Archive for the ‘Informal & Flexible’ Category

Kenya’s informal economy clambering on to the information highway through their smartphones

Sometimes cliches are the only way to communicate the sheer breadth and depth of the transformation now undergoing in the informal sectors, such as trade and light manufacturing, thanks to affordable smartphones and data bundles.

I began calling it digital and not online yesterday when we discovered many people didn’t recognize the word “online” in a question, and thought of it as their smartphone or an app. The next billion online, with their prepaid airtime on low cost devices, have recognized the market potential of the “internet” in the form of Facebook but do not yet recognize the concept of either “online” or the internet.

It was commonly perceived as things you could do with a smartphone that you couldn’t with a feature phone. MPesa, with its robust USSD system, could be used with a 15 year old phone, and thus, like sending a text, or making a phone, has become a basic feature of their mobile phone.

Everything else is magic.

Kenyans have leapfrogged more than just landline infrastructure in their embrace of mobile telephony. They also leapfrogged conceptual understanding of the internet, websites, HTML, and pages, that those of us who began with desktop or laptop computers had visualized conceptually as a model for our own need to understand the system.

We’re seeing wholly new ways of thinking about apps, tools, and services in the “digital world” – which, I find, is the easiest way to describe the span of technologies that most developing countries must straddle – from 2G to 4G and 5G, African countries can’t afford to turn off 2G like Singapore can. Too many people are still using old Nokias, and I was able to purchase an unboxed 2009 model Nokia for $25 in Nairobi’s Central Business District last week.

The future will remain unevenly distributed in the digitization of the informal economies of developing countries, but this is giving rise to interesting developments. Where the system is technologically “backward” as compared to the linear progression in the developed world, it will not have a development path to follow but will and does go off in its own direction of transformation.

What we are seeing here in Kenya is a hybrid digital economy that can be accessed by both featurephones and smartphones, the only caveat being the tradeoff made on the richness of information streams available for each category of device.

This to me also feels like what the mobile internet experience will be like for another decade in Kenya, and a local approximation of societal and demographic change for any other developing country context.

What will not change is the vast majority data management habits – 97% of Kenyan mobile subscribers are on prepaid airtime plans, although there does seem to be a segment of customers who are beginning to see the advantages of postpaid services. I met one of Kenya’s 3% – a Safaricom Platinum customer.

Lessons from African Fintech for the Gig Economy

Earlier this week, I had the opportunity to share my research on the past decade of mobile ecosystem development across the African continent with Dr. Antti Saarnio, founder of Zippie; co-founder of Jolla (developers of the Sailfish OS, among other things).

“We want to test our product first and foremost in Africa because there is an extensive and established informal economy,” he said.

That captured my attention immediately, since few think of the Africa’s vast “informal” commercial operating environment as a strength to be leveraged for competitive advantage, preferring to hope against hope that it will disappear into thin air to be replaced by the more familiar structures of the formal and organized sectors.

And, it got me thinking about the African fintech space, and the lessons it may hold for the rapidly proliferating gig economy in the ‘developed’ world. And, since at this point of time, all I know of Zippie, Dr. Saarnio’s latest venture, is that it’s a blockchain based mobile OS – not the kind of thing that you’d expect to be piloting in Africa – I asked him to elaborate on his thinking a little further.

Easy, he said. Not only does the informal economy dominate, with established norms and coping mechanisms, but its a mobile first and mobile only environment where people are already comfortable with the exchange of value in digital form, be it airtime or currency. People are already incentivized to think about boosting their productivity through newfangled digital tools on their smartphones. More often than not, the younger urban population is educated and tech-savvy, and in places like Kenya, ready to try something new.

I couldn’t argue with his assessment. In fact, I’d take it a step further, based on my own decade’s worth of research into the informal sector’s financial behaviour and cash flow management practices. The developed world economy is beginning to show signs of convergence, in pattern and in the types of challenges faced when attempting to manage in highly uncertain situations, on irregular and unpredictable income streams, often with the very same elements of seasonality – time of abundance and scarcity – as seen in rural Phillipines or India or Malawi.

For instance, Finnish farmers are being driven to use high interest payday loans to tide over the lean times because few other coping mechanisms exist in Finland’s highly formal commercial operating environment. Wedded to the land, they face the same challenges as a farmer in India, Kenya, or The Philippines. Yet no microfinance institutions catering to farmer needs would dream of showing up in rural Finland. Similarly, in the UK, lower income workers, dependant heavily on gig economy apps to generate revenue, can face significant differences in their cash flows from month to month, but again have no recourse but to use their credit cards or high interest payday loans to tide them over. The systems in their operating environment are designed for the past generations’ periodic and regular wages and paychecks, and cannot cope with the irregular cash flow patterns, as prevalent in the informal economy.

That is, the characteristics of the gig economy and the informal economy, when seen from the perspective of the end-user, are more or less the same. Ironically, however, those in the developing world have numerous solutions available to them – albeit informal, social, local – available to them to cope with shocks and volatility. These coping mechanisms have developed over decades (and centuries, in the case of India), hence the well known resilience of the local rural or informal economy.

As uncertainty increases globally, there are numerous lessons to be learnt from the mostly ignored informal economies of the developing countries which have provided incomes and employment for the vast majority of their populations, in times of conflict or peace, making sure that food reaches the urban table from the farms out in the countryside, regardless of the adequacy and availability of either systems or infrastructure. This is one situation where the formal economy’s inbuilt rigidity and dependence on predictability and periodicity are its embedded weak spot at a time when flexibility and negotiability are required to ride the shocks and volatility.

All Hail the Business Model Behind the Global Gig Economy

Uber driver Mohammed, New Delhi, 26th November 2018

The first world’s ardent embrace of the gig economy is already over. Buyer’s remorse is setting in, even though it may have helped global unemployment hit its lowest point in forty years. What will remain, however, is its impact on the usually overlooked Rest of the World, where the ability of an app to drive demand and scale reach, affordably and instantly, is currently transforming informal economies across the African continent, opening up whole new opportunity spaces for the social, mobile, youthful generation. Easy to set up and deploy, this app driven business model offers a flexible and negotiable solution to the age old problem of demand and supply in a mobile first world. My only question is whether it’ll turn out to be as world changing as prepaid mobile airtime?

Africa’s Delivery On Demand Apps are Transforming the Informal Economy

When women in rural Rwanda can buy sanitary napkins and contraceptives, on demand, simply by pushing a few buttons on their phones, you know the digital informal economy is here to stay. And, its not just imported apps and social enterprises pushing this digital commercial activity. The “uberization” of the African informal economy is well underway across the entire continent, inspired in part by the visible success of the now ubiquitous ride hailing apps.

The concept of using your phone to access a product or service, on demand, has taken root as a viable and feasible business model for startups from Angola to Ghana to Nigeria, and Rwanda, of course. And, its spreading beyond the usual suspects to yet-to-be recognized nations like Somaliland as well as it’s far less stable neighbour, Somalia. The impact of this will be felt long after Uber itself has lived or died, as the case may be.

For the vast majority of the workforce in the informal sector, this approach to business development increases their reach and customer base, with net positive impact on their income streams and cash flows. You don’t have to sit and wait passively for a customer to show up if she or he can ping you for an order on your phone. Your discoverability has been exponentially boosted by technology.

Its far to early to gauge the impact on the entire informal economy’s productivity, but certain sectors are already evidencing the effects:

  1. Transportation – of people, of vegetables, of cargo – you name it, you can now find an app to transport it. Startups are responding to the wide variety of local needs in addition to launching Uber clones in their local metros and regions.
  2. Services – grocery shopping, laundry, housecleaning, plumbers, electricians, artisans et al – all of these are coming online, albeit unevenly across segments and geographies depending on the individual startups and their capabilities.
  3. Goods – From consumer products to fresh produce, live goats to tractors for rent; the low costs and barriers to entry of an app that collates and coordinates demand and supply is an easy win for entrepreneurs who can work out the kinks in their operations.

In addition to what the apps can deliver to your doorstep, this “uberization” of the informal economy is also transforming mindsets and behaviour, of both the buyer and the supplier. There are two approaches to leveraging technology to boost your business – doing it yourself via social media platforms, thus building your brand; and downloading an app that takes care of promotion and discoverability for you.

Each has its pros and cons, but from our earliest discoveries whilst conducting user research among social commerce merchants and customers in Kenya, we can see the differences emerge between traditional traders in the informal marketplace, and the tech savvy traders straddling the virtual and the real. Long established business development strategies that worked in the cash intensive informal economic ecosystem are being forced to transform in response to these tech enabled ‘interventions’- whether to the benefit of all is also too early to tell. But if the patterns of mobile phone adoption are any indication, there’s a tsunami of change underway.

From the Caterpillar to the Butterfly: Africa’s Mobile Boom Years Are Over, Here’s What Next

For the past 15 years, Africa watchers have been waiting for her mobile phone industry to reach a critical landmark – almost full saturation of the market. This milestone may be close at hand, as recent news and data show. In June 2018, Kenyan mobile subscriptions reached 98% penetration, a 13% jump over the previous year, the highest ever recorded, even with all the caveats of youthful demographics and many users owning more than one line.

And, it isn’t just Kenya, long known to be early adopters of innovation and technology. The African mobile market, as a whole, maybe reaching saturation point as the latest IDC data shows. Phone sales continue to show signs of decline. Unlike previous slowdowns of smartphone sales1 which were economy related and feature phones continued selling, this time the decline can be seen in both categories, implying the great African mobile subscriptions growth boom may now be over.

Even Nigeria, recently found to have more people living below the poverty line than India, has achieved more than 80% mobile phone penetration, with hopes that the end of 2018 will see 100%.

The number of mobile subscribers grew astronomically in 2017 and its penetration increased to 84% in comparison with 53% in 2016. With an increase in the number of affordable phones entering the Nigerian market and looking at the trajectory of growth between 2016 & 2017 (31% growth year-on-year), there is a strong indication that by the end of 2018, there might be a 100% penetration of mobile subscriptions.2

Healthier West African economies such as Ghana and Ivory Coast have already crossed the magic 100% threshold, as has conflict riven Mali.

Achieving this landmark has not been consistent across the continent, and some countries like Malawi and Chad are still below the halfway mark. However, it is known that Africa may never achieve the same level of penetration as seen elsewhere, given that 40% of the continent’s population is under the age of 163. And so, the current decline in new phone sales can already be considered the signal of a mature market, showing signs of saturation.

From the caterpillar to the butterfly

In a very short generation, Africans have gone from being mostly isolated – from each other, and the rest of the world – to being plugged in, all because of this very powerful device in their hands. The decline of phone sales, or the slowing down of subscriber growth numbers, should be cause for jubilation. The continent is now connected to the rest of the world, and Africans are talking to African across the span of mountains and deserts. Traditional pastoralists receive satellite data informing them of the best locations for forage for their livestock, and they can access insurance in times of famine and drought. Urban youth are trading bitcoins, while their mothers gather in social media groups to trade in goods and information. The entire operating environment of the African economic ecosystem has been transformed.

Where just over ten years ago, Nokia’s greatest concern was how to design ever more affordable and robust mobile devices which could connect people across languages and literacy barriers, now we have a population that has a decade of experience in information technology, regardless of their education levels. Even the most remote or marginalized have seen the phone, and can access its use, through intermediaries and access points. Digital Africa has become a daily matter of fact rather than an unusual achievement for the development crowd. You can see it in the tenor of the research articles, and read the difference between the way the growth of the mobile ecosystem was covered in 20054 and the way its taken for granted now.

The end of an era – double digit growth of the African mobile market – signals the beginning of a whole new phase of development and opportunity – a connected continent, ready for commerce and communication with the world.

Ten years of transformation

Over the past decade, mobile phone ownership has gone from a novelty to commonplace. It has bridged the rural – urban divide, strengthening linkages, both social and commercial. In turn, innovation diffusion pathways have proliferated from the urban centers, and the adoption of new ideas and goods has accelerated, changing aspirations and expectations, particularly among the younger generation. The global African does not need to leave her childhood village in order to speak to the rest of the world or be recognized for her achievements. Social media is there to give him a voice, and a platform.

It is this new reality that has not yet be recognized by the long established experts on Africa and its many varied challenges and unmet needs. The mindset, worldviews, and the consumer culture have changed far more rapidly than the now obsolete snapshot of the poverty stricken, marginalized African that media and researchers base their assumptions and their writing on. Policymakers and programme designers are even less in the know, and the gap between generations has never been wider.

On the upside is a whole new playing ground – my friend and colleague Michael Kimani calls it the informal economy’s digital generation. Young people like himself, graduating with university degrees into a business landscape without the jobs to hire them, are turning to the platform made available by their smartphones to establish themselves and earn a living. In the four short years I’ve known Michael, I’ve seen him grown and evolve into the voice of African blockchain and cryptocurrency, soon to be an educator on the subject, and already organized as the Chairman of the Blockchain Association of Kenya.

“What a great time to be alive,” Michael’s joyful voice still rings in my ear after our call last week. The digital future is all around him, a playground for him to build and make whatever his mind’s eye can envision.

The end of the world for a caterpillar (the decline of sales & subscriptions) is the birth of a whole new one for a butterfly (the global digital African with a powerful computer in his hands).

We need to throw a party and celebrate!

 

1 Smartphone sales, driven by more affordable Chinese brands, may continue to see growth, but as the IDC states, this growth may come from those transitioning from featurephones.
2 Jumia Mobile Report 2018 in Nigeria
3 The Mobile Economy: Sub-Saharan Africa 2018, GSMA Intelligence
4 Cellphones Catapult Rural Africa to 21st Century, August 2005, New York Times

What happens when the informal economy is not criminalized? : Case of Hargeisa, Somaliland

In Hargeisa, the role of the informal economy during and after conflict has been vital to conflict prevention and peace-building.

A recently released report by Cardiff University and Somaliland research partners on their work related to the role of urban informal economies in conflict zones offers us perspective from another angle.

A little thin on insights and interpretation of their carefully gathered data, it nonetheless provides ample evidence of the value creation and economic contribution by informal sector actors in developing country contexts. In fact, I would say, it strengthens the argument for considering the informal economy as a commercial operating environment, to be taken seriously by policy makers and programme designers.

The report finds that “the IE (informal economy) became vital in replacing services and utilities destroyed by the war within Hargeisa city which both provided livelihood opportunities for the conflict-affected urban population and replaced key goods and services which had been disrupted by the conflict.”

And discovers that it was the informal economy’s acceptance by the local populace and government, characterized by extremely low levels of harassment or criminalization that was key to its ability to contribute as a trusted resource and asset during the rebuilding of society after the civil war.

In most cities in sub-Saharan Africa, urban policy marginalises the urban informal economy (IE) and IE workers are often victimised and harassed (Lyons et al., 2012). This is not the case in Hargeisa, where informal economy workers interviewed reported very low levels of police harassment, with less than 7% of the 168 current informal economy workers interviewed stating they had experienced problems with local authority. Furthermore, there are high levels of trust  and reciprocation amongst informal economy workers and in society generally, and a lack of effective municipal regulation which enables and encourages the growth of the informal economy.

The report goes on to conclude with the recommendation that recognition of the informal economy (IE) had the potential to transform the developmental trajectory of both Hargeisa, as well as greater Somaliland:

Recommendation 1: Increase national legitimacy and recognition
Recognition: It is essential that Hargeisa’s IE workers are recognised as legitimate economic actors making significant contributions to the national and city economy.
National Informal Economy Policy: A cross-government National Informal Economy Policy should be developed, so that the key social and economic contribution of the IE is reflected in the five-year national economic development planning and other relevant government strategies.
National Informal Economy Standing Committee: A high-level National Informal Economy Standing Committee should be set up, with a membership of about 10 people to include high-level representatives from: the Ministries Planning and Development (chair); Commerce and Trade; Labour, Employment and
Social Affairs, Hargeisa Municipality, and SONSAF, including 3-4 representatives of umbrella IE workers’ organisations. The Standing Committee should:
o Advise on development of the National Informal Economy Policy;
o Advise on inclusion of the IE in the Five Year National Economic Development Plan;
o Recommend inclusion of the IE in other relevant government strategies;
o Undertake sector-specific analyses of different IE sectors (needs and support);
o Identify ways to extend social protection to IE workers;
o Address negative impacts of the IE (e.g. from the qat or charcoal trade);
o Assess data needs for improving understanding of the IE (e.g. through labour force surveys).
o Address lack of IE access to credit and finance

According to the Somaliland Sun, these recommendations are being wholeheartedly adopted by the local government. One not only looks forward to the developments of this groundbreaking initiative but hopes that this shift in perspective and recognition of value creation diffuses outwards with impacts on informal economies everywhere.

 

NB: Here’s my brief TEDTalk video on this theme from TEDGlobal 2017

Pondering India’s Cashless Future

Chhotu here accepts digital currency payments via the mobile platform on a daily basis.

His QR code is prominently displayed upfront next to the bottles of sauce, and a sticker displays the icons of all the payment apps acceptable to his Bhim app.

The Bhim system, launched by the Government of India, is a godsend to micro businesses like Chhotu’s – it allows him to accept payments from a wide ranging variety of apps and systems with the use of just one QR code.

Mr. AutoRickshaWallah on the other hand, preferred to negotiate with me in cash, agreeing to an amount upfront, based on my destination than to go through the hassle of using his digital meter.

By law, he must accept digital payments, if asked by a customer. But, he says, this is very rare; he might accept a Paytm fare once a week. The balance is all in cash.

One size does not fit all

The need for cash in hand during the course of each of these service providers drives their payment acceptance behaviour. Chhotu may not need as much cash on hand once he has set up his inventory and supplies for the day, barring the need for change whereupon he can suggest the customer move to a digital option if required. Plus, at the end of his shift at 10pm he’s happier if the bulk of his sales is in digital form for safety and security.

Mr Autorickshawallah, on the other hand, feels the need for cash available to purchase fuel, food, and pay out wherever required for parking or other purposes (like the police!).  He’s on the move and the signal may or may not work when the time comes for him to accept payment.

Digital adoption is unevenly distributed

Their customers are also from different demographics. Where Chhotu is set up, the market is full of young people with disposable income, out for the evening with their friends. Hearsay has it that mobile apps are selected and used based on their marketing incentives – most offer cashback on digital payments as a driver for user acquisition, but users have gotten clever and download them all so that they can take advantage of different promotions and offers to maximize their benefits.

Mr Autorickshawallah’s customers come from a wider range of demographics, and not as likely to be as comfortable juggling digital payments as Chhotu’s youthful crowd. He’s in his vehicle and on the move, and must ensure the payment gets made, unlike Chhotu who can take the risk of waiting since he and his stall aren’t going anywhere.

Is Cashless in India’s Future?

While digital payments, cards, and mobile apps were certainly far more visible than ever before, and definitely since the demonetization of two years ago, there is a very long way to go before cashless becomes as broadly accepted and mainstream as mPesa in Kenya. Unlike mPesa, the Indian digital currency ecosystem is linked intimately to bank accounts, and thus, there’s an entire ecosystem of services and goods providers that needs to shift over to the formal economy and its financial institutions before cashless becomes seamless at the borderlands of economic strata and demographics.

The current formal financial ecosystem is not designed to address the needs of the informal and unorganized sectors. And this is the iron that post demonetization analysis shows was not struck while it was hot enough to enable the broader change in culture and behaviour to stick once currency was back in circulation.

Rural Household Financial Management on Irregular Incomes

While all farms are not alike, and scale and variety and geography differs, the pattern of household financial management holds its fundamental logic across continents.

click to expand image

As we saw previously, an experienced farmer tends to fall somewhere in between a salaried employee and an odd job labourer in their ability to predict with any reasonable degree of accuracy when they might expect cash income to arrive and approximately how much. They are able to estimate the quantum of the crop, and when it will be ready to harvest. They may already have buyers or a market.

However, in practice, farmers rarely rely solely on these infrequent lump sums for managing their household finances – a big harvest once or twice a year, maybe three times depending on the crops and the local geography. Instead, they manage on sophisticated portfolio of investments, each maturing over different periods of time, as a way to mitigate risk, as well as smoothen out cash flows over the course of the natural year, and minimize the impact of uncertainty or shock. The drivers for these goals are the foundation for the variety of business practices observed across sectors in the informal economies of the developing world.

You will find even the humblest farmer, as long as he owns the patch of land on which his homestead is built, even if his fields may be further away, doing some or all of a combination of these activities to manage his income stream over the course of the natural year. I will explain the basics, and then give examples from different regions.

Managing A Portfolio of Investments based on “Time and Money”

The illustration above captures our attempt to map the various cash flow patterns from the farmer’s portfolio of investments. Consider each cluster of elements as a “deposit” with varying times of maturity for cashing out, as the need may be. For example, cows give milk which can be sold for almost daily cash returns, as can the eggs from chickens. The fresh produce from the kitchen garden matures far more quickly than staples such as maize or beans. And, if there is a cash crop such as tea or coffee, this may taken an entire year for the harvest to be monetized. At the same time, various farmyard animals are invested into when young, maturing over time for sale, as an emergency cushion or for earmarked expenses such as annual school fees.

Thus, over the course of the year, cash arrives in hand with varying degrees of frequency, and periodicity, thus ensuring the farm’s ability to manage regular household expenditure on a more or less regular basis, even though there are no predictable wages. Nor, is the farmer burdened with credit and debt over the time whilst waiting for her 2 or 3 major harvest seasons.

Variance in regional seasonality influences coping mechanisms

While the foundational framework of the farmstead’s domestic financial managment remains the same, regional differences due to geography, and thus seasonality, influence crop choices, number of harvests, and the details of the coping mechanisms selected by the farmer to manage her financial portfolio.

For instance, in rural Philippines, in the rice growing Visayas islands, only well situated farms benefit from three rain fed rice harvests a year whilst the majority must manage on two. Thus, farmers invest in piglets, calves, or even cull chicks for nurturing into fighting cockerels which sell for more than 10 times the price of a regular chicken. They stock firewood, coconut husk, and supplement their cash money needs through petty retail during the low season.

In rural Malawi, outside of Blantyre, the farmwife who is a member of beekeeper’s cooperative, distills traditional wine for sales 2 to 3 times a week, boosting her cash flow frequency instead of waiting for the annual honey harvest.

Minimizing volatility to enable financial planning

Thus, we can see that even under conditions of uncertainty, farmers have established the means to manage their household expenses, including periodic ones such as school fees or loan repayments, on irregular and unpredictable cash flows from a variety of sources. Their sophisticated portfolio of investments contain “deposits” that mature over varying times, for different amounts, and their planning, thus, goes into ensuring that the volatility between income and outgoing expenses is kept to a minimum.

Next, we will see how less agriculturally dependent sectors of the informal economy base their financial management patterns on the rural economy’s foundation of portfolio management.

 

Collected Works
Work in Progress: An Introduction to the Informal Economy’s Commercial Environment – Links to organized series of articles on the topic

Competitive Advantage & Customer Relationships: Lessons from Market Mummies of Ghana

Source: Gerry van Dyke presentation

Source: Gerry van Dyke presentation

How would you differentiate yourself in this informal retail market? Ghanaian market research guru Gerry van Dyke took a closer look at the market ‘mummies’ – Mama Biashara, as we call her – and their consumer marketing techniques in the “non-label environment”. His findings form an excellent foundation for understanding marketing and customer relationships in the informal sector. You can explore insights from his presentation here (PDF).

The story that follows tells the interesting marketing skills that reside in the traditional African market and the similarities in the tools employed by modern marketing.