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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.

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

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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The Made in Africa Exhibition stated that:

In Mali and Senegal, those who have work in what we call the formal sector of the economy are almost wholly limited to the urban elite...The informal economy includes much of the trade that takes place in the markets and that offers possibilities for those who are inventive and possess sufficient "go-ahead" spirit

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

More evidence on the hidden strength of the informal economy in a 234Next report by Ngozi Sams:

The campaign for made-in-Nigeria products is gradually yielding good results as new information indicates that about 50 per cent of products consumed in West Africa as at today are made in Nigeria.Michael Awunor, president of (NAMACCIMAT), who disclosed this in Abuja, also said that Mali and Burkina Faso alone import, informally, over 300 tonnes of made-in-Nigeria products on a weekly basis, which amounts to 14,400 tonnes annually.

More here
Photo courtesy of 234Next

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

Patrick Barta writes in the WSJ:

Economists have long thought the underground economy -- the vast, unregulated market encompassing everything from street vendors to unlicensed cab drivers -- was bad news for the world economy. Now it's taking on a new role as one of the last safe havens in a darkening financial climate, forcing analysts to rethink their views...the "informal," or underground, economy, an enormous, vital and poorly understood segment of world commerce. It is becoming a lot more important now, as the global financial meltdown casts millions of people out of steady-paying jobs. Especially in developing economies, many of those people are landing in the informal sector, which has become a critical safety net as the economic crisis spreads...[continue reading]

photo courtesy of 234Next media

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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PSD Blog reports on a debate regarding Latin America's problem with the free market or moreso crony capitalism:

One legitimate reason for the opposition to capitalism in Latin America is that it frequently has been "crony capitalism" as opposed to the competitive capitalism that produces desirable social outcomes. Crony capitalism is a system where companies with close connections to the government gain economic power not by competing better, but by using the government to get favored and protected positions. These favors include monopolies over telecommunications, exclusive licenses to import different goods, and other sizeable economic advantages. Some cronyism is found in all countries, but Mexico and other Latin countries have often taken the influence of political connections to extremes.

What lessons can Sub-Saharan Africa learn from this? They include:

• The need to foster domestic competition across all industries.
• The incorporation of the massive informal economy into the formal economy.
• Fostering a climate for a culture of ownership.
• The dismantling of private monopolies.