Taking it to the streets: Can the informal sector feel Africa's good economic vibe?

Remember those hawkers who were kicked off the streets of Dakar because they were creating a nuisance?

It’s been a busy few days for them. On Wednesday, Nov. 21, the hawkers protested the measure by taking to the streets, blocking traffic, attacking cars, burning tires, damaging business and ransacking the mayor’s office along with the local electricity company. Police responded with teargas and made an estimated 200 arrests. One report claims that two people were injured by bullets.

On Thursday, the government temporarily backed off the ban and allowed hawkers to return to the streets. The compromise could last until the end of December when the predominantly Muslim Senegal celebrates Eid-el-Adha, the Islamic festival, due this year around December 20.

It sounds like an eerie calm has descended upon Dakar.

The economy of informals
We never got into this during the past post, but it’s a good time to discuss the issues surrounding the informal sector.

When the term was first introduced, the “informal sector” encompassed the great many enterprises in the developing world not registered with a governmental authority. These entrepreneurs steered clear of their governments because:

1. the process is too time consuming, sometimes taking up to 180 days in certain cases; or,
   
2. The expense is too prohibitive, occasionally cost as much as three months salary.

These ideas were first popularized by the Peruvian economist Hernando de Soto who claimed that by forgoing licensing with the state, businesses remain locked outside the legal formal economy, unable to benefit from its rights and protections, like selling shares, applying for formal credit, possessing legal safeguards from fraud or purchasing insurance. Without these protections, business owners keep their firm underground, stunting its growth and paying heavily to steer clear of the long arm fo the state.

Due to the casual nature of these businesses finding their role in economies are obviously difficult. Researchers have settled on these statistics regarding the informal sector:

• It makes up 72 percent of non-agriculture employment throughout sub-Saharan Africa;
  
• 90 percent of the continents’ new jobs will be created in this sector;
  
• In Senegal alone, the informal sector churns out more than 40 percent of the country’s GDP.

While impossible to back these claims up, one must read de Soto’s countless examples of the small boutiques, the little bars or even tailor shops tucked inside houses to understand the reach of the informal sector. (You could also just walk around my neighborhood.) If the governments of the developing world could find a way to bring in these businesses from the cold, de Soto argues, they would unlock a great potential in economic growth (and an increased tax base).

Many reasons exist for the massive growth of the informal sector. Researchers claim that African private sector isn’t creating many jobs. In Africa, generally, it is difficult and expensive to fire full-time workers, so employers hire contract workers or temps – which officially place them in the informal sector. (My feeling is that governments in countries with high unemployment rates making firing difficult to protect workers from malevolent employers who fire people at will just to engage others to work at lower wages.) Secondly, researchers point out that even 15 or so years after the World Bank’s structural adjustment programs, governments remain the largest employer in many African states. However, the government workforces have stagnated.

Temp Slave
In the case of Senegal, however, we’re speaking of informal workers, who account for 7 out of every 10 jobs in Africa. Like the informal businesses they most often work for, workers are locked out of government-sponsored privileges like sick leave, defense against wrongful termination and social protections like social security. Most often, informal workers are made up by self-employed folks who don’t collect salaries – if they don’t work, they don’t get paid.

Speaking generally, informal sector workers trail their formal counterparts in education levels and hours worked. Wages are normally lower for informal workers, and their incidences of poverty are often higher, especially for families whose primary breadwinner belongs to the informal sector

If collecting information on the informal sector is difficult, the transient nature of street vendors makes gathering data near impossible. Leveraging information from Benin and Niger and extrapolating it, researchers can say with some probability that street hawkers make up 30 percent of informal activity in urban settings around the region.

One interesting fact: The caveat of small sample sizes aside, researchers found that street trade incomes are generally larger than the legal minimum wage. Tellingly, at least 40 percent of street vendors in Niger and Benin claimed they were not searching for work in the formal sector. Of those who were, most preferred securing employment in a shop, which most likely also resides in the informal sector.

Here’s what I can add from what I know of street hawkers in Ouagadougou. Most are quite young, recent arrivals from the countryside and understand that toiling a few years in the sun will be paid off by (hopefully) landing a job in the shade. They remain diligent workers in expectation of catching the eye of a boutique owner who will hire them.

In the IRIN story, which covered the riot and its aftermath the most thoroughly, it didn’t come across these hawkers from Dakar were demanding employment aid – just the right to continue selling on the street. "We are not against [the president's idea], but on the condition they give us a space to set up our stalls and sell our things," Fallou Seck, delegate of the collective of street hawkers told IRIN. "We are citizens who have the right to work."

If the above findings on vendors’ relatively higher salaries are true, then we are not speaking of people working to survive, but successful entrepreneurs, a fact researchers point out comprise the majority of informal businesses. The overall theme of the media coverage, however, points to people living pretty much on the edge. Perhaps this stems from issues brought up in the Associated Press story of beggars, most likely talibé, providing much of the daily nuisance on the streets of Dakar.

Marchand ambulant, où tu vas?
Senegal’s government is literally between a rock and a hard place. The government claims between 50,000 and 100,000 vendors clog up Dakar’s streets, harassing pedestrians and slowing down the city’s already snail-pace traffic. This adds up to $226 million in losses per year for the government – although the stories don’t investigate that claim. While meeting with members of the vendors’ union, the Prime Minister and Dakar’s mayor proposed limiting street hawking to three specific geographic areas and opening up a few other streets on the weekends. They’d also like to register the vendors with the city.

Let’s take this issue from a different point of view. Granted, traffic in Dakar is terrible and the touts are worse than obnoxious. (Admittedly, I got pick pocketed in Dakar, but it was my fault.) The bottom line is street vendors fulfill a specific need. If they would disappear from downtown Dakar, how would the city’s thousands of professional commuters purchase cell phone minutes, newspapers and even fruit? For those who have sat in most bars and restaurants know that West Africans have long been accustomed to young vendors marketing products at tables. What will customers think if this service is taken from them?

Another issue I have not seen raised is how Africa’s expanding economy affects this issue. Senegal’s economy grew at healthy four percent between 2000 and 2006, but the country is bracing for widespread protests against raising prices and falling wages. (Public unions organized nonviolent marches Wednesday.) Is this proof that Senegal’s newfound economic expansion is not trickling down to the neediest? Or, is it true that workers with the lowest wages are last in line to feel the benefits of globalization?

Stay tuned for more. Somehow Africa must figure out how to benefit the growing members of the informal sector.

I’m (not) shrinking: African economies at the 21st century

1975. Jaws grew into a Mega-hit. Monty Python and the Holy Grail was baptized a cult classic. With Abba, we sang this tune in our green Pacers:

When you're gone
How can I even try to go on?
When you're gone
Though I try how can I carry on?

People wore this and this.

In 1975 African economic advances were leading declining indicators. GDP was modestly rising. Incomes, too. Then the bottom fell out. Afterwards, anytime the continent saw periods of growth, monumental collapses quickly followed. Researchers wondered whether the continent faced a long-term economic rut. Or, did Africa’s politics – wars, shoddy infrastructure, poor governance – have something to do with keeping its economies comatose and people destitute?

The good news is that Africa has been on the mend for much of the past decade. According to a new report by the World Bank, 10 years of expanding economies in Africa has allowed the continent to claw its way back to economic levels last seen in …1975.

Yes, thirty years ago. The World Bank researchers found that African per capita GDP in 2005 resembles snapshots of economic indicators taken from when Gerald Ford was President of the United States. In fact, the World Bank’s report points out those similarities are uncanny between the growing Africa of today and a continent once hooked on Afro-Cuban music. “Countries that started poor, stayed poor, and those that started richer, stayed richer – with few exceptions,” World Bank researchers claim.

Between 1975 and 2005:

• At least 19 countries improved economically;
• 13 countries remained economically the same;
• 11 faced steep declines.
  

I can’t hardly wait
To understand this decade of African growth, World Bank researchers reviewed more than 1,000 indicators in fields like health, economics and private sector development. They found that between 1995 and 2005 African economies on a whole posted a 5.4 percent level of growth. Not only is Africa’s economic prowess much online with the rest of the world, but it’s the largest growth rate seen on the continent since, uh, 1975.

This finding has brought a measure of optimism surrounding Africa. "For the first time in about almost 30 years we've seen a large number of African countries that have begun to show sustained economic growth at rates that are similar to those in the rest of the developing world and actually today exceed the rate of growth in most of the advanced economies," John Page, the World Bank's chief economist for Africa, told the BBC.

Of course, not all growth is equal. The World Bank claims a country must have a sustained period of growth of at least 7 percent to pull many people out of poverty. A total of nine countries performed at this rate, including Mozambique and Rwanda. On the other hand, steep declines do happen. Gabon, Burundi, Central African Republic are just a few.

Researchers placed countries into roughly three broad groupings of economic growth. First, we have so-called Slow-Growth Economies, which include many conflict or post-conflict countries whose economies have been increasing less than 4 percent per year for the past ten years. These 17 countries include Niger and Togo and make up 36 percent Africa’s population. The World Bank terms next group the Diversified, Sustained Economies, which obtained growth at more than 4 percent per year during the past decade. These 18 countries make up some 35 percent of Africa’s population and include nations like Mali, Ghana, Burkina Faso. Finally we have the seven major oil exporters of Africa, which take care of 27.7 of the population.

Here are other highlights of the report.

• One third of Africans live in countries that have grown at more than four percent for the past ten years;
• Still, 41 percent of Africans live on less than $1 a day;
  
• Thank oil for much of Africa's success, but the economies of non-oil producing states expanded at an average of nearly six percent during the past four years;
• African nations are becoming more stratified amongst themselves: In 1975, the richest 10 percent of countries had 10.5 times of GDP per capita of the poorest. Today, it’s 18.5 times.

Fact Check: West Africa
Fact checking some of the work by the World Bank, I found that among 11 West African states, economic advances mostly lead declines. I reviewed statistics from the World Trade Organization, and found those 11 West African states posted an average 4.18 percent increase in GDP between 2000-2006. Burkina Faso, Mali and Nigeria all claimed a six percent growth rate during that time. On the other end, divided Cote d’Ivoire posted a less than one percent increase and Togo’s economy rose by 2 percent.

One of the reasons Africa is growing so solidly is the continent’s new-found reliance on world trade. Researchers at the World Bank report that Sub-Saharan African exports rose by a whopping 26 percent between 2004 and 2005. A few caveats are in order. For example, crude oil comprises at least half of the continent’s exports. Also, at least two-thirds of African countries rely on only one or two products for at least 60 percent of their exports. (Burkina Faso and Mali are two of those countries.)

Perhaps this is why the news coming from West Africa isn’t strikingly glowing or completely downbeat. Those 11 countries of the sub-region posted export expansion by an average of 4.33 percent. The big winners, however, were not the oil producing states. Land-locked and resource-poor Mali (at nine percent) and Burkina Faso (at eight percent) were the region’s biggest winners. Bad news came in from Mauritania (one percent decrease) and Cameroon (posting a one percent increase). Niger did not have enough data.

Oddly, at least to me, imports skyrocketed throughout the region. Until the turn of the new century, Sub-Saharan Africa often posted minor trade deficits. Since 2000, however, exports have pretty much outstripped imports across the continent. That is, until you take economic superpowers Nigeria and South Africa out of the equation; then, African imports far exceed exports. This trade deficit surely seems to be the case in West Africa, where imports increased 7.33 percent throughout the region.

There may be a few reasons for this. If I follow this report correctly, then people have more money to purchase things, so they do. African manufacturing still lags (more on this later), so people buy more imported goods, anything from average cheap plastic junk to cars to cell phones. If this is true, it may prove Africa’s growth is, maybe, trickling down to the lower economic sectors. The same can be said for machinery imports. Growing economies need machines and parts, forcing African businessmen to look elsewhere to keep their factories on line.

Or, the opposite may be true: This growth is not being felt at all levels of society. Getting by is becoming more difficult, and the continent must import more food because prices are too high and farmers cannot feed everybody.

The great big no
We can continue to party like it’s 1975, World Bank researchers confess, but Africa’s growth has its limits. Remember, we may now be living through the high times before the economies came crashing back down. A note of caution is in order: Certain sections of the continent have joined the globalized realm of capital flows and hedge funds, but many people in Africa live outside this realm, separated from good jobs and high wages and the accouterments – telephones and fax machine – necessary to do business. This is why when the World Bank mentions Africa’s globalization success stories, it relates the same tales: Ghanaians processing insurance claims for U.S. insurance companies; Senegalese working in French call centers; Kenyans exporting cut flowers.

Let’s get back to Africa’s infrastructure for a moment. Africa, as a whole, is in the process of updating its laws governing business (a big World Bank pet project), but basic infrastructure needs must also be addressed. In a big way. In this case, the researchers don’t mince words. In Africa, “the quality of service is low, supplies are unreliable and disruptions are frequent and unpredictable—all pushing up production costs, a critical impediment for investors.”

Their complaints continue. Reliable electricity service remains a problem; so is getting hooked up to the grid. Telephone service still lags behind everywhere. Even the cell phone revolution has limits. Access to clean water is up (dirty water is a health hazard that keeps people out of work); so is access to education (Africa needs more educated workers to perform complicated tasks), but completion rates have stagnated. Roads are improving, but they still need work.

All this must be confronted – and physical infrastructure isn’t cheap.

Agriculture is another sticking point. It’s Africa’s number one industry, but the problem here is non-irrigated crops, which you will find growing in 96 percent of fields throughout the continent. If a sensible irrigation system could somehow be developed in Africa, crop yields will increase and so will productivity. Agriculture-based economies will grow even more.

This is where I’ll insert a small quibble: This idea sounds like perfect development program – from 1975. Hauling in expensive equipment on shoddy roads to provide small relief for a few months before it starts to break down and then sits in the field and rusts. Hopefully, the pipes could be broken down and sold for roofs or sleds or something useful like that. You have to keep these economies expanding somehow.

Once more, with feeling
I’ve spent much of the day with this report, and I still don’t know how to take it. It’s definitely an interesting document. And granted, it’s provides a moment to bask in at least a cupful of optimism about the continent. (Business editors take note.)

However, we need to follow up on fundamental questions raised by this report. What, really, precipitated this type of growth? What about microeconomic issues: How much is the growth affecting individual countries? How much of this growth is trickling down to society? How much will the continent’s growing population affect this?

One last snarky note: Missing from my reading of the report was the irony that Africa’s supposed fall of 1975 may have coincided by a couple of years with the mounting debt problem, followed by intervention in African economies by the World Bank and …