My Beauty Best Teacher

An excerpt from Robert Neuwirth's Lecture 'The Extroverted City of System D' a contribution to the book Open City:

In Lagos, everything is informal. The bus system is informal—the government got out of mass transit business decades ago (though it has recently stepped back into public transport with a bus rapid transit line) and the system that includes more than 75,000 danfos was held together informally by the National Union of Road Transport Workers as one-part mass transit and one-part Ponzi scheme. One of the largest formal supermarkets in Lagos buys most of its product from informal wholesalers. Some major multinationals here distribute their products through informal networks. And informal merchants invest in the formal world.

Authorities in the city acknowledge that as much as 80 percent of the work force—and Lagos has between nine and 17 million inhabitants, depending on where you draw the boundaries and who’s doing the counting—is involved in the informal sector. The federal government also suggests that somewhere around 60 to 70 percent of the country’s economic activity derives in some way from the informal sector—and this means that, in aggregate, merchants like Prince Chidi Onyeyirim and Fatai Agbalaya are more important to Nigeria’s future than Shell, Mobil, and Chevron, the multinational oil giants that pump sweet crude from the Niger River Delta.

Ashoka Fellow "...Moussa Kane has begun to organize Mali's informal economy into a formal association that compiles data on the informal sector and provides basic services to impoverished entrepreneurs. The association provides startup equipment and in-kind loans to entrepreneurs and offers business and financial training to help small ventures succeed. His organization is the first company of its kind in Mali to be owned by its due-paying members, and it is financed and run entirely by members of the informal sector. Its services will be accessible to the approximately 40 percent of Mali's population involved in the informal sector...Although it provides basic sustenance to many, the informal sector is disorganized and risky. Members of the informal economy, like the street vendors that crowd Bamako's avenues, do not have access to loans, are harassed by the government for their occupation of unregistered public space, and are vulnerable to complete collapse in the event of an illness or accident. Furthermore, most "informal entrepreneurs" do not understand the essentials of bookkeeping, business management, and resource allocation, and are therefore unable to turn a consistent profit..."

Keith Hart writing in Memory Bank:

When I graduated to the field of development studies, the picture of West Africa’s cities was just as distorted as one you might get from boorowing a Manchester school perspective. Here the emphasis of the economists was on the new states’ ability to pursue a neo-Keynesian development program. How could ‘we’ (the politicians, bureaucrats and their academic advisers) provide the jobs and other needs of the hordes flocking into the cities at the time? It was assumed that such provision had to come through the bureaucracy and conform to state-made laws. My paper on ‘informal income opportunities and urban employment’ pointed to the wide range of economic activities that were invisible to bureacracy. But even I saw them through a statist lens (“seeing like a state”), hence the term ‘informal’, not regulated by the bureaucracy. At that time I assumed that the bulk of economic progress must come though public and private sector enterprise of a corporate type.
The informal economy was never adequately described or defined, but these days it is commonplace to read assertions that African economies are 70-90% ‘informal’. Certainly the deregulation undertaken over the last three decades of neoliberal economic policies have led to a radical informalization of the world economy, not least in Africa. But to label these activities ‘informal’ is to avoid identifying what they are positively for or how they are organized, by which social principles.
I would say that the last half-century has seen a massive transfer of population to the cities, where most people have been left to generate their own forms of commerce. The informal economy in this sense has been a holding operation allowing many people to survive in the city and some to flourish. Whatever is coming up next will draw to some extent on this sprawling self-organized economic activity. Our task is to find out more about the promising sectors spawned by such a development.

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Robert Neuwirth writes(pdf) about the critical role of the informal economy in Lagos, Nigeria:

The informal sector is the most dynamic and fastest-growing part of the city.Eighty per cent of the people who live in Lagos work in the informal economy,which accounts for more than two-thirds of Nigeria’s gross domestic product. This gives informal workers unusual economic power: about US$125 billion worth. The unemployment and the massive social upheaval and misery that would exist if the thousands of people who immigrate to Lagos every day weren’t able to find work could quickly lead to social and political anarchy. The informal sector is what holds the country together and what determines its shape.

More on the informal in Stealth of Nations:

Two articles on Africa show the importance of engaging the informal economy.

First, The Daily Trust from Nigeria points out that government policies must be retooled "to encourage our small entrepreneurs who constitute the informal sector with a view to developing and enhancing their businesses." The writer suggests that 5 to 10 million Naira per local government per year (a pittance: $30,000 to $60,000) is all it would take to make the local economies bloom.
Second, the BBC points to the Eastleigh neighborhood of Nairobi, one of the most run down communities in the Kenyan capital -- but, significantly, not one of the poorest.
Marketplaces, and a million little lean-to repair shops and small-scale factories are what most urban Africans rely upon for a living. But such is their distrust of government officials that most businesspeople in the informal sector avoid all contact with the authorities

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More on the informal in Stealth of Nations:

Two articles on Africa show the importance of engaging the informal economy.

First, The Daily Trust from Nigeria points out that government policies must be retooled "to encourage our small entrepreneurs who constitute the informal sector with a view to developing and enhancing their businesses." The writer suggests that 5 to 10 million Naira per local government per year (a pittance: $30,000 to $60,000) is all it would take to make the local economies bloom.
Second, the BBC points to the Eastleigh neighborhood of Nairobi, one of the most run down communities in the Kenyan capital -- but, significantly, not one of the poorest.
Marketplaces, and a million little lean-to repair shops and small-scale factories are what most urban Africans rely upon for a living. But such is their distrust of government officials that most businesspeople in the informal sector avoid all contact with the authorities

More here

Sanou Mbaye writing in Project Syndicate:

He speaks on the need to liberalize the remittance channels:

The effects of banks’ hijacking of national payment systems to service only the modern economy are compounded by the exclusive agreements that banks and money-transfer companies such as Western Union have signed with most African countries. These agreements lock out non-banking entities from the highly lucrative market for migrant remittances from the African diaspora, which remain a key engine of growth

Furthermore on how key it is to nourish the informal economies:

African states must now recognize that modernizing their informal sectors by integrating them into the modern economy can be a major development tool. Yet only a few countries have started moving in that direction. Nigeria has refrained from signing any exclusive agreements with Western Union and others, and its newly consolidated banking industry is making significant inroads across the region...

Arguing for the broader inclusion of more financial actors in national payment systems

Giving micro-finance institutions access to national and regional payments systems and electronic retail facilities will go a long way toward meeting the requirements of the retail and business sector in terms of banking facilities. It will also help facilitate access by the poorest to financial services, thus helping to reduce the high proportion of the un-banked population.

All of this will invariably spur development and integration of national financial systems and intra-regional trade. This will be a welcome development, because a large proportion of intra-regional trade is carried out by informal operators and small and medium enterprises that do not have access to the banking system. Moreover, economic integration and increased intra-regional trade are the best entry point into global markets for all countries.

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From late Tajudeen Abdul Raheem's last post:

The Majority of Africans continue to survive not because of government but in spite of governments. They eke out a living to keep body and soul together, provide for their families, doing all kinds of dirty work with little pay or selling anything that is buyable hawking all kinds of household wares, fruits, vegetables and myriad of consumer items.
The concept of informal settlements in Africa is not just about where people live but extends to informal markets in all kinds of goods and services: road side mechanics, vulcanisers, local industrialists who fabricate or copy anything from car parts to miniature planes! If the truth be told what is called informal sector is indeed the real enterprising economy of Africa delivering goods and services as and when needed

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In The Atlantic excerpts from the Steve Daniels book Making Do:

Images by Steve Daniels

Leonard is one of millions of entrepreneurs who rely on informal mechanisms in Kenya, where the informal sector comprises a full three quarters of the non-agricultural economy and produces over 90 percent of new jobs annually. Under severe material constraints, they are forced to improvise solutions to everyday problems that, from time to time, result in game-changing innovations that better address local needs. Informal artisans who engage in the production of goods are known as jua kali (Swahili for "hot sun") and have established entire ecosystems of production, from scrap sourcing to repair. The most advanced jua kali like Leonard have designed and built capital goods, such as lathes, that propel indigenous production forward. The jua kali have been largely ignored by formal institutions, regarded as a second-rate economy. Yet their drive for innovation, understanding of indigenous networks, and ability to work under extreme constraints make them ideal agents of industrialization.

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Lauren Citrome in CIPE:

When businesses are informal, they do not have recourse to legal protection. When a corrupt official comes to collect a bribe, they do not have any formal means to contest. An informal business owner cannot easily grow his or her operations because without formal registration papers, there is less access to capital. If a business cannot use legal dispute-resolution mechanisms, there is increased risk for hiring employees outside of one’s family.
In many countries, however, prohibitive barriers to formalization keep entrepreneurs in the informal sector. For example, business registration offices may be located only in major cities and rural entrepreneurs cannot access them. Formalization may also entail an overly burdensome tax responsibility. In some cases, business owners lack the information and know-how to register their businesses, even if they wanted to do so.

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Karen Craggs writes that "...the size and resiliency of the informal or parallel economy in a given country may be related to a critical lack of both accountability and credibility of the state,there are also socio-political, economic and cultural processes at play in African societies that pre-date colonialism, global capitalism and international development. These processes may very well mean that informal economies in some societies are both natural and indispensable. As such, attempts to destroy or co-opt the informal economy and its associated political and socio-cultural phenomena would be counter-productive..."
Via AfricaFiles

Gumisai Mutume writes:

African countries are grappling to undo a legacy dominated by trade with their former colonial rulers rather than with each other. Senegal's biggest trading partner is France, while Gambia trades extensively with the UK. Although Senegal surrounds Gambia, trade between the two neighbours is minimal...A major critique of current regional integration efforts in Africa is that their design and objectives are driven by a preference for formal rather than informal trade. Ms. Mkhonza (Former assistant secretary-general,ACP ) views the sector as an effective means of integration from below, as small-scale trade is often conducted and driven by the needs of indigenous traders rather than governments or international agencies."There is a real economic integration going on at the informal level," concurs the non-governmental InterAfrica Group (IAG). For many years it has been recognized that many countries' real economies "have been mostly informal and much larger, more dynamic and more regionally integrated than their official economies."

G. Hyden writes:

It is argued that African states are ‘outliers’ in that the legacy of recent colonialism and the dominance of external forces have created a peculiar mixture of ‘informal’ values and behaviours with formal institutions, in which the informal are dominant in power relations but not recognised or understood...[continue reading]

Sub-Saharan Africa's unbalanced educational terrain with a lack of emphasis on technical and vocational training has mitigated its ability to industrialize. Adrian Ziderman's working paper (PDF), "Financing Vocational Training in Sub-Saharan Africa" provides a roadmap for the financing options and alternatives.It states that the goals of education are "...facilitating the development of effective, efficient, competitive,flexible, and responsive (demand-driven)training systems to meet national economic and social needs, and the needs of individuals...Traditional informal sector training markets, characterized by non-structured, within-firm skills acquisition,have served the sector well. However the system is too narrow to cope with the increasing challenges emanating from technical change, the need for skills enhancement, and the widening of geographical markets. Public institutional training has not been able to adapt to the skills needs of the informal sector. Thus, an increasingly central role for specialized training providers (external to the firm) is now seen, both for entry training into new skill areas and developing markets, as well as for informal sector workers and proprietors..."

In Foreign Affairs Nicolas van de Walle reviews Kate Meagher's new book "Identity Economics: Social Networks and the Informal Economy in Nigeria":

Within development circles, conventional wisdom has it that successful manufacturing sectors often develop in low-income countries thanks to identity-based social networks made up of producers working together. These networks are said to generate the social capital that can be used to overcome many of the shortcomings of underdevelopment. Meagher's careful study of two such networks in southwestern Nigeria -- of small, undercapitalized garment and shoe manufacturers -- suggests that the advantages for producers within the networks are being undermined by an increasingly dysfunctional state. Meagher shows that these networks, whose roots go back to the colonial era, bring in hundreds of millions of dollars in revenue and export their goods to states throughout West Africa. But in recent years, they have proved vulnerable to Asian imports and have largely failed to develop economies of scale, invest in new machinery, or generate new lines of production; these networks, it turns out, stifle innovation and consolidation, even as they protect their members. Informed by theory as well as sustained fieldwork, Meagher's study is a useful antidote to the purveyors of magic-bullet solutions for African development. It should be read by anyone interested in Africa's industrialization.

via Loomnie

Pilirani Semu-Banda writes about the critical role of informal jobs:

Economic analyst Mavuto Bamusi speaks highly of the effective role informal cross-border traders are playing in the Malawian economy. He says this type of trade offers economic opportunities to women and youth in the country who would otherwise not be employed. ‘‘The concern is that they usually face all kinds of social and economic injustices, such as harassment by public authorities, especially the tax department. They undergo unnecessary checks which are unregulated and they are forced to pay exorbitant taxes,’’

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