Posts Tagged ‘income’

The hidden cost of doing business #informaleconomy

household shop

Kenya, 2nd Feb 2016. Photo Credit: Emerging Futures Lab

This looks like its a low cost business operation with low barriers to entry. All you need to do is find a decent tree under which to display your wares.

The reality is that these entrepreneurs have numerous fees and costs that they must pay in order to do business, regardless of how informal it all looks. They pay rent for that space on market day, they pay the council in order to transport their wares, they need to pay for transportation, and any assistance they might need for loading and unloading, they even need to pay the various formal and informal “tax” collectors on the road to this market town.

There is a cost to doing business, and there’s uncertainty of income and cash flow. Some of these fees might be fixed or known, but some, like the amounts asked for, along the way, might be dependent on the mood of the officer, or even, the weather.

On the other hand, these fees and taxes and payments ensure that the retailer has a decent location in the market, that they won’t be harassed or chased away during working hours, and that the “system” – chaotic though it might seem to our eyes – will serve their needs.

If you were ask them what they think of this, they would shrug their shoulders and tell you its just the cost of doing business.

The end of the global middle class: A more frugal world?

The past half decade‘s worth of financial crises and increasing scarcity of resources have led to an increasing equalization in the global water level. Instead of the high tide that would lift all boats, the leveling off of growth is leading to an entirely different equation of purchasing power parity. Tomorrow’s equilibrium seems to imply a more frugal world. ~ Niti Bhan, 2012

I wrote this concluding paragraph just over 3 years ago. Today, I look at research from Pew that informs me the great American middle class has declined by half. An article on the Indian middle class claims they’re actually the world’s poor. And the mythical African middle class emerges, floats and sinks, sometimes all at once in the same article.

Water has found its level, and its barely staying afloat.

If indeed the global demographics are changing such that what was formerly considered the “middle class” by the metrics of the day do not apply anymore, would it not make more sense to rebase and then assess who is in the middle than to go chasing the golden children of the boom years long past?

Or, one could just stop looking for these unicorns everywhere and take the trouble to study the people who are the majority in these markets.

Either way, what was is over and what’s emerging is more frugal world with thinner wallets, fewer bank accounts and propensity to pinch their pennies. The data demonstrates it clearly enough.

Acknowledging the value of the informal sector as an economic engine

Chief John Kolawole, the General Secretary of Trade Union Congress of Nigeria (TUC), on Friday urged the Federal Government to harness the informal sector for economic growth.

Kolawole told newsmen in Lagos that the sector was well endowed with economic resources that had not been exploited.

“The informal sector, which is made up of hairdressers, mechanics, plumbers, caterers, etc, is largely unassisted and with no concrete government programme to raise the sector’s contribution to our economy,’’ he said.

`He said some businesses in the sector which had made impact on the economy and created jobs were sponsored through private efforts.

“For example, Nollywood and the `pure water“ (sachet water) business are two economic zones in the informal sector that have become huge employment areas through some people’s ingenuity,’’ he said.

Kolawole said that the time was ripe for the government to delve into other untapped areas in the informal sector to boost the economy and create more jobs. ~ Leadership May 2012

This snippet led to uncovering more such news of governments applauding the contributions of the informal sector for offering their citizens opportunities for income generation and employment. Given that this sector has tended to be suppressed, as Robert Neuwirth often chronicles on his Stealth of Nations blog, is this increase in conferences and events focused on the informal economy a weak signal of its importance and relevance as the ‘offical economy’ suffers in the more developed world?

Island Life

Shankar Jadhar’s friends describe him as an “all-rounder”. The 40 year old Dharavi resident is married with 5 children and lives close to the traffic island which he has laid unofficial claim to, from where he conducts his business. He had been a barber for 20 years but when the road was altered 5 years back he lost his barber’s stall. Now he’s set up a makeshift stall and a shack to store items for his work in Dharavi’s recycling chain, encompassing multiple sources of income from the single location.

He buys various items (shoe soles, plastic bottles, glass bottles, wiring for its coper content) from local ragpickers which he then sorts and cleans up to sell on to middle men who deliver specific goods to recycling units elsewhere in Dharavi. There are bigger operations that do the same job utilising salaried workers but Shankar enjoys the independence of being self employed and amongst his community as he works. He makes better money from his recycling enterprise than his barber stall so he’ll make haircut & shaving customers wait till evening if he has a big haul of recyclables to get through.

On average he profits Rs 150-200 per day. Sometimes he employs up to 2 others to assist when he has a lot to get through (paying Rs 30-50 per day). On further questioning of his friends it seems that often others help him for short periods at no cost as his spot is a kind of neighbourhood hangout centre – though I’ve noted on numerous visits that Shankar is always busy on something and doesn’t sit around himself. Although he has erected a semi-permanent structure on the traffic island, the authorities have turned a blind eye due to the bribes he pays 2-3 times a year (Rs 100-200). Being well regarded in the area, Shankar has never been a victim of theft.

During monsoon his earnings are reduced by around 25-35%. He also fails to earn if he is sick or during the 3-4 weddings he attends a year plus income drops during the monsoon season. I’ve started to discuss savings and loans with him and will be getting more into this during upcoming interviews. His income is supplemented by his wife’s Rs 2000 per month salary which she earns washing dishes, etc for a middle class family in Bandra for 4 hours daily.