The same drive for a better life that propels tens of millions of Africans to tolerate interminable daily commutes also has sent countless numbers on immensely risky journeys across the Sahara and the Mediterranean in search of economic opportunity in Europe. Beyond migration, another critical path into which up to 80% of Africans channel their energies is the informal economy. By TODD M. JOHNSON.
It is the very essence of cliché to remark that Africa never fails to surprise. Nonetheless this sentiment was the first to pop into my head as I waited for the young woman whose job it was to shepherd me through immigration at Félix-Houphouët-Boigny International Airport in Abidjan. It was December 2012 and I was making my first visit to Côte d’Ivoire.
Ostensibly my role was to assess the risk landscape and ensure that it was the sort of environment where a large multinational could profitably operate while staying safe from political, corruption, and other “non-financial risks”. On a more personal level, I was making the trip because Côte d’Ivoire for me was one of sub-Saharan Africa’s great mysteries. I say this not in the hackneyed sense of it being an undiscovered land waiting for an intrepid American to discover its charms. Instead, I had long been fascinated with how a country that since the late 1990s had faced existential threats to its existence through multiple coups and associated civil war – Côte d’Ivoire coupled with “failed state” was not an uncommon pair in the 2000s – could also play home to a capital city that used to bear the sobriquet the “Paris of West Africa” and still manages to maintain a physical infrastructure and human capital base that is the envy of much of the continent.
It was a sweltering just-before-Christmas day in Abidjan. However, the well-functioning air conditioning in Houphouët-Boigny International had already placed it among my favourite African airports (admittedly, the competitive set leaves something to be desired). The young woman shepherding me through immigration did so with no complications. Proud to display my seasoned corporate traveller credentials, I confidently proclaimed that I had no luggage to collect and I was ready to brave the sweltering heat that always takes my breathe away when exiting an equatorial African airport (yes, Johannesburg’s idyllic clime has made me soft). She remarked that “I do have a bag to collect,” presumably from another passenger who had played the role of courier. Although slightly puzzled, I waited and soon enough she emerged from the air-conditioned sanctuary of terminal with a large and very securely wrapped suitcase.
While awaiting my pick-up she remarked, “you’re probably wondering what’s in the bag?” I admitted the thought had crossed my mind. She laughed and said with a smile, “it’s my monthly shipment from Accra of hair weaves. It’s my side hustle”.
Since that visit to Abidjan I’ve made countless trips in Africa, most frequently to cities like Lagos, Accra, Kinshasa, Luanda, and Nairobi. These visits offer countless kilometres of proof of Africa’s entrepreneurial spirit; roadside stalls ably manned by tailors, cobblers, fruit vendors, purveyors of water sachets and, of course, all manner of personal care, including the hair weaves that one young Ivorian seems to have a corner on in the booming Abidjan informal economy. However, the journeys into these respective city centres also provide ample evidence of the negative impacts of unchecked urbanization coupled with under-investment in infrastructure – mention travel on Lagos’s Third Mainland Bridge and you’re sure to cause shudders of dread down the backs of Lagosians and foreigners alike.
I regularly find myself wondering how long these deeply interconnected yet essentially antagonistic forces can live side-by-side. The same drive for a better life that propels tens of millions of Africans to tolerate interminable daily commutes also has sent countless numbers on immensely risky journeys across the Sahara and the Mediterranean in search of economic opportunity in Europe. Beyond migration, another critical path into which up to 80% of Africans channel their energies is the informal economy. While the informal sector is the very embodiment of entrepreneurial energy, one can only wonder how long such an indispensable, yet inherently tenuous pillar of daily life can hold the line against seemingly unrelenting demographic and economic trends like an expanding youth bulge and rising inequality.
It is the informal economy that will play such a pivotal role in Africa’s future (for the sake of this article, I’ll address what I know best, that being Africa south of the Sahara). Before proceeding, it is probably wise to borrow the good works of others and define what an “informal economy” means in practice. The World Bank more than suffices in this regard: “Informal employment refers primarily to employment in enterprises that lack registration and social security coverage for their employees (OECD, 2009). It also refers to self-employment and precarious employment in formal enterprises. A distinctive feature of this type of employment is lack of social coverage and other related benefits applicable to formal employment. Hence it is highly precarious and vulnerable.”
If the informal sector can be harnessed and progressively formalised – including paying taxes but also receiving legal protections, social service benefits, and the ability to more effectively access financing for growth – then Africa will receive an immense growth dividend. Equally important, it will play a pivotal role in checking the potentially explosive social consequences inherent to lives led on an economic knife’s edge. The IMF in 2017 warned that: “By 2035, sub-Saharan Africa will have more working-age people than the rest of the world’s regions combined. This growing work force will have to be met with jobs.” My addendum to that stark appraisal is that those jobs can’t only be in hand-to-mouth roles like scavenging recyclables from the streets of Johannesburg or even running a flourishing, but off-the-books side-hustle in hair-care products. Instead, they must include an ever-increasing portion of roles in the formal economy.
The task of formalising economic activity is daunting, with no easy solutions. And, if one is to believe the assessments of heavyweight economists like Dani Rodrik, the contemporary global economic architecture makes it unlikely that Africa can repeat the rapid industrialisation and realise the attendant job growth that previously marked the rapid maturation of Asian economies like that of South Korea and China. The scope of the challenge came to mind over the holiday break as I waded through the massive stack of unread magazine that I promised myself I’d work through during the Christmas lull.
The Atlantic’s November 2017 issue profiled X, the so-called “moonshot” division at Google parent Alphabet. The mission of X is to seek answers to some of the world’s biggest problems, many of them public policy challenges of similar scope to formalising economic activity. X has developed multiple technologies that are now part of public discourse (driverless cars, broadband internet via balloon, and drone delivery, to name just a few). It also prides itself on admitting failure, usually by testing solutions seemingly taken from the pages of science-fiction (eg producing affordable fuel from sea water). X’s employees utilise a straightforward three-part framework for guiding their work: ideas much address a huge problem, they must propose a radical solution, and they must employ a feasible technology.
Call it serendipity, but just a few days later while attempting to maintain some modicum of concentration while navigating the empty roads of the Northern Cape, I listened to a Financial Times podcast with Overstock.com founder Patrick Byrne and celebrity (at least among policy nerds) Peruvian economist Hernando de Soto. Byrne and De Soto have launched an effort to use blockchain technology to gather the world’s informal property registry information and put it into a distributed online ledger that can’t be forged and that will provide property owners in developing countries with the means to claim legal protections for their properties and, presumably, to also use those properties as economic tools, namely as collateral to raise capital.
Byrne and De Soto ambitiously believe their project can be completed in just a few years with the first proof-of-concept in one country completed by the end of the first quarter of 2018. They have taken a page straight out of X’s playbook: big problem, radical solution, feasible technology. If this effort is successful, then it could have an outsized impact on the ability of people around the world to enter the formal economy.
A policy challenge as daunting as formalising economic activity requires moonshots like Byrne and De Soto’s effort. Already the past decade has seen similar advancements such as M-Pesa in Kenya that brought banking services to the mobile phones of millions of previously unbanked consumers. The ubiquity of the mobile phone makes it the most likely platform through which other game-changing digital tools can be rolled out. These advancements – designed for ever more affordable smartphones – will certainly include “killer apps” that will enhance supply chain management, provide real-time pricing information, and match suppliers with consumers. Despite the unquestioned impact that technologies like M-Pesa can deliver to the formalisation of Africa’s economies, there remains a critical role to be played by that most quotidian of tasks: the creation of sound public policy.
Developers can roll-out apps that change the lives of users across Africa, but those same users still lead lives where the impact of government regulations is often inversely proportional to the positive impacts provided by technology. Government, working with the private sector and multilateral partners, should undertake efforts to provide better access to financing, whether it be through government-backed schemes to provide credit to small entrepreneurs or to further ease the ability of new technologies like blockchain property ledgers to enter the marketplace.
Governments should also act on repeated pledges to lower the non-tariff barriers that can make trading across African borders costlier than exporting to distant European or Asian markets. Governments can also provide incentives to foreign investors to develop local supply chains through supplier development schemes, skills development programmes, and other approaches that allow investors to demonstrate their commitment to the local marketplace in return for access to public tender opportunities (like South Africa’s efforts to foster small- and medium-scale black-owned industrial firms). The positive impacts that well-crafted public policy can have on the formalisation of economic activity is well-documented and suggested strategies take up countless pages of World Bank white papers, aid agency monographs, and academic dissertations.
The action plans are readily available, but the responsibility for implementation remains the responsibility of leaders that regularly feel pressure from local vested interests who see economic reforms as threats to their business models. Undertaking reforms requires a willingness to expend political capital by standing strong against those that profit from a skewed economic landscape. Finally, it is critical for governments to shift their rhetoric away from associating the informal sector with criminality. Instead, the sector should be recognised as massively important engine for economic growth.
My argument isn’t a new one and my call to action has been made countless times before. My sense of urgency is a personal one driven by first-hand experience of African cities where the demographic clock is ticking ever louder. The potential threat that this countdown poses to foreign investors over the long-term is very real. Much more importantly though, it is an existential threat to Africa’s underlying stability. According to the AfDB, African economies only generate around three million new formal sector jobs each year, yet there are at least 10 to 12-million new entrants annually into the continent’s workforce.
Put more starkly: “If youth unemployment rates remain unchanged in Africa, nearly 50% of youth – excluding students – will be unemployed, discouraged, or economically inactive by 2025.” It doesn’t take peer-tested economic models to understand that this immense pressure for employment and opportunity, if unmet, could easily manifest itself in social instability in overcrowded cities across the continent, many of which are already tinderboxes of political unrest. Africa’s modern history offers far too many examples of what happens when young people, particularly young men, feel they are without options for advancement. The civil strife that plagued Sierra Leone and Liberia in the 1990s and 2000s – and certainly in Côte d’Ivoire – was fuelled in large part by youth dissatisfaction covering a wide-range of real and imagined grievances and the concomitant rise in populist leaders who played to these complaints.
All players in Africa’s economic future (I have resolved in 2018 to avoid “growth story” as a descriptor) have a role in ensuring that the continent’s demographic trends pay a genuine dividend rather than serving as kindling for political instability and civil strife. The size of the task is immense and requires genuinely visionary political leadership, sweeping changes to legal, regulatory, and physical infrastructure, and buy-in from actors across the private sector. It will require moonshots like those crafted by Patrick Byrne and Hernando de Soto and more commonplace, yet equally necessary commitments like businesses making investments in building local supply chains. Even if just one economy in Africa could launch a broad public-private effort to formalise economic activity, and successfully demonstrate productivity, tax, and other gains, then it could serve as an incubator for other markets to follow.
It’s an indisputable fact that the 21st century will be the African century, if only in terms of the massive portion of the world population that will live within the continent’s borders. What remains uncertain though is whether the century will be one marked by increasing prosperity and opportunity or whether the weight of unmet expectations will spark a return to the instability and strife that plagued the continent for so long. DM
Todd M Johnson is Security & Market Risk Leader, GE Africa & Business Program Manager, Accelerated Leadership Program (XLP), GGO
Photo: Men repairing generators at a workshop in Boys Town, Margibi County, Liberia 11 May 2016. The cost of electricity generation in West Africa is very high as a result of the region’s high dependence on expensive oil based thermal generation. EPA/AHMED JALLANZO
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