Introduction to Special Issue – Managing Africa’s Informal Economy: Research, Practice and Advocacy

Overview

This Special Issue focuses on the theme Managing Africa’s Informal Economy: Research, Practice and Advocacy. It carries the message of advocacy for most of our citizens who live, work (toil) and play under the cover of Africa’s ‘growing’ informal economy and society. The notion and to a large extent span of the informal economy has come to be associated more with its operating environment than any other considerations. From the visible everyday economic activities across the developing world, the informal economy has also come to be associated with the not-so-obvious and less-visible groups and economic activities (Sallah, 2016) across societies, including Africa.

Informality in Africa is quite complex and requires deeper and multidimensional approaches to research. For example, we need to investigate and understand both the external factors that determine its nature, size, drivers and consequences as well as the internal firm level dynamics, structure, processes and management practices that drive informal business activities. Moreover, the simple dichotomy of formal and informal is evidently inadequate and misleading. The informal economy can be broken down further for example into at least two subsectors (House, 1984): an intermediate sector (a reservoir of dynamic entrepreneurs), and the community of the poor (containing a large body of residual and underemployed labor).

What is amiss is mainstreaming the study of informal business activities in the management literature using both direct and indirect controls (Williams, 2016, pp. 201–226). We take a nuanced but positive view, noting that incidents of illegality, illegitimacy, criminality, low productivity, tax evasion, illicit flows, and other harmful conducts to society exist both in formal and informal economies, perhaps even more so in the former. A recent review of entrepreneurship in Africa observed for example, that, ‘Family enterprises are a driving force for African economies. In South Africa alone, family businesses comprise an estimated 80% of all firms and account for 50% of the economic growth’ (Devine & Kiggundu, 2016, p. 359). In some countries, if the informal economy did not exist, there would be no economy because the informal sustains the formal. Informal entrepreneurs are among the most tenacious business ecosystem builders; we need to celebrate, not admonish them. Even the use of the term ‘informal’ may be a misnomer where the informal dominates the economy and society.

Scholars are trained to respond to calls for advancing research and practice; they are less prepared for calls for action and advocacy. While we talk about the need to improve lives by asking questions of how management scholarship contributes to the betterment of society through elevating people’s health and wellbeing and the role organizations play in positively affecting the physical, psychological, social and financial health of individuals, groups, communities, countries, regions or global society,¹ we must not forget the lives of those who live with informality. In Africa, improving lives for all requires both scholarship and advocacy; inclusive growth is impossible without the active engagement of the informal economy.

Each of the papers in this Special Issue has a different and somewhat unique story of Africa’s informal economy, and collectively speak to research, practice and advocacy. They successfully capture the business context – nature of business start-up, business practices and entrepreneurial identity (diversity) – among others. Likewise, from the overlap between informal entrepreneurship and community entrepreneurship (serving as the entrepreneurial actor) in providing for the economic and social good of the community (Peredo & Chrisman, 2006), to the realization that in the African context, gender matters in elucidating entrepreneurial links and integration (Grant, 2013) and internal firm level dynamics, structure and management practices that drive informal business activities; all are captured in the articles, theoretically or via illustrations in practice.

The selection of the papers for the Special Issue began with invitations extended to different prospective authors. The featured articles are among those accepted, having met the requisite theme and quality standards to be included under the theme of this Special Issue. Following a subsequent blind review process, the final articles were accepted for inclusion. We have confidence in the findings of these articles because together they cover a good representation of pan-African economies, over a long period of time (1980s–2018). Hereunder, we provide a summary synthesis of the articles.

Summary Synthesis of the Articles

The topics of the six articles presented herein cover a broad spectrum of management and organization issues that have implications for advancing management scholarship and practice in Africa and raise interesting questions for future research, education and training, public policy and managerial practice.

The first article by Galdino, Kiggundu, Jones and Ro, titled ‘The informal economy in Pan-Africa: Review of the literature, themes, questions, and directions for management research’, is a comprehensive pan-African review of the literature. For the first time, AJOM is publishing an article that summarizes the current review of the literature (1992–2017) that covers all of Africa, including North Africa, drawing on 102 studies published in English, French and Portuguese and the Arab-speaking context. It identifies seven themes and suggests directions for future research about informality in Africa with a focus on improving the quality of management and organization research, both in terms of theory development and methodological rigor. This paper sets the stage and provides the anchor for this Special Issue.

The second article by Namatovu, Dawa, Adeyinka and Mulira, titled ‘Religious beliefs and entrepreneurial behaviors in Africa: A case study of the informal sector’ addresses religious beliefs and entrepreneurial behaviors in Africa, taking cues from the informal sector in Uganda. It sets out to respond to the question: how do religious beliefs shape entrepreneurial behaviors? The research question is both timely and opportune, revolving around faith-based identity, faith-induced practices, faith-filled vision and faith-inspired cognitions in realizing entrepreneurial behavior. Using qualitative methods, the study addresses significant cultural aspects of religion, spirituality and faith in entrepreneurship and explores how individual beliefs shape entrepreneurial behavior, i.e. how entrepreneurs rely on religious and spiritual resources for clarity and assurance in their entrepreneurial endeavors in Uganda’s informal context.

The third article by Mhando, titled ‘Managing in the informal economy: The informal financial sector in Tanzania’, is one of two articles in this Special Issue that focus on specific economic sectors, finance, for this one and mining (see below). Drawing on secondary data, Mhando extends prior work on the informal economy and discusses the challenges to the management field as relates to the informal financial sector in Tanzania. Whilst acknowledging the fact that informal financial markets render services to economic agents whose access to the formal is constrained (Bouman, 1995; Okurut, Schoombee, & Van Der Berg, 2005), due to both institutional and household-level factors (Nwanna, 1995), the article provides useful information on the role of management from a resource allocation perspective in the sector (among competing uses). It does this through available financial products and how they respond to needs in the informal economy. It further addresses links between the formal and the informal in relation to the present and through the lens of the informal financial sector, looks at areas of the sector’s potential including the role of governance, technology and culture. By so doing Mhando hopes to extend ideas of how management scholarship embraces the informal economy.

By invoking the notion of Ujamaa as an example of a traditional African system used as a basis for the provision of the common good in society, Mhando, a native of Tanzania, observes that it is important to note that the practical management of the informal financial sector in Tanzania rests on the understanding of the role of Ujamaa in the provision of goods and services in absence of a formal regulated sector. In the end, what counts for a country like Tanzania are the evolving financial systems and new ways of economic organization, using technology-enabled cost-effectiveness and institutional set-ups as the role of informality remains indispensable.

The fourth article by Hilson, Hilson, Siwale, and Maconachie, titled ‘Female faces in informal spaces: Women and artisanal and small-scale mining in Sub-Saharan Africa’, focuses on the mining sector in Africa, and addresses the role, prospects and challenges of women in artisanal and small-scale mining in sub-Saharan Africa. The article critically examines how women employed in artisanal and small-scale mining (ASM) – low-tech mineral extraction and processing – in sub-Saharan Africa could be affected by formalization and support for their activities under continent-wide initiatives such as the Africa Mining Vision (AMV). Whilst acknowledging that throughout sub-Saharan Africa, revenue from the mining sector is the economic mainstay and relied upon heavily at the national level, the authors strive to bridge the gap between organizational structures of informal ASM ‘spaces’ and the people who populate them. It focuses on women’s unique roles in ASM, as the more marginalized group in the sector. Hilson, et al. raise issues of the proposed formalization and gender empowerment agendas of the AMV and the SDGs (Sustainable Development Goals), and whether they can access these women, let alone support them. In effect, the article asks whether an effective, gender-sensitive ASM formalization strategy can be implemented in sub-Saharan Africa under the auspices of the SDGs.

Using case studies from Sierra Leone and Zambia, the authors observe that while most women engaged in ASM in the region work informally, they generate far more money than they would from any other income-earning activity. The article questions the rationale of African governments in wanting to formalize such activities which may worsen women’s economic wellbeing, and highlights the need to study the different dynamics at play in women’s involvement in ASM before any actions based on broad paint-brush policies that do not support women in ASM are taken. Hilson, et al. provide a strong case for direct advocacy for a section of women in Africa, operating in the informal economy and doing their best to escape poverty and marginalization.

The fifth article by Kiggundu and Pal, titled ‘Structure and management of formal and informal business activities in entrepreneurial family owned and small firms in Africa’, focuses on internal firm level dynamics, structure and management practices that drive informal business activities, as relates to the small and entrepreneurial family owned firms (EFOFs) in Africa. It represents a timely approach to better understanding different attributes related to EFOFs owner managers as entrepreneurs identifying and exploiting potential opportunities that abound both in the informal and formal economies, drawing on different value chain activities. By so doing, the authors provide a new test of the Octopus structure, drawing on published case studies in West Africa (English & French) and East Africa. The article shows how big multinationals integrate informal business activities in their value chain business models.

Taking a positive view of informal entrepreneurship (using EFOFs), the article highlights implications in terms of both theory as well as practice, whilst taking advantage of and acknowledging the limitations of the Octopus business model. The findings bring to the fore entrepreneurial attributes in the informal economy which feed into the formal along the value chain, given the nature of the firm itself, the owner-manager and the need for the existence of the Octopus structure, mostly in EFOFs. It highlights firm-specific advantages such as technical skills for adapting products and/or technology; operational excellence; adversity advantage, i.e. institutional entrepreneurial ability (Guillén and García-Canal, 2009); frugal managerial and engineering; and cost-effective processes, as important in fostering competitiveness. The authors observe that ‘Growth for Octopus is creation of new tentacles rather than scaling up existing businesses’, indicating that the choice to go formal or informal is at times influenced by the preferred tentacles (for various reason).

The sixth and final article by Uruthirapathy and Kiggundu, titled ‘The BRIC and African countries’ informal economies: Differences, similarities and some general observations’, examines what can be learned from characteristics of informal economies in both country groups considering presumed differences. Using data from different sources to capture the changes in the magnitude of the informal economy over time, the impact of informal economy on human development and the informality effects on employment generation, the study found commonalities as well as differences across the two groups. Specifically, the study found that the size of an economy does not tell the full story about informality. For instance, post-conflict economies have greater informality and nations with high informality have the greatest decline in informality. Furthermore, the absolute size of the informal economy is big in both BRICS and Africa, revealing that more people earn their livelihoods in the informal economy than official records would indicate. Likewise, countries with high female labor participation rates were able to reduce their informality much more than those countries with low female labor participation.

The study concludes that informal economies are not limited to poor, resource-poor countries in Africa but are also found in emerging economic powers such as the BRICS countries. Given the size of countries like China and India, their informal economies deserve as much attention as their formal economies. The paper further points to the limited availability of quality data on the nature, structure, behavior and consequences of the informal economy and its relations with the rest of the economy and society, thus constraining research, understanding, and informed policymaking and practice.

Concluding Remarks: The Way Forward

This Special Issue does not provide a definitive statement about the informal economy in Africa. Rather, it is the beginning of a serious conversation about Africa’s informal economy and the role it should play in the continent’s aspirations for growth, development and transformation as articulated by, for example the African Union (De Ghetto, Gray & Kiggundu, 2016). We realize that we do not cover all the important questions about informality in Africa … more needs to be done; however, we do hope that together the articles in this Special Issue are informative, evocative and provocative. Mhando and Hilson, et al. provide illustrations of informality in two sectors, finance and mining, but informality exists in many other sectors, communities and organizations in agriculture, construction, transport, tourism, health, education, public administration, rural and community development, regional integration, international commerce, and environment and climate change not covered in this Special Issue, but each with interesting research questions, theory development and challenging policy and managerial implications.

We invite Africans and Africanists to join the conversation, engage in serious dialogue, debate and take up the struggle on behalf of the poor and marginalized in the informal economy. We invite and challenge scholars, educators, legislators, policymakers, business executives, religious leaders, artists, development partners, local community leaders and, above all, those who experience informality daily to take up the challenge to improve the lives of all who live on the African continent. We believe that those who live with informality, if empowered, are better positioned to take authentic and impactful action. With informality, foreign ideals do not apply in Africa.

The informal economy is large and to a certain extent dominant globally and will persist into the future. Management theory can provide the framework for managerial decision making, attainment of objectives and the optimization of resource allocation and utilization across both informal and formal economies. Educators need to incorporate informality in management and business education and training. Entrepreneurs and managers in both economies can share knowledge and experiences relating to operational and managerial practices, risk management and decision-making. Governments need to understand the importance of incorporating the informal economy in policymaking. In this era of globalization and fast-changing business environments, we all need to work together to respond to new challenges, risks and opportunities.

In this Special Issue, we pay attention to issues of gender and the role of women in managing the informal economy. Galdino, et al. identify gender as one of the seven themes resulting from the pan-Africa review of the literature. They find a complex reality whereby on the one hand women are discriminated against and marginalized, while on the other they make significant contributions to the welfare of their families and communities. Hilson, et al. focus on the opportunities and challenges artisanal mining women – faced with modernizing government policies that do not necessarily understand their needs and the contexts in which they live and work – encounter in their attempts to overcome poverty and marginalization. Mhando discusses the prospects of Tanzanian women getting access to informal financial services, asset ownership and promotion of financial inclusion in a rapidly changing institutional environment. He finds that Tanzanian women are more financially excluded, suffer from financial illiteracy and financial incapacity, and subscribe more to informal financial arrangements than men. Kiggundu and Pal, drawing on published case studies, show the dominant role women play in small and microenterprises in West and East Africa. Uruthirapathy and Kiggundu highlight the plight of women in those countries where female labor participation and opportunities for human capital formation are low. Together, these studies show that issues of gender and informality – and poverty – are inextricably linked and therefore advancements in inclusive growth must re-examine the role of women (and men) both in the informal and formal economies and society.

We wish to thank the authors of the articles published in this Special Issue for sharing your work, expertise, insights and passion for Africa and the informal economy. We thank you for your good-natured understanding of the pressures and tight deadlines we imposed on you during the various stages of the publication of your work. We are pleased with the balanced representation of the authors by gender, institutional and regional representation, but also realize that more needs to be done. The first authors of three of the articles are women (Galdino, Namatovu, Uruthirapathy) from different backgrounds. You have given us the opportunity to learn more about informality, but also left us with many unanswered questions … and for that we are grateful.

Notes

1 AOM, 2018: Improving Lives, https://aom.org/annualmeeting