They call it the informal sector..I call it our Sillicon Valley

In a recent Wall Street Journal piece, Mr. Barta described that:

Economists have long thought the underground economy -- the vast, unregulated market encompassing everything from street vendors to unlicensed cab drivers -- was bad news for the world economy. Now it's taking on a new role as one of the last safe havens in a darkening financial climate, forcing analysts to rethink their views.
We are all too familiar and users of the informal economy. It is cheap, it is flexible, and it certainly does fulfill our needs. But is the informal sector the best answer for developing countries?

For supporters, the informal sector is the private sector answer to the inexistent public safety system of our countries. Young graduates, newly unemployed, even civil servants trying to increase their monthly income deliver services and goods at a cheap price and with a supply chain efficiency which defies anything even FEDEX could come up with. You can get a haircut at your house, on a Sunday for a $1 in Bamako!!! Need medicines? A designer boubou? Spare parts? A Sofa maybe or a TV? Any informal market will give you that and much more. This is why they represent, according to most research 60% or more of our economies.

For the skeptics, the informal market is a nuisance to the development of a formal retail, industrial and services industry. They argue that informal markets do not respect health and safety requirement for their workers, do not provide any protection for customers and do not pay taxes. To them, the informal sector is simply the result of excessive government regulation, overbearing administrative procedures. In addition they argue that the informal sector leads to much higher cost of borrowing, because of the risk they represent and the unfair competition they represent for formal SMEs.

Regardless of where you sit in this spectrum, it is true that actors in the informal sector play a vital role in providing an alternative to fulfill our needs. It is also true that policy makers, particularly international economists have little clue of how to capture the impact of these guys on our economies and what is needed to make them jump to the new level.

As Ambassador Blake, former Foreign Secretary of the US said during an interview following the recent G20 meeting: “The US should never accept an international regulatory body to tell it how it should run its economy” no African government should ever accept to be dictated how it must handle its informal sector by an international regulatory body. The IMF and the WB and even the AfDB with all their good intentions at heart, do not know, can’t figure out how to measure the impact of the informal sector into their models, therefore they can’t capture its impact. The informal sector in Cairo, Kinshasa, Nairobi, Kuala Lumpur, Rio or Luanda serve similar needs in very different ways.

It is thus the duty of the ministries of commerce, economy, finance, the central banks of our nations to study this sector, understand how regulations or the lack of it impact the growth of these players and how do we maximize their wealth creation capabilities rather than castigating them as parasites which stifle growth. The innovative ways these people tackle the everyday problems of our citizens, their hard work ethics would amaze you.