AFRICA has the highest proportion of informal sector workers anywhere in the world. They account for more than 85% of the continent’s workers. This compares with 68,2% in Asia and the Pacific, 68,6% in the Arab States, 40% in the Americas and 25,1% in Europe and Central Asia.
Justine O Daramola
It is easier to work in the informal sector because no academic certificate or formal training is required. The most important thing is the readiness and ability to work.
The informal sector consists of all businesses that don’t fall under government regulation. These include all forms of petty trading, artisan work, and sales and supply of goods.
They also include diverse services such as hairdressers, barbers, mechanics, painters, handyman, artisans, domestics, and other work endeavours that people engage in for money. This definition excludes people who are involved in crime.
But these businesses face numerous challenges which hinder their growth. Based on research in South Africa, these include: lack of access to finance; poor access to skills training and technology; weak informal business associations and their lack of “voice”; problems in the legal and regulatory environment and issues of intergovernmental co-ordination; lack of organisation; poor quality of service and lack of service standards. They also lack business documentation, making it difficult for governments to tax them.
The same challenges are associated with the informal sector of most African countries.
There have been a number of information, communication and technology (ICT)-based initiatives in South Africa targeting small, micro and medium-sized enterprises.
But they have all bypassed the informal sector.
The Cape Peninsula University of Technology sought to close this gap by initiating a research project on technology support for the informal sector of South Africa.
The goal was to tackle some of the challenges of the informal sector through ICT in a way that was beneficial to all stakeholders.
The project aims to provide an online platform (portal) that uses artificial intelligence and cloud technology to support business transactions in the informal sector.
So far, the first version of the platform (called Uvuyo) has been created. It will enable informal business owners to register on the portal for free, and position their businesses to be seen by customers.
We will go further in the second phase of the project to ensure that interactions between customers and service providers on the portal can be done in South African languages using text or voice messages.
Online platforms that are specifically designed to support local people in the informal sector of Africa in this way are not yet common.
In a paper published in 2018 I set out how purpose-built portals could help informal businesses meet some of their basic needs.
I proposed the creation of an online platform that could be accessed via mobile phone, web, or voice input. I argued that the platform would meet some well-known challenges such as poor service quality and a lack of visibility. And that government agencies could benefit from data generated from the portal to make strategic plans on how to develop the informal sector better.
Many new modern businesses are based on the idea of a sharing economy where a technology platform facilitates on-demand services between customers in need of services and providers of these services. Many international companies that are doing well, such as Uber, Bolt and Taskrabbit.com, use this approach.
We believe the same idea can be used to promote informal sector services.
What’s in place, and what’s missing?
Africa already has a reasonable foundation for the extensive use of technology. Take the widespread use of mobile phones. A recent report showed that 91% of adults in South Africa own a mobile phone; 51% of adults have a smartphone and 40% have a basic phone.
Ghana, Senegal, Nigeria, Kenya and Tanzania also have relatively high mobile penetration with over 30% of the adult population having a smartphone.
This means that an informal service provider can engage in business transactions with customers over the phone via SMS or social media.
Today a lot of people post information about their business on social media to attract the attention of customers. Smartphones enable service providers to link instantly with customers.
The continent has a number of businesses that operate this way.
They make money by matching customers with service providers. They vet credentials of service providers, receive payment on their behalf, and provide a guarantee for the risks of transactions. They also get rewarded by receiving a percentage of the service cost paid by the customer.
These online platforms — business models that are part of the so-called sharing economy — are becoming more popular in Africa, particularly among the younger generation.
But governments in Africa are yet to take advantage of this trend to help the informal sector and micro-businesses.