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Why future of informal industry depends on modern tech

EAST Africa’s informal industry could leverage on emerging technologies to grow and garner profits.

This comes after some 30 operators in the informal industry, drawn from Kenya, Uganda and Tanzania, urged that the future of Africa’s informal industry lay in the era of digitalization.

This was because the emerging disruptive technologies have made ‘informal’ not to be synonymous to the streets and automatically defaulting to the marginalised or vulnerable.

The street has been scaled to WhatsApp, SMS, Web Portals, Instagram, calls and Facebook groups while production is increasingly becoming digital and automated. Subsequently, the emerging groups of informal actors are vastly different from the traditional informal economy actors.

They comprise today’s millennial and post millennial digital natives–educated, learned, tech savvy and adaptive to global trends.

“There is need to close the digital divide for our enterprises to be competitive in the global market,” said Stefanie Steinbach, Head East Africa Office of the Friedrich Naumann Foundation for Freedom (FNF).

Kenya Association of Manufacturers (KAM), Head of Membership and Board Affairs, Mr Tobias Alando said digital technologies are opening up new opportunities for the informal sector to innovate and grow.

“It is important we foster inclusive multi-sectoral collaboration to tap into the opportunities of this sector,” Mr Alando said. The delegates converged in Nairobi, Kenya last month to discuss ‘The Future of Africa’s Informal Industry in the Era of Digitalization.’

The forum was organised by the Inter Region Economic Network (IREN) in collaboration with FNF. The participants included informal sector representatives from Vibindo (Tanzania); Kampala City Traders Association (KACITA); Uganda Traders Support Association (TSAU); Kenya Jua Kali associations and Kenya Association of Manufacturers, among others.

The EAC Industrialisation Strategy aims to diversify the manufacturing base and raise local value-added content of resource-based exports to at least 40 per cent by 2032. It also aims at transforming Micro Small and Medium Enterprises into viable and sustainable business entities capable of contributing to at least 50 per cent of manufacturing GDP up from 20 per cent base rate.

Vibindo Society Chairperson Gaston Kikuwi said the bloc has a great opportunity to work with informal industry operators to unleash their untapped entrepreneurial potential. “…With a view of improving living standards and making them play an important role in the regional and global markets,” Mr Kikuwi said.

To be competitive, East Africa must adopt appropriate technologies that guarantee precision, lower per unit cost in production and delivery of goods and services. However, there are challenges backpedal the region to attain its goal.

Tanzania’s College of Business Education (CBE), Lecturer and Campus Manager, Dr Nasibu Mramba, said East Africa remains drastically under industrialized, suffocated by low electricity penetration, high and unreliable electricity costs, poor transport infrastructure and consequently high transport costs, a low human capital stock and protectionist policies in some countries.

“All of the above contribute to expensive and low-quality manufacturing that renders the EAC’s industries uncompetitive. “Education and collaborative efforts between public and private sectors are critical for the informal sector players to effectively compete on the global markets,” Dr Mramba said during the 17th Africa Resource Bank Forum.

Rapid innovation and adoption of technology is proving to be a catalyst of improved market analysis, knowledge sharing, product and service design, renewable energy sources, distribution models and operational efficiencies. Digital technologies are opening up new opportunities for the informal sector to innovate and grow through digital business platforms and big data.

For instance, Vibindo Society last year signed an- MoU with Pralena Network that designed to assist the society to undertake online business, synchronizing with marketing technology developments.

Through the partnership, Pralena will come up with electronic systems which will enable entrepreneurs to collect, serve and pay back money of Vibindo society members as well as introducing the Kibindo financial management system.

Pralena will provide professional training to Vibindo members on how they will advertise and sell products online. The signed MoU will also help Vibindo society members to sell their products through e-commerce of Pralena Network known as ‘Inukashop’.

According to Vibindo the system purpose is to help Vibindo members to access big markets at any moment through e-commerce platform. Digital business will help members to do their business wherever they want as the network is accessed by many people.

The Vibindo chairman said that the society has more than 600 member groups across the country, mostly having no e-commerce skills or outlets. Through the partnership, small scale traders will expand the scope of their business as they will be connected with digital market outlets.

The region must think long-term to foresee emerging technologies with the potential to exert a considerable impact on the region’s socio-economic domain(s). The informal economy is estimated to represent 72 per cent of Africa’s economy and 38 per cent of regional GDP. In EAC region, the informal sector is contributing significantly to job creation, and poverty alleviation. The sector contribution to the GDP in Kenya is 22 per cent; Uganda, 20 per cent; Tanzania, 28 per cent; and Rwanda, 5 per cent.

The international labour organization (ILO) estimates that 90 per cent of new jobs created in some African countries will form part of the informal economy. The reliability and growth of this sector has resulted in companies expanding on their efforts to tap into the informal market through doing business with entrepreneurs in the sector.

The digitalisation of the informal sector has opened new innovative ways to tackle the lack of products and services such as financial inclusion and sustainable business models for unregistered business owners. For instance, Technological platforms for informal businesses or SME in countries such as Kenya, South Africa and Cameroon are creating an alternative prospective to the notion of business growth.

Big businesses and startups are creating digital channels for informal business owners to gain access to services and data they typically wouldn’t have as an unregistered business.

The aspect of business growth in this regard for informal business is the access to services and a modern ‘real time’ approach to interacting with consumers. This also provides a new path for big business to collaborate, partner and work with informal business.

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