Nipate
Forum => Kenya Discussion => Topic started by: Nefertiti on September 16, 2017, 01:37:16 AM
-
14 SEPTEMBER 2017
Content from our Premium Partner
African Expert Network (Washington, DC)
Why the Digital Economy is Key to Formalizing Africa's Informal Sector
(http://cdn08.allafrica.com/download/pic/main/main/csiid/00430814:74ef01f9baa02d871ff73150164fb494:arc614x376:w285:us1.png)
Etop Ikpe is CEO of Cars45.
At a recent conference, newly elected French President Emmanuel Macron proclaimed that he wanted France to be a "start-up nation." From Washington to Paris, start-ups are heralded as the key to catalyzing economic growth. But in Africa, home to the highest number of people in early-stage entrepreneurship, the hustle and drive of up-and-coming businessmen and women isn't always matched by productivity and profits. With the commodities crisis crippling the economies of countries like South Africa and Nigeria, it's become more important than ever that Africans develop the blueprint for their own start-up nations. While industrialization is an appealing path to growth for countries like Ethiopia, more nations should value the developmental potential sitting in front of them: Africa's large informal sector. For Africa's young population to be an opportunity instead of a demographic challenge, the public and private sector must partner to formalize the existing economy. By leveraging technology, African countries can enhance understanding of markets, expand education and employment, and deliver monetary benefits for the informal sector and government alike.
The digital economy offers Africans an opportunity to re-align markets by eliminating information asymmetry. Unless businesses in the informal sector are able to connect with consumers, the SMEs that make up the backbone of Africa's economies will be selling in the dark. On average, the productivity of Africa's informal firms is only 25 percent that of small formal firms and 19 percent of medium-sized formal firms. By providing more accurate data for customers, digital services can improve services and introduce more stability into the region's volatile markets. Today's consumers use their phones for almost every service imaginable. Through technology, more SMEs can better monitor and cater to consumer needs and wants, and reach the customers they want. Some businesses across the continent have already developed innovative ways to use technology to help informal SMEs better understand local markets. Bel, Orange Labs and Orange Côte d'Ivoire are currently partnering to leverage telecom networks to track informal distribution routes of street traders. In Kenya, MFarm empowers Kenyan farmers by providing up-to-date market prices and direct access to buyers. In Nigeria, my own company, Cars45, is digitizing Africa's billion-dollar used-car economy by enabling customers to sell their cars safely and securing in less than an hour. These digital tools will eventually revolutionize the management of informal business distribution networks.
Across Africa, informal sectors provide employment to over 66% of the population, especially women, youth, and the working poor. Even as the region attracts over $50 billion in foreign direct investment each year, 8 out of 10 Africans work in vulnerable forms of employment. The continent's working age population may be rapidly growing, but it hasn't managed to keep pace with official employment — meaning that more people each day find themselves hustling in the precarious boom-and-bust nature of informal work. These workers are often more focused on getting by than on growth. However, as smartphones and Internet access expand across Africa, technology empowers the informal sector by creating scalable platforms that provide them with more secure income, employment benefits, and social protection. In South Africa, for example, cleaners are traditionally found through agencies, referrals, or classified ads — an inefficient process for customers and cleaners alike. In 2014, however, SweepSouth created an on-demand service that connects over 3,000 domestic cleaners directly to customers. While SweepSouth has introduced more pay and flexibility for cleaners, the model could be expanded to countless other informal industries from childcare to maintenance.
Beyond market knowledge and access, digitization creates a pathway to formalization that is a win-win for businesses in the informal sector and governments alike. In the past, the costs of coming out of the shadows may have outweighed the benefits for SMEs in the formal sector; however, technology can ease the burden of regulation by streamlining bureaucratic processes. Moreover, it can generate greater visibility to donor and government services such as skills training and access to finance. With legal recognition, governments can better improve access to capital, award contracts to SMEs, and counsel them on business development. Although governments and development agencies increasingly recognize the importance of support for SMEs, efforts to engage them are more likely to be successful through coordinating agencies like Nigeria's Small and Medium Enterprise Development Agency or South Africa's Department of Small Business Development. By using technology in their outreach to SMEs, these agencies can better connect and serve more small businesses. For resource-strapped governments, formalizing the informal sector via technology also provides an opportunity to rapidly expand national tax bases through easily traceable methods. Better data on these unregistered businesses may also attract more investors as Nigeria witnessed when it rebased its GDP in 2014. When Nigeria accounted for formerly omitted sectors including the informal economy, its GDP rose more than 89 percent, which caused global investors to sit up and take notice. The same might hold true for Senegal, a country currently in the midst of rebasing, where the informal economy is estimated at more than 40% of GDP.
Generating more productivity and mobilizing greater revenue for the businesses at the bottom of the pyramid becomes increasingly essential in light of Africa's rapidly growing and largely unemployed youth population. By leveraging technology, we can introduce more consolidation, quality control and innovation into the informal sector. With the informal economy making up 55% of Africa's economic activity, increasing productivity gains could mean unlocking the continent's El Dorado.
Etop Ikpe is CEO of Cars45.
-
While bluechips will easily settle on reliable big boys like Amazon, IBM, etc, I imagine local players like Safaricom would snag the SME segment - for what is termed "digital transformation" - with cloud, mobile, apps and other offerings. From SME it's easier, no doubt, and natural, to proceed with packages for SOHOs and micro enterprises - the jua kali - with "Paybill", "Lipa na M-pesa". If I am a musician and folks buy my music as ringtones, or a vendor and people buy stuff using Paybill - even online - I suppose Safaricom could offer me a "portal" where payment and some analytics of my customers is available. Now I can review my transactions & revenues... perhaps even talk business with a bank manager without needing a guarantor or logbook upfront. Boom! am formal.
-
Pundit harps on education as the big driver of enterprise - the creation of solutions into successful commercial ventures. I find that education beyond high school has a diminishing return inasfar as entrepreneurship goes. Although it's great for building manpower, most entrepreneurs have basic education - undergrad max - while paper tigers are reliable employees.
-
Pundit harps on education as the big driver of enterprise - the creation of solutions into successful commercial ventures. I find that education beyond high school has a diminishing return inasfar as entrepreneurship goes. Although it's great for building manpower, most entrepreneurs have basic education - undergrad max - while paper tigers are reliable employees.
To me basic education means eight grade level. Undergrad is higher education.
Most Africans are ending up with 8th grade education due to lack of money. You can't expect these people to have critical thinking skills necessary for a productive economy!!! Even university education is useless without critical thinking skills.
-
Robina I am for 12yrs of education...that high school as minimum...and 2yrs plus for any vocational or professional training..so 14yrs excluding preschool work.Otherwise informal nonfarming activities are exciting...however we know the bulk of ours is on low tech low productivity farming.
-
Amb Amina Mohamed (CS International Trade) on upgrading jua kali to mainstream SME
THE WORLD POST A partnership of HuffPost and the (http://modulous.huffpost.com/2017/08/04/1501870004-WP-Berggruen-5578f1fc2fc338c55868a2a2585eac2ebf500c19be55c5635ab1b921210e0279.png)
Africa’s Entrepreneurs: Strong but Struggling
By Ambassador Amina Mohamed
(http://images.huffingtonpost.com/2016-12-29-1482979796-9551768-SMEsAfricasopportunity-thumb.jpg)
Photo Credit: ITC via wikimedia
Consider this. By 2035 the number of Africans joining the working age population will exceed that of the rest of the world combined, according to the International Monetary Fund (IMF).
Micro, small and medium enterprises (MSMEs) are at the heart of Africa’s growth. MSMEs account for around half of Africa’s employment and one third of its GDP - considerably more if the informal sector is included. But the MSMEs are struggling.
Further, MSMEs are the largest job creators on the continent. Still, failure rates for these businesses are extremely high - around 50pc of South African SMEs fail in the first two years, for example - due to factors such as limited access to finance, poor access to markets and low operational capacity. In terms of finance, the World Bank estimates the global funding gap for MSMEs is between $2.1-2.6 trillion dollars in Africa, and this figure is approximately 140 billion dollars.
We need to rethink small business support if we are to awaken Africa’s potential for entrepreneurship. A host of small business support programmes, incubators and accelerators have emerged to help entrepreneurs build skills, obtain finance and access markets - with limited success. There is a need to rethink the way in which businesses are identified and grown on the continent. How?
First, understand the informal sector.
There is very little information on informal MSMEs in Africa, and yet these constitute approximately 90% of the MSMEs on the continent. What little we do know of the informal sector points to a dynamic and varied economy that, if understood, could be harnessed for growth. A recent study in West Africa, for example, found that a third of informal enterprises surveyed had strong growth potential (e.g., business skills, high margins) but were constrained by access to finance and other barriers.
Second, get smarter on business support.
There is a need to move beyond establishing greater numbers of incubators and accelerators to finding ways of surfacing and rewarding successful MSME support models. For example, Catalyst for Growth, a non-profit in South Africa, is currently building an analytics platform to assess the impact of various MSME support programmes, which will help entrepreneurs and investors channel resources to the most effective providers. As part of this effort, it is important to recognise that there is considerable variation within the MSME category itself, and that government has an important role to play in creating enabling environments for business growth through activities such as inclusive city planning.
Third, find new ways of assessing risk.
Many commercial banks across the continent offer SME lending facilities, and yet very few actually lend to SMEs due to the perceived riskiness of these enterprises. One way to counter this challenge is to create mechanisms where donors and/or investors seeking social impact subsidize lending and reduce risk - for example, the African Guarantee Fund, which is backed by the African Development Bank, underwrites commercial bank lending to SMEs. However, there is also a need to move beyond traditional means of assessing risk - like collateral - to more creatively identify the opportunities offered by MSMEs, many of whom lack the means to demonstrate their worth to banks in the way that they are required to.
For example, First Access has created technology that utilizes financial service provider data in innovative ways to provide credit scores to clients in informal markets. Initiatives like this one help mobilise capital for entrepreneurs who otherwise would not have access. We need to think harder about ways to give SME’s access to funding on terms that aren’t restrictive.
Getting the African entrepreneurship story right will require creativity, collaboration and no small amount of risk. But governments, private firms and development actors can - and must - rise to the challenge. The African Union Commission (AUC) has the potential to play a catalytic role in supporting entrepreneurship and MSME growth by creating continental wide mechanisms to identify, reward and scale up successful business models as well as working to invest in better bridging the knowledge gaps on critical success factors for this sector.
In addition the AUC has the ability to advocate for and promote policies that enable the more widespread use of alternative credit risk assessment and mitigation. We must make our economies work for everybody and I fully support the AUC’s SME Strategy and Master Plan 2017-2021 which aims to improve the continental business environment, increasing business formation, supporting formalization of growth-oriented informal enterprises and start-ups.
It also seeks to increase SMEs, MSMEs and entrepreneurs’ participation (including women and youth) in regional and global value chains and promoting innovative financing and inclusive economic growth.
Finally the AUC can leverage its convening power to bring together the multiple stakeholders that are required to fully deliver on improving and accelerating the success and growth of the MSME sector. We all know that the challenge of job creation on the continent is significant and certainly cannot be addressed by any single actor.
Africa has become the world’s most exciting economic frontier, reducing poverty and transforming nation states as well as offering hope to a new generation of accomplished and engaged youth. Perhaps the most important role the AUC can play is in aligning the various interests and initiatives to ensure much more effective interventions and at even greater scale.
http://www.huffingtonpost.com/entry/africas-entrepreneurs-str_b_13876004.html (http://www.huffingtonpost.com/entry/africas-entrepreneurs-str_b_13876004.html)
-
Pundit harps on education as the big driver of enterprise - the creation of solutions into successful commercial ventures. I find that education beyond high school has a diminishing return inasfar as entrepreneurship goes. Although it's great for building manpower, most entrepreneurs have basic education - undergrad max - while paper tigers are reliable employees.
To me basic education means eight grade level. Undergrad is higher education.
Most Africans are ending up with 8th grade education due to lack of money. You can't expect these people to have critical thinking skills necessary for a productive economy!!! Even university education is useless without critical thinking skills.
How do they acquire critical thinking skills?