THE BLOG
04/02/2013 05:55 pm ET | Updated Jun 02, 2013

A Focus on Africa's Informal Economy

Africa's informal economy is one of the most innovative and inventive environments in the world. Yet it is an environment with little regulation in which workers are often exposed to hard conditions and live without a safety net. Technological advances mean that with a mobile phone, an African can start his own business: this makes for a fertile environment for breeding entrepreneurs and launching SMEs, but one that does not benefit the wider economy as much as it could. How can Africa create a balance between these opposing forces? This was one of the main topics of conversation when I attended the recent BRICS summit in Durban.

Many analysts are rightly concerned about the conditions that prevail in the informal sector, but the phenomenon also raises important questions. What effects do these informal markets have on African societies? Should policy-makers attempt to formalize them in order to make life more stable for the people who make their living that way? Perhaps most importantly, how can the unique dynamism of Africa's informal economies be fostered and constructively harnessed?

Here are some facts we know about the informal sector in Africa. First of all, the informal economy accounts for 80 percent of new jobs across the continent and is a major contributor to wealth. According to World Bank estimates, informal economies generate 40 percent of GNP in low-income nations. On the other hand, we know that many of those employed in this sector work under temporary contracts with uncertain hours and days. Most of them are poor.

Several large-scale studies have shed a fascinating light on how the sector works. Steve Daniels is the author of Making Do: Innovation in Kenya's Economy, a book that examines the "symphony of socioeconomic interactions that form what is known as the informal economy." Despite the tough conditions that people endure in Kenya's jua kali (literally "hot sun," in Swahili) -- and, as Daniels notes, possibly because of them -- those who work there "continuously demonstrate creativity and resourcefulness in solving problems."

Already there are organizations that explore the energy and potential of the informal environments that flourish in the world's megacities. Makeshift magazine showcases creativity in informal economies from the favelas of Rio to the Internet underworld. Maker Faire Africa engages with on-the-ground breakthrough organizations and individuals to sharpen the focus on locally generated, bottom-up prototypes of technologies that solve challenges to development. It would be great to see more partnerships and collaborations of this sort starting up.

On the policy side, research indicates that governments could do many things that would allow people employed in this sector to thrive. In a paper on the role of the informal sector in Sub-Saharan Africa, two U.S. academics argue that if the aim of governments is to reduce poverty and create jobs, the informal sector must be included in debates and discussions. There are a number of ways in which improvements could be made: by creating a framework that grants support to workers; by providing access to education, training and basic health care; and by making it easier for these people to obtain property titles and proof of ownership. With 1.8 billion people across the globe toiling in informal, unregulated environments, the sector cannot simply be overlooked.

I am excited by the opportunities -- and challenges -- that Africa's informal economy presents, and I wish to start a conversation. Some of the most innovative solutions to problems are coming from informal markets, but in order to scale this human potential, more needs to be done.