Posts Tagged ‘informal markets’

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.

Retail ranking metrics vs Readiness for formal retail #AfricanConsumerMarket

The-ARDI-top-15-18133Continuing the thoughts expressed by Yacine in the previous post, I’d like to explore these rankings and their value. We’ll use the example of Tanzania, ranked 5th by AT Kearney in their 2015 African Retail Attractiveness Index (ARDI).

The ARDI states:

Tanzania is starting from a low base: With only 30 percent urbanization, high poverty levels, and less than $2,000 GDP per capita, Tanzania is in the early stages of development. Therein lies the opportunity—the unsaturated market has one of Africa’s fastest growing retail sectors, boosted by new shopping malls. Compare this with Kenya, which has one of Africa’s most developed markets—but also one of its most saturated.

By the less than clear metrics used in this Index (Kenya, for example, has surprisingly never managed to be ranked at all), Tanzania is a high potential market for a long term retail investment strategy. Yet nowhere is there any mention of local consumer behaviour or purchasing patterns.

The ARDI assumes that a “shopping culture” attractive to modern retailers will emerge organically as these nations develop economically and infrastructure wise.

Last year, South African retail giant Shoprite pulled out of Arusha in Tanzania. Arusha is a major international diplomatic hub, thus no less attractive to supermarket chains than Tanzania’s commercial capital Dar es Salaam.

Here’s some insight from the local paper, that offers some food for thought, and a clear signal that one cannot rely on metrics and rankings alone when considering an opportunity in these attractive yet challenging markets.

With many of Arusha residents still living in single rooms, thus few can afford to buy groceries in advance due to lack of storage space and therefore choose to shop when the situation arises then consume whatever was bought on spot.

A child will be sent to buy things like sugar, rice, cooking oil and charcoal for fuel three times a day; for breakfast, lunch and dinner, the shopping trend will again be repeated on daily basis.

As the result, the city is now dotted with hundreds of small grocery stores capable of breaking their stock down to the last grain in order to accommodate the economy and space conscious customers.

Boasting a population of 500,000 residents and additional 100,000 daily visitors, it comes as surprise that ever since it was made a township in 1948, Arusha has had only one supermarket to date.

Even worse, the one and- only supermarket, which opened here in 2002 courtesy of South Africa’s Shoprite- Checkers, has just fled from the city citing the lack of supermarket culture among Tanzanians but especially those living in Arusha.

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But come 2014 and Shoprite, the supermarket which started it all, announced that it was closing shop, complaining that the large store business had totally failed to pick up even after 12 years of operating in the city.

The South African Supermarket chain somehow did not conduct any research prior to venturing into the Tanzanian market especially Arusha where people buy their groceries only during the time when they need them.

Supermarket shopping usually means walking into the large department store, pushing a cart and then loading one item after another onto the basket before checking out through the computerised counters handled by bored ladies.

It also means that a person or family has to make their weekly or monthly purchases once, and then store everything in the house until the next shopping date. That may require special storage cellars at home, refrigerators, deep-freezers and cabinets, not forgetting the cars required to carry everything home in the first place.

However, in Arusha where accommodation space is hard to find, most residents are forced to live in single rooms or cubicles that serve as living rooms, bedrooms and kitchen at the same time.

With hardly any space to store rice, flour, oil and other groceries, for future use, few ever think of practicing supermarket shopping.

It is the unquestioned assumption that lack of modern retail or formal economy institutions imply lack of an existing shopping culture – local & relevant & appropriate to its context and conditions. The real question is whether a region or country is ready for formal retail culture.

This newspaper article isn’t hard to find, supermarkets in Tanzania would uncover it easily, were the analysts working on these indices and reports considering the entire ecosystem of the operating environment in which retail would operate rather than easily measurable indicators.

These insights are not enough on which to base one’s market entry strategy but more than sufficient to make one pause and evaluate whether a more qualitative and exploratory market survey offering consumer insights and buyer behaviour might actually be worth investing in far more in the first instance than years of losses later. This is exactly the kind of moment you’d want to call us in to help you craft your strategy.

Last mile of achieving cashless

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Last weekend I was walking around Kallio district in Helsinki, when I saw these handwritten signs informing passers-by that mobile payments were accepted here. It was an unstructured neighbourhood flea market where people put their own unwanted stuff out for sale. This is the last mile of cashless transactions in Finland.

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This recent news article informs us 9 out of 10 transactions are already cashless but nobody expects cash to become obsolete anytime soon.

…leading daily Helsingin Sanomat runs a long feature story on the dwindling use of cash for payments in Finland. Recent statistics show that less than one-fifth of Finns use mostly cash to pay for their daily shopping. Among 20 to 34 year olds, that percentage falls to one-tenth.

Even traditionally cash-heavy domains like flea markets and yard sales are making the switch. Many of the young entrepreneurs at May’s Restaurant Day, for example, used the Mobile Pay application or an iZettle payment terminal to handle their transactions.

 

Meeting the challenge of consumer demand

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Karantina Market, Kenya {photo credit: Niti Bhan}

Understanding consumer demand is an inherent part of the informal trader’s expertise. In the cash economy, unsold inventory is sunk cost. The balance between risk and return is a constant juggling, interwoven with the need for incoming cash flow to meet outgoing expenses.

This tabletop – informal retail – caught my attention for its unexpected juxtaposition of products for sale. Day old chicks which you would purchase to raise for eggs or meat and toilet paper. Mama had X amount of surplus cash available to invest in inventory, and one guesses that she’s not a regular market woman or trader so much as someone who saw an opportunity one market day to make some extra cash.

Neither product is a risk, yet in a sense they are both discretionary purchases the customers milling around the market might make if they had some surplus cash of their own. This is an example of opportunity in the margins, for both buyer and seller.

What observations can you add to this?

Introducing Mama Biashara

The Global Entrepreneurship Monitor (GEM) released a women’s report with some eye opening figures.

B7zTsSOIcAAA4ykSimply put, African women lead the world in being their own boss.

Mama Biashara’s business activities may perhaps be more driven by livelihood need and few alternatives but she’s not sitting around looking for a handout either. Pillar of the informal markets that supply fresh food and the solid rock that keeps homesteads running, children fed and schooled, Mama Biashara is an archetype of the informal economy that contributes so much to the national GDPs yet goes unremarked.

Under a new category “Mama Biashara“, we would like to celebrate the endurance, the survival and the commitment that these Mamas, Nanas and Mummies demonstrate every single day, across the continent. Add it to your RSS feed or bookmark it, as we’ll be filling the pipe with more stories about her as we go on.

‘Mpesa si pesa’ – mobile money’s collision with informal sector’s cash culture

Ever since mobile money (MM) came along, ‘cashless’ is all the rage in East Africa. Money experts have a sack-full of reasons why mobile money is good for the economy. The truth is, however, making a case for MM is easy – no doubt, but, one perspective that is often left out in almost all the headlines is how people interact with it (MM). In particular, those living or working in rural/peri-urban “informal sector” micro-economies – matatu drivers, Mama mboga, boda boda guys.

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Karantina, Kenya [Photo Credit: Niti Bhan]

This segment is important for several reasons

  • It makes up 55 per cent of Sub-Saharan Africa’s GDP and 80 per cent of the labour force according to Afdb’s Recognizing Africa’s Informal Sector
  • Sub Saharan markets are mostly dual economies – a mix of formal and informal markets
  • 90% of all transactions in informal markets are conducted in cash money.
  • The unbanked and underbanked are more likely to be found here

Valuable insights, unlikely to come up in the comfort of an office, have sprung out of my regular interactions with this segment.

Listening to the people

Consider Gichage for instance, a fruit vendor in Nairobi who says

Mpesa si pesa” swahili for ‘Mpesa is NOT money’,

right after I ask to pay for my 3 mangoes via mobile money. Or, the same look I get whenever I ask to make low value payments for boda boda flights or lunch at mama mboga’s (less than 200 KES/ $ 3).

“Hauna cash?” – Don’t you have cash?

“Utatuma na ya kutoa?” – Will you send with additional fees to cover withdrawal charges?

Almost always, a quick withdrawal into cash at the local MM agent (at a cost of time and money)  becomes necessary to settle my bills. The rest of the time, I oblige and pay dearly to have them accept my money.

Gleaning insights from the ground

Here, it seems I am a foreigner because, unlike the fancy malls where I pay with card/cash/mobile money – cash (and social capital) are the norm. What’s more, it is not just within this interaction space, but on the fringes as well where, the infomal crosses path with formal and semi-formal sectors & actors. My electronic money – MM and debit cards – is no good here – arguably, “si pesa”

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http://ethnographymatters.net/blog/2014/02/20/a-shift-in-the-business-environment-that-ethnographers-cant-ignore/

Are attempts at replacing cash with digital money, deep down, really about taking on ecosystems? – systems comprising of actors who interact and transact mostly in cash, social capital based debt instruments, community currencies or what have you.

If it is anything like the image above, where cash relationships are a complex web of bubble collisions, then, replacing cash is a greater challenge than we think.

 

This post is a guest blog by Michael Kimani (@pesa_africa) founder of the African Digital Currency Association

The true size of opportunity in Africa

The Africapitalist Foundation’s most recent issue of their Africapitalist Magazine has a cover story on the true size of opportunity in Africa.

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Readers familiar with my exploratory user research and insights from the prepaid economy and the informal sector will recognize the key point being made – that we must look beyond the obvious when assessing the size and value of these opportunities.

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Africa’s emerging consumer markets will provide that challenge to transform marketing in the emerging future. Bridging the gap between the formal and the informal will be key to growth, as demonstrated already by the telcom operators with their prepaid business model.

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If this exciting new opportunity captures your interest, keep a finger on the pulse of this dynamic market by following hand curated news on African markets, innovation, enterprise and industry at @prepaid_africa or via RSS or tumblr at The Prepaid Economy: African Edition

Importance and value of Africa’s informal food markets

Kenyatta Market, Nairobi, Kenya (Photo Credit: Niti Bhan)

Kenyatta Market, Nairobi, Kenya (Photo Credit: Niti Bhan)

There’s a new book released by the International Livestock Research Institute (ILRI) and partners — Food Safety and Informal Markets: Animal Products in Sub-Saharan Africa—that probes the complicated world of traditional or ‘informal’ markets in livestock products. Here are some unexpectedly juicy findings:

Research by ILRI and partners shows that in most developing countries, more than 80 per cent of livestock product purchases occur through informal markets — and in places where there is no ‘formal’ alternative, like a western-style supermarket, close at hand. And the studies find that this situation is unlikely to change for decades to come. Also, even where supermarkets are an option, studies in East and Southern Africa have found that, due to a poorly patrolled chain of custody between producer and seller, milk and meat sold in supermarkets may pose a greater health threat than what is sold in traditional markets.

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Informal & Social Measures in the Kadogo Economy (Photo Credit: Niti Bhan)

Moreover, small producers have many attractions for poor consumers. They are typically within walking distance for people who lack cars and they offer the opportunity to purchase fresh food in small amounts — part of what is known in East Africa as the ‘kadogo’ economy. (Kadogo is street slang for ‘small.’) In addition, many sellers in traditional markets will extend credit and typically offer the traditional foods their customers prefer.

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Uchumi Supermarket, Ngong Road, Nairobi, Kenya (Photo Credit: Niti Bhan)

Many policymakers mistakenly believe that food-borne illness in developing regions will rapidly decline as the modernization or ‘supermarketization’ of food sales steadily supplants informal markets. But the ILRI studies show that Africa’s supermarket food is not necessarily safer than food in informal markets and also that informal markets are unlikely to disappear — and could even become stronger — in the coming decades.

Indeed, the research shows that consumers prefer informal to formal markets, and not just for their lower prices, but also because traditional markets tend to sell fresher food. They also sell local products and breeds, which many consumers continue to prefer — and those preferences seem to intensify as incomes rise. For example, in Africa and Southeast Asia, consumers often prefer local chicken breeds over cheaper imported breeds.

Freshly shredded cabbage (Photo Credit: Niti Bhan)

Freshly shredded cabbage (Photo Credit: Niti Bhan)

Informal markets are growing, not shrinking, across the developing world and in many ways mirror the “locavore” trend occurring in wealthy countries’, said Grace.If we are going to improve food safety in these markets, we need policies that are guided by an understanding of producer and consumer behaviour, local diets and customs, and interventions that can reduce illness without imperilling food security or increasing poverty.’

 A deeper understanding of the entire value web (chain doesn’t apply as the rural ecosystem is as unstructured and informal as the markets) of  these informal markets for meat, milk, vegetables and other foodstuffs will offer greater value than towards informing policy alone.

Informal retail is expected to grow, and “supermarketization” will neither come fast enough to change this any time soon, nor be able to replace the complex role the bazaar plays in both rural and urban contexts. This is worth remembering for consumer facing brands, especially in the FMCG sector, as well.

Informal trade is big business in Africa

On my way to Nairobi  from Singapore a couple of years ago, I had the opportunity to observe first hand the phenomenon of informal trade between China and the African continent. The energy and excitement of the traders, laden with goods on their way back, was a palpable part of the inflight experience. Today, I came across this bit of news showing that the airline recognizes the sizeable opportunity available in successfully serving this rapidly growing economic activity.

A Kenya Airways ticketing office at Tea Room area near the intersection of Accra and River roads has sent a signal of the growing significance of the informal economy to big companies seeking to grow their top line.

The Tea Room area is a hotbed of informal traders, who import vehicle spare parts, stationery, mobile phones and accessories, building materials and computers, among other goods.

The traders frequent favourite import destinations such as China, Dubai and Turkey, which offer relatively cheaper goods.

“Tea Room is a prime location, accessible and a central point for a large number of small-scale entrepreneurs in town. This shop will therefore offer opportunities to traders for direct interaction with our staff and this will enable provision of tailor-made services to this market segment,” said Kenya Airways managing director Mbuvi Ngunze in a statement. ~ Business Daily, 11th Jan 2015

This recognition of the important role played by the so called informal market for consumer facing businesses is one that will become increasingly visible. And, I suspect, its an overlooked opportunity for local brands to gain market share and first mover advantage. Here’s a complementary snippet from an entirely different industry:

To win his first mobile network operator licence, Zimbabwean telecoms tycoon Strive Masiyiwa based his projections not on “World Bank numbers” but by studying the informal sector.
[…]
Masiyiwa explained Mascom came to its numbers by recognising the strength of the informal economy and understanding the local market. “I understood the informal sector was real.”

He suggested that even knowing the number of cattle in Botswana can offer insight into spending power. “Cows represent wealth in Botswana.”

Like Masiyiwa, we’ve been able to identify indicators to assess size and value of a particular industry or segment, though it may be undocumented and considered informal.  Some are common across regions, like wealth in the form of the cow, while some need to be identified and validated for the task at hand.

Regardless, the fact remains that the true size of the opportunities still remain undiscovered.

More or Less: the flexibility of the informal

One of the things that stood out for me during the recent household consumer behaviour study was the lack of weights and measurements used to sell foodstuffs and commodities in the market. There were no weighing scales at all, unless they themselves were for sale. Instead, some form of “socially accepted” measure was used to display various quantities and their price.

Shelled green peas can be purchased by quantity displayed, and similar containers can be seen for dried fish and ground coffee as well. When asked, the shopkeeper may refer to each measure by “weight”, saying this is “half a kilo” or that is a quarter but in reality, these are simply approximations.

The dried fish has been more generously piled than the shelled peas, and this too is an interesting variance – primarily across product category rather than different shops. In a market, shopkeepers with similar products act like a cartel and offer similar quantities for similar prices (unless bargaining brings down the amount or a lagniappe is thrown in.)

Note how the ground coffee, which is slightly more expensive, is displayed in far small containers, catering to the purchasing power of the consumers frequenting the market.

This is called a ‘deben‘ and it is a standard measurement for charcoal across the entire country of Kenya. Prices naturally fluctuate between rural regions and city centers, but the container itself is ubiquitious though the actual amount piled on top might change according to the frugality of the seller.

This bagging was a surprise though, as I’d only seen it otherwise in rural Philippines (in informal markets, not supermarkets). This is not common.

These so called “social measurements” are intriguing to me. They are rough estimates and approximations and no two piles or containers will ever be alike, yet customers are quite willing for them to be priced the same. There is no pressure to measure exactly or purchase by weight of commodity, something so common in the wet markets of Asia. It seems to me there’s a link between this behaviour and the level of informality of the local market, as well as a greater willingness to accept that something might be “more or less” okay. How does this relate to local perceptions of time and money, the two key uncertainties in these challenging operating environments?

Your thoughts?