Revamp informal sector via technology

Consumers and small businesses are now using technology to order and deliver goods respectively. PHOTO | SHUTTERSTOCK

By BITANGE NDEMO More by this Author

Informal enterprises (IEs) have played a key role in shaping African economies by raising standards of living at the bottom of the pyramid. Technology is transforming this critical sector and Covid-19 intensified its application as it created employment and income for the majority of people.

While informal sector can provide income-generation opportunity for low-income group, women, and the youth, attempt to redefine the sector to be in line with the future of work has never been given a priority. And despite its contribution to GDP, it is often difficult to ascertain.

Digitalisation, especially of payments, is making it possible to collect critical data for development. It is such data that technology giants are using to provide new and disruptive products.

Studies show that the informal sector is prone to problems like low productivity, lack of finances, poor marketing and bad governance leading to income inequality and poverty.

According to the World Bank, many of the young job seekers on the continent are drawn to the informal sector, which accounts for over 83 percent of employment in Africa and 85 percent in sub-Saharan Africa.

Therefore, improving the productivity of and market access for workers and producers in the informal economy is at the heart of many poverty reduction strategies in the continent.

Because of this, the race to emancipate informal microenterprises is gaining momentum. Virtually every tech company, big and small, is searching for ways to solve the problems facing IEs in Africa. Success in this search is beginning to change fortunes for millions of people in the developing world.

When history is written, Covid-19 triggered the shift of IEs into an innovation trend. Within the last two years, people discovered that messaging services like WhatsApp and Telegram are critical to getting access to scarce goods and services.

The advent of emerging technologies could augment national growth policies to create employment and social cohesion as they raise living standards for the most vulnerable groups in society. The secret to achieving financial inclusion for the entire community may lie in technology driven IEs that are scalable and dependable.

Innovative businesspeople can now provide online delivery services, and some have even been quick to understand the dynamics of supply and demand to take advantage of an apparent opportunity.

The enterprise activity could not have been possible without the online payment and financing solutions. At some point, besides M-Pesa there were as many as 2,000 payment and lending apps on Google Play Store. Unfortunately, consumers could not move easily to new apps. As a result, the cost of money for the mostly poor in the informal sector remains a challenge in spite of regulatory interventions.

However, the cost might soon start to tumble as the market for digital money is beginning to stabilise.

Just like other sectors, IE requires more than finance to transform the sector in Africa. There are small areas that need to be addressed to inspire the transformation of the IE sector, especially in Kenya.

Enhancing value addition of the excess produce will reduce waste and as a result trigger industrialisation. This, too, will require technology especially blockchain to track and trace all manufactured goods. In addition, rural cottage industries should be linked to universities and TVET institutions as a strategy to ensure good manufacturing practices are adhered to.

With plenty of green energy in the continent, IEs have the potential to industrially transform Africa, ensure food security and limit dependence, especially in times of drought.

 The writer is Kenya's Ambassador to Belgium, Mission to the EU, Organisation of African Caribbean and the Pacific States and World Customs Organisation. The article is written at a personal level.