Africa’s informal economy can boost innovation

To make an impact, science and technology must embrace Africa’s informal system of making and trading, argues Steve Daniels.

For half a century, science and technology (S&T) have promised to bring prosperity to Sub-Saharan Africa, but little progress has been made. This is in part because the African way of making and trading is largely informal, and Western industrialisation has failed to respect informality.

The word ‘informal’ may conjure images of illicit black market activity or harmful ritualistic practice — the darker, rarer side of informality.

But the informal economy — legal businesses that are largely unregistered and unprotected — comprises a much broader spectrum of activity, from piecing together scrap materials in makeshift workshops to extending credit to loyal customers.

Most products are simple goods like furniture and kitchenware but a select group of advanced craftsmen has developed complex agricultural and tooling machines.

In Kenya, the latest survey of microenterprises, published by the National Bureau of Statistics in 1999, suggests that over three-quarters of non-agricultural employment occurs in the informal economy. If technological interventions are to have impact, they must adapt to this informal mode of making and trading.

Resourcefulness, relationships and reason

The informal spirit, known in Kenya as jua kali, has produced clusters of economic activity throughout Africa’s cities and rural market centres. Producers and traders set up shop in close proximity, attracting competitors, labour, customers and support services such as credit providers.

This positive feedback loop has bred some of the largest manufacturing clusters in the world — Gikomba in Nairobi, Kenya, for example, and Suame Magazine in Kumasi, Ghana. These flourish due to three elements: the resourcefulness, relationships and reason (or knowledge) of the entrepreneurs.

Resourceful engineers make treasure out of trash — from oil lamps made of soup cans to grass cutting machines made of scrap sheet metal — and at the end of their useful life, these items are fed back into the web of production by scrap pickers, closing the cycle.

In the absence of formal institutions, relationships take the place of contracts. Yet entrepreneurs manage to pool machines, labour and savings without lawyers, cutting out the middleman.

An understanding of the local context is deeply embedded in informal business. Engineers continuously adapt production methods to available materials and product quality to customers’ wallets — precisely the flexibility needed to thrive in that context, however frowned upon by regulators.

But despite the promise of informal clusters, little innovation has emerged in terms of new products that meet local demand — tools that boost agricultural production, for example.

Leveraging the informal

Western science and economics can drive technological advances in the developing world but work better in a system where processes are formalised. What happens, for example, when governments or multilateral institutions introduce factories and corporate parks?

Not much. A factory might employ a dozen skilled workers, but the investment rarely trickles down to the ‘indigenous’ economy. And enterprises may only import raw materials and export the resulting goods, creating a closed loop with no links to domestic industry.

But we can leverage rather than fight the informal economy. The main barrier to innovation and growth for entrepreneurs is risk — they must ensure that every investment yields a return.

We can reduce this risk by improving access to resources like credit, tools and skills. And we can increase the willingness to take risks by promoting a culture of innovation by using market intelligence, working with customers to co-create products and improving the design process.

But simply reducing risk is not enough: in Kenya, a UN Industrial Development Organization (UNIDO) project provided power and equipment to rural jua kali business owners only to find that they used the new tools to make the same products at the same quantities.

Maker Faire Africa, a festival for craftsmen, has sparked a social movement around informal innovation by rewarding those who demonstrate inventiveness and risk-taking. This movement has incubated new technologies for local consumption, such as a machine for making rope and a tea maker activated remotely by SMS messages.

Bridging the formal

Though resourceful on its own, the informal economy is inextricably linked with the formal economy. For example, factory waste provides materials, and the most reliable commissions are subcontracted from formal enterprises.

And formal systems can have a broader impact. The explosion of access to mobile devices and cloud computing is making a difference in Africa — allowing small businesses to make payments more easily and securely using Safaricom’s M-PESA, for example, to contact large groups using technologies such as’s FrontlineSMS, and maintain virtual homepages using IBM’s Spoken Web.

Vast potential remains to use formal technology to empower entrepreneurs in a way that respects decentralised, informal enterprise.

Scientific institutions too are finding value in informal economy research. For example, researchers at the University of Nairobi have formulated surveys and censuses for the sector. And a number of engineering schools are piloting co-creation workshops with local jua kali.

Yet much more can be done to expand these programs and bridge the gap between the formal and the informal. Though the informal economy on its own may not yield prosperity for Africa, technological and scientific interventions that leverage informality will be more likely to succeed.

Steve Daniels is the author of Making Do: Innovation in Kenya’s Informal Economy, an exploration of systems of indigenous innovation in Africa, and a researcher in IBM’s Social Computing Group, focused on ICT for development.

Source – SciDev.Net – Steve Daniels – 13 January 2011