Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Dr. H. Kwame Afaglo
© 2010
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Much as unemployment rate in Africa was estimated to hit a high 32.3 per cent for 2008, this figure is an intelligent guess of a measurement that is against formal working status. Quizzically, the ‘off-record’ working segment of sub-Saharan Africa is on the increase and noted to form about 72 per cent as recorded by International Labour Organisation (2002). Please note in this write up ‘off-record’ replaces informal sector.
Although, some of these statistical figures are doubtful in some section of academia, the obvious sight of a booming and bustling ‘off-record’ trading activities in all African states is undeniable.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Perplexingly, such an economically active and large service sector (trading) of an economy is ‘off-record’ implying it escapes the tax bracket.
Another significant ‘off-record’ employment sector is that of agriculture. With a significant number of Africans living in rural communities and mainly engaged in agricultural activities as self employed, they are excluded from the tax network and lose on pension. This to an extent, impoverishes both the state and its people. ‘Off-record’ employees are working just to keep the day going, what is known as ‘hand-to-mouth’.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Since they (employees) are denied social security contributions or not included in the pension scheme by their ‘off-record’ employers, they are only abusing their energies and creativity, in return for deprivation in later life.
Being ‘off-record’ working sector, further implies authorities have not been able to adapt effective monitoring and accounting measures of their activities, especially for taxation purposes and conditions of employment.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Besides services and agricultural sectors as mentioned earlier, the other sector of interest is the fast pace Information and Communication Technology (ICT) sector that is run on the backbone of telecommunications infrastructure. Mobile phones and internet or cyber cafes use are rapidly on the rise all over Africa. Undoubtedly, the small scale mobile phone and cyber cafe private ventures are also classified as ‘off-record’ enterprises. Interestingly, the near future business entities would be internet driven, yet African governments have no track on cyber café enterprises.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Implying, the numerous cyber cafes would breed new small ‘off-record’ enterprises in an arithmetic progression in the next five years (2015). It would be economically thoughtless if African economies do not immediately integrate the long existing ‘off-record’ enterprises for taxation purposes and employment conditions. Identifying, monitoring and enhancing the operations of ‘off-record’ enterprises by governments would significantly improve Africa’s micro-economics, unemployment rates, poverty and generally the macro-economic indicators.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Identifying and registering ‘off-record’ enterprises
As ‘off-record’ enterprises in Africa have a long historical base and gender sensitive, an enticing package be arranged for individuals operating within these sector be introduced in return for them to voluntary formalise their establishments. The voluntary registration of ‘off-record’ enterprises package for both self employed (traders, farmers, etc) and small scale firms should include benefits as follows:
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Registrants
Company House - The formalisation of the heretheto ‘off-record’ enterprises with country based Company House or Company Registrar should be at no cost (FREE) to registrants.
Training - The newly formalised enterprises be given FREE training on filling tax returns.
Bank accounts - Automatic free bank accounts should form part of the incentive package for the formalised firms upon their registration.
Access to finance - Formalised firms be given training and priority in accessing grants for small-to-medium scale enterprises from
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Bretton-Wood institutions, government promotional loans and commercial banks start-up facility.
Time - All these benefits must be within reasonable time frame as three (3) months so as not to discourage the process.
Branding – The formalisation of the firms gives them an inherent protection of company name as well as brand value.
Tax break – Voluntary registration of ‘off-record’ enterprises should be accompanied with a tax break policy. This would promote and strengthen local industries.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Tailored company tax – Here company taxes must be graded on location bases, with relatively less tax for firms in rural communities as compared to those operating in urban communities. This way, government and private entrepreneurs would actively be evolving rural development and control rural-urban drift.
Pension plan and poverty reduction – With all self employed, small enterprises registered as formalised establishments and contributing towards a realistic pension plan, it would significantly reduce poverty at old age for employees.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Government
Good knowledge – An improved and up-to-date data base of enterprises would give an accurate or near accurate knowledge of employment rates in respective African states conversely to current information.
Increased revenue – Having extended the tax bracket and an improved chance of collection, invariably implies an increase in government revenue generation, overall increase in Gross National Income (GNI) which is akin to increase in wealth of state.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Growing private sector – The formalisation of ‘off-record’ enterprises scheme is another approach for government growing and strengthening private entrepreneurship.
Resources type and allocation – The proposed scheme would give government a better picture of how to allocate resources to populace and type of resources needed to propel development.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth In addition to the voluntary registration of ‘off-record’ enterprises, it is government’s responsibility to identify these ventures, owners and operatives. Because it is been quite a while that most states in Africa carried out population census, it is recommended, identifying, recording the locations and operatives of the ‘off-record’ enterprises form part of the census data to be collected.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth As mentioned, ICT is going to lead and change types of employment and ways of working in the very near future, so African based firms need to re-engineer or begin to radically change their mode of operations in alignment with advancing ICT.
Currently, southern and eastern Africa are connection to the fast internet bandwidth per fibre optics. Meaning the new phase of business has been enhanced and the race to meet the ever growing and no waiting consumer behaviour has taken off in Africa.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Roux, Y.L. voiced the thought of this write up as: ‘Cisco and SEACOM share a common goal to enable accessible broadband across Africa while lowering the cost of communication to spur growth within urban and rural communities. We’re working with SEACOM to help transform Africa by outlining process change, building networks, and then providing the application services and expertise that support key services for citizens, such as education, healthcare, public safety, economic development, and national security. SEACOM will provide the catalyst for African consumers, business and government to realise the benefits of connectivity and collaboration across the globe.’ (2009)
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Re-engineering business from the cyber cafes through rural African communities to the few larger scale industries is the imminent direction of growth. African leadership and entrepreneurs need to radically integrate internet based operations in their existing and new ventures, in order to benefit from the global competition in all business sectors.
Besides Southern and Eastern Africa that is hooked on the high speed broadband per fibre optics, the rest of the continent is connected through satellite. GLO is yet to complete its fibre optics project for Western Africa, likewise that of Tunisie Telecom for the Northern sub-region.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Having formalised ‘off-record’ enterprises vis-à-vis the growing use of internet cafes and mobile phones, thus signals the presence of the necessary condition for initiating re-engineering small businesses in Africa.
The main players in the re-engineering process are: buyers (global consumers), sellers, payment gateway firms, financial institutions (banks and insurance companies), supply chain, delivery services (post and courier).
The illustration on the next page or slide is an established process for online enterprises to be adapted for this study.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Re-engineering African small business scheme
Buyer
(global consumers)
Payment gateway
Returns policy Bank Insurance
Delivery services Returns policy Seller
(Mail or courier)
Outsourcing
Key
IT driven
IT driven
Supply chain IT and physical
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Gains
The African based enterprises re-engineering scheme as illustrated on the previous page or slide is mostly internet or Information Technology (IT) driven with the strengthen of various departments as finance (emphases on micro-finance, insurance, delivery services and e-Commence).
Secondly, the scheme is cyclical and it increases the velocity of money and eventually improve the taunting macro-economics of the region, specifically reducing inflation to an appreciable rate for effective decision making.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Further the scheme does present new job openings for states.
It also would increase local production, extend supply chain outreach and generate more revenue for the region.
Glitches
Identifying current glitches pertaining in African based enterprises vis-à-vis the proposed re-engineering scheme brings to forth the following;
Payment – Africa is highly a cash base society with financial institutions struggling with replacements as plastics and other mopping strategies. Most financial institutions in Africa have introduced plastic money but
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth do not have micro-finance as a niche. Instead they target the middle to upper class of the society, who already are customers and in the minority.
Whiles excluding the majority who are propelling small businesses with a deterring minimum start up deposit of two hundred US dollars ($200) for plastic money (pre-paid or debit card). Unlike the minimum of ten US dollars or pound sterling ($10, £10)in the United States of America (US) and United Kingdom (UK) respectively for a pre-paid or debit card. Another hindrance to the plastic money introduction in Africa is its sales as strictly in the banks, whiles they should easily be obtained from kiosks as mobile phone top-up cards are currently sold and online.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth The mentioned hindrances thus serve as opportunity for western small-to-medium financial institutions to seize. A recent case in point is that of UK based firm’s entry into the South African pre-paid card market as; ‘Ukash introduces online cash payments to South Africa, a country where 40% of the population is unbanked and where internet usage is booming
E-commerce payment provider Smart Voucher Ltd, trading as Ukash, has become the first to offer online cash payment solutions in South Africa, allowing e-retailers to market to the country's large cash consumer base for the first time.’ (2008)
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth In addition to financial institutions making plastic money easily available at off-site sales points (as cyber cafes , kiosks, etc) and integrating micro-finance into main stream, the cards must have international convertibility. Because the re-engineering process takes into account global consumers, outsourcing and supply chain management, local inconvertible plastic money is unsuitable for the much needed accelerated growth of the continent.
Payment gateways – Another private establishment type to emanate, be encouraged and integrated in the re-engineering process of African enterprises is payment gateways. These establishments rely heavily on virtual banking to complete transactions as well as insurance liaisons.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Delivery services – Besides state owned (respective African states) postal services and multi-national courier services (DHL, EMS, FedEx, UPS), the re-engineered African enterprises would strengthen and evolve new enterprises that would improve domestic and international courier services from African based sellers to international customers. The re-engineering scheme eventually would intensify competition among delivery firms, leading to reduced cost of postage and efficient services.
Consumer rights and returns policy- The benign operating consumer right laws, enforcement agencies and independent bodies in various African states would
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth be catalysed to be responsive and align their approaches with that of the international community. Hence the re-engineered process requires high quality products and services in other to gain competitive advantage for African commodities. Sellers and supplies from Africa must be given continuous training in consumerism and consumers rights in international trading (virtual and physical). Training of African small-to-medium scale firms in consumer behaviour in the international market place is an ongoing process that is partly sponsored by Bretton Wood institutions. This well thought off and implemented training must integrate ICT policies and procedures in line with the re-engineering scheme projected.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Feedback – All players (buyers, sellers, suppliers, financial institutions and delivery services) in the scheme must be monitored and comments be made open for establishing credibility. A non-existent open feedback system apart from the pertaining word-of-mouth, is an inhibiting factor for African based enterprises effectively participating in international virtual trade.
Credit rating – There are few and ineffective credit rating institutions in Africa.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Another institutional requirement that is highly needed in the financial and insurance operations of the re-engineering scheme is credit rating establishments. This is another grey area for private enterprises to venture for an effective re-engineering scheme to be successful.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Outsourcing – With the proposed re-engineered African enterprise scheme, it would drive product focus from the current raw material exporters to finished produce traders. Marketing wise, there is more gains from selling finished products as compared to raw materials. Hence, the re-engineered scheme inherently promotes finished produce trading for higher returns. Increased global produce demand from Africa, would eventually entrench backward integration with higher gains for the producers e.g. farmers.
Personnel development – Based on the discussion so far, the re-engineered scheme would introduce the new form of working, which is more ICT based than today’s physical based.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Hence, requires more personnel in the development of computer software programmes, innovative hardware, research centres and the ICT sector generally, to radically change the face of African business operations, in order to gain global competitive advantage.
With African youth highly involved in the use of mobile phones and computers backed by a large and recognised ‘off-record’ entrepreneurs in the services and agricultural sectors, the platform for catalytic growth is set and waiting for an effective ICT interface that would propel the anticipated radical change in business operations in the near future.
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Reference
SEACOM goes live (2009) Available from http://www.seacom.mu/news/news_details.asp?iID=100 [Accessed 10 January 2009]
Ukcash is the first to bring e-cash to South Africa (2008) Available from http://www.ukash.com/uk/en/news/ukash-is-first-to-bring-e-cash-to-south-africa.aspx [Accessed 11 January 2009]
Verick, S. (2003) The Impact of Globalization on the Informal Sector in Africa http://www.iza.org/conference_files/worldb2006/verick_s872.pdf [Accessed 9 January 2009]
Re-engineering the informal enterprises in Africa – Accelerating growth : Re-engineering the informal enterprises in Africa – Accelerating growth Thank you