet to occur in a more “tech” oriented India, but it won’t be long before these cost effective and technologically relevant solutions to securely pay farm labour by phone without trucking cash into fields yet being able to manage wages for 5000 or more migrate to the Indian environment. The solutions make too much sense not to consider them, perhaps the next leapfrogging will be over the desktop/mainframe divide.

The caveat however is that we should not assume that people will go online the same way we do in our broadband nations with unlimited bandwidth and years of contextual knowledge not to mention the plethora of relevant content, nor should we assume that the observed ICT revolution would necessarily follow any previously mapped trajectory of other regions or technology clusters. The environment is in extreme flux yet it is this plasticity that also makes it an extremely inviting opportunity for innovation in services , with all the potential for positive change that yet-to-be crystallized environments imply.

Kenya’s Kadogo Economy

Charcoal seller Margaret Nyambura, a widowed mother of four, used Sh100 we had given her to shop for food and household goods that would last her family three days.

Her priority was cooking oil and maize flour, which cost her Sh20 and Sh10 respectively. Each was measured in portions to fit her money. She bought twenty spoons of sugar worth Sh15, although in lean times she can get a small ration for Sh5. She bought tea leaves worth 15 and Rice worth the same amount, then left the rest for sukumawiki (kales), tomatoes and onions.

Everything is sold according to the amount of money one has. Things that go for one shilling include one slice of bread, five match sticks, a spoon of tea leaves and sugar, half a spoon of cooking oil, a quarter candle stick and a slice of bar of soap. Indeed, one bakery based in Industrial area now supplies half and quarter loaves of bread to Mukuru slums. ~ Every coin counts in slum ‘kadogo’ economy, The Standard, Feb 2010

When I read this detailed description of Mrs Nyambura’s shopping behaviour, I was immediately reminded of the way customers would shop in Ma Fe’s little sari sari shop in the Filipino village, right down to the ‘finger’ of sugar they would buy for 2 pesos. Intrigued by the similarity, I dug up a little more about the so called Kadogo Economy of Kenya and here’s a 3 minute video from the news as well as a few more articles from last year.

Whats interesting is that The Philippines is the other country well known for having pioneered a successful mobile money platform in GCash although their airtime tends to expire at the smallest loads within 24 hours.

The next question then is, what would be the buyer behaviour and decision making amongst this demographic when it came to purchases on the mobile platform or made via the phone? And thus, how does it map on to the insights derived from the original rural research on the prepaid economy that could influence the design of more relevant business models and payment plans meant for this mass majority market?

Something that I would like to follow up on while I’m in Nairobi next month. Watch this space.

Coping Strategies as Food Prices Soar

Surging food prices, partly due to the lowest monsoon rainfall since 1972, are being widely reported in India this month. I’ve been asking  female informants and neighbours at Dharavi how they are managing the pressure on household expenses.

Many tell me that they are adding more water to some dishes – making thinner dhal for example. Some pitch in together between a few households to make weekly trips to larger wholesale vegetable markets by train. Most of them already buy onions in bulk locally and have noticed a sharp increase in current prices so are now using less per meal. Larger families reported that they are cooking without coriander and with less chilli as these items used to be thrown in by vendors for free with a decent purchase but with recent price increases this practice is being curbed. One woman told me she had been experimenting with cooking the leaves of cauliflower which she used to discard.

During earlier price hikes many mention that they would add potatoes to other vegetables to make them go further – but most women I spoke to seemed well aware that potatoes in particular have gone up a lot in the last month. News about the price increases have been widely reported across news channels and most people I speak with have access to television. And for those who don’t – this kind of locally relevant news travels quickly through the community.