THE INFORMAL ECONOMY IN
DEVELOPING NATIONS
Hidden Engine of Innovation?
The informal economy represents a significant share of output and
employment in many developing countries. Yet little is known about
this hidden engine of innovation. This book addresses some of the
following crucial questions:
• What is the role of the informal sector in economic development?
• How does innovation occur in the informal economy? How does it
spread, who are the key actors and what impacts does it have?
• How do inventors and entrepreneurs in the informal economy reap
benefits from their innovations? And what stops informal sector
innovation from scaling up?
• How can informal sector innovation in developing countries be
measured?
• What policies might support informal sector innovation and improve
its impacts?
This book will stimulate further work on this crucial but under-researched
subject. As well as rich empirical evidence from several groundbreaking
studies, it includes conceptual and methodological tools and policy
recommendations to help researchers and policy makers understand
innovation in the informal economy.
erika kraemer-mbula is a research fellow at the Institute for
Economic Research on Innovation at Tshwane University of
Technology in South Africa and a researcher at the DST-NRF Centre of
Excellence in Scientometrics and STI Policy (SciSTIP). She is also an
associate professor extraordinary at Stellenbosch University. Erika holds
a PhD in Development Studies from the University of Oxford, and her
research interests have focused on Science and Technology Policy analysis, innovation systems, sustainable development and various routes to the
expansion of creative competencies in Africa. She is an active member of
several academic networks, such as Globelics and Africalics, and an
advisory member of international platforms advancing Africa–EU
research collaboration in science and technology.
sacha wunsch-vincent is the senior economist at the World
Intellectual Property Organization (WIPO) and Lecturer of
International Economics at Sciences Po, Paris. In this capacity, he is one
of the authors of the World Intellectual Property Report and Editor of the
Global Innovation Index. Sacha has served as advisor to various governments and organizations such as the World Bank and the World
Economic Forum. Before joining WIPO, he was an economist and then
Innovation Strategy Co-Leader at the OECD Directorate for Science,
Technology, and Industry. Prior to that he was also fellow at the
Berkeley Center for Law and Technology, University of California and
the Peterson Institute for International Economics.
“This book’s strong point is its emphasis on better measurement and
evidence as essential prerequisites to improved policy making.”
Mark Dutz, Lead Economist, Trade and Competitiveness,
World Bank Group
“Innovation may seem like a luxury; something countries can afford only
once they have transcended issues of survival. But this attitude is outdated.
Innovation can provide fundamental solutions to low-income countries
and this book underlines this potential.”
Xiaolan Fu, Founding Director of the Technology and Management
Centre for Development (TMCD), University of Oxford, UK
“The divorce between informal endeavors and prevailing knowledge
production practices developed in this book is immediately recognizable
for all developing countries.”
Judith Sutz, Professor, Universidad de la República, Uruguay, and former
Secretary of Science, Technology and Development, Latin American
Commission of Social Sciences
“The democratization of innovation, a wider participation of individuals
and small firms in innovation, is a key factor for more inclusive growth.
Considering the informal sector is critical in this regard, making this book
an important contribution to this policy agenda.”
Dominique Guellec, Head of Division, and Caroline Paunov, Senior
Economist, Directorate for Science, Technology and Innovation, OECD
“The authors have managed to put into perspective the hitherto hidden
and unexplored contribution of the informal sector to Kenya’s modern
economy and its industrialization process.”
Joseph K. Kiplagat, Ministry of Industrialization and Enterprise
Development, Kenya
“This book is timely and important. Developing countries need to build
development strategies and design public policies on the basis of what
they have.”
Bengt-Åke Lundvall, Secretary General, Globelics and Professor,
Aalborg University, Denmark
“This book encourages policy makers to better enable innovation in the
informal sector. It is a meaningful contribution to the development of
South Africa’s innovation policy.”
Nonhlanhla Mkhize, Department of Science and Technology, South
Africa
“This book will contribute to making the innovation statistics and measurement work of the African Observatory for Science, Technology and
Innovation more relevant to the African community.”
Philippe Mawoko, Director, African Observatory for STI,
African Union Commission
“Mainstream innovation and IP debates have for the most part ignored
what is commonly referred to as the ‘informal’ economy. This book aims
to redress this deficit.”
Shamnad Basheer, Honorary Research Chair Professor of IP Law at
Nirma University, India, and Founder of SpicyIP
“This volume provides valuable insights that will help guide further
research and evidence-based policy not only in South Africa but also in
emerging economies in general.”
Phil Mjwara, Director-General, Department of Science and Technology
(DST), South Africa
cambridge and the world intellectual property
organization
Intellectual Property, Innovation and Economic Development
Intellectual property is at the heart of modern economic life. In many
countries, investment in intangible assets is growing faster than investment
in tangible assets. Policy makers – whether in rich or poor economies – seek
to promote an intellectual property framework that is conducive to innovation and economic growth.
The series Intellectual Property, Innovation, and Economic Development
intends to inform such policy initiatives through rigorous scholarship.
Each book in the series examines a major aspect of the interface between
IP, innovation and economic development. Economic analysis is complemented by contributions from other academic disciplines to present the
latest scholarship and consider its real-world implications. The series
builds on studies by the World Intellectual Property Organization, reflecting the research interests of the international policy-making community.
Series Editor
Carsten Fink, Chief Economist, World Intellectual Property Organization
Books in the series:
The Informal Economy in Developing Nations – Hidden Engine of Innovation?
Edited by Erika Kraemer-Mbula and Sacha Wunsch-Vincent
The International Mobility of Talent and Innovation – New Evidence and Policy
Implications
Edited by Carsten Fink and Ernest Miguelez
THE INFORMAL
ECONOMY IN
DEVELOPING NATIONS
Hidden Engine of Innovation?
ERIKA KRAEMER-MBULA
Tshwane University of Technology and SciSTIP
SACHA WUNSCH-VINCENT
World Intellectual Property Organization
University Printing House, Cambridge CB2 8BS, United Kingdom
Cambridge University Press is part of the University of Cambridge.
It furthers the University’s mission by disseminating knowledge in the pursuit of
education, learning, and research at the highest international levels of excellence.
www.cambridge.org
Information on this title: www.cambridge.org/9781107157545
© World Intellectual Property Organization 2016
This publication is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without the written
permission of Cambridge University Press.
First published 2016
Printed in the United Kingdom by TJ International Ltd. Padstow, Cornwall
A catalogue record for this publication is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Kraemer-Mbula, Erika, editor. | Wunsch-Vincent, Sacha, editor
The informal economy in developing nations : hidden engine of innovation? / edited by
Erika Kraemer-Mbula, Sacha Wunsch-Vincent.
New York : Cambridge University Press, 2016. | Series: Intellectual property, innovation
and economic development | Includes bibliographical references and index.
LCCN 2016026816 | ISBN 9781107157545 (hardback)
LCSH: Informal sector (Economics) – Developing countries. | International organization. |
International cooperation.
LCC HD2346.5 .I5254 2016 | DDC 330–dc23
LC record available at https://lccn.loc.gov/2016026816
ISBN 978-1-107-15754-5 Hardback
Cambridge University Press has no responsibility for the persistence or accuracy of
URLs for external or third-party Internet Web sites referred to in this publication
and does not guarantee that any content on such Web sites is, or will remain,
accurate or appropriate.
CONTENTS
List of Figures
page xi
List of Tables
xiii
List of Contributors
xv
Forewords
xxv
Preface
xxxi
Introduction
1
erika kraemer-mbula and sacha
wunsch-vincent
1 The Informal Economy: Definitions, Size, Contribution and
Main Characteristics
13
j a c qu e s c h a r m e s
Comment 1.1 Adriana Mata Greenwood
Comment 1.2 Johannes Jütting
49
2 Innovation in the Informal Economy
45
53
jeremy de beer, kun fu and sacha
wunsch-vincent
Comment 2.1 Colin C. Williams
88
Comment 2.2 Fred Gault
93
Comment 2.3 Xiaolan Fu
97
3 A Study of the Informal Metalworking Sector in
Nairobi
100
c h r i s t o p h e r b u l l , st e v e da n i e l s , m a r y
k i n y a n j u i a n d b a r r et t ha z e l t i n e
Comment 3.1 Joseph K. Kiplagat
143
4 Informal Manufacturing of Home and Personal Care
Products in South Africa
146
erika kraemer-mbula
Comment 4.1 Nonhlanhla Mkhize
ix
189
x
contents
5 Herbal Medicine in the Informal Sector of Ghana
194
g e or ge o w us u e s s e gb ey a n d s tep hen a w uni
Comment 5.1 Peter Arhin
228
6 Appropriation and Intellectual Property in the Informal
Economy
232
j e r e m y d e b e e r a n d s a c h a w u n s c h- v i n c e n t
Comment 6.1 Emmanuel Sackey
268
Comment 6.2 Dick Kawooya
278
Comment 6.3 Shamnad Basheer
283
7 Innovation Policy and the Informal Economy: Toward
a New Policy Framework
296
e r i k a k r ae m e r - m b u l a a n d a l m a m y ko n t e
Comment 7.1 Anneline Morgan
327
Comment 7.2 Judith Sutz
332
8 Formulating an Agenda for the Measurement of Innovation
in the Informal Economy
336
j a c q u e s ch a r m e s , fr e d ga u l t a n d s a c h a
w u n s c h- v in c e n t
Comment 8.1 Philippe Mawoko
367
Annex 1 Ad Hoc Interview Guidelines and
Questionnaires
371
Annex 2 Extract 1 from the Generic Questionnaire of Stage 2
of the 1-2-3 Survey
393
Annex 3 Kenya 2014 MSME Survey
395
Index
398
FIGURES
1.1 Employment in the informal sector negatively related to GDP per
capita, 2010 or latest available year
page 38
1.2 Employment in the informal sector positively related to population
living below national poverty line, 2010 or latest available year
39
2.1 The informal economy in a local innovation framework
59
3.1 Kamukunji cluster is outlined to the east (right) and Machakos bus
terminus is outlined to the west (left)
103
3.2 Metal boxes, ready for sale. They are used primarily for secure
storage by students at boarding schools
106
3.3 Products manufactured by interviewees in Kamukunji (n = 84;
businesses produce more than one product)
107
3.4 Metal boxes close-up to show the variation in detail, finish and
quality
109
3.5 Typical cookstoves. The one on the right with black finish
incorporates ceramic liners to improve the efficiency
110
3.6 Pots, pans and cooking utensils manufactured in Kamukunji
112
3.7 Wheelbarrows (and metal boxes) ready for sale
113
3.8 Chip cutters. Imported model on the right, informal adaptation on
the left. The adaptation translates castings to sheet metal and adds
a return spring to the mechanism
115
3.9 Animal sculptures at the Racecourse cluster
117
3.10 The innovation system of manufacturers in Kenya includes cluster
businesses (suppliers and retailers), support and service
organizations, education and knowledge transfer institutions,
associations and regulatory bodies, as well as international trends
and standards from above and cultural context from below
118
3.11 Annual value of goods sold reported by 40 firm owners in the
Kamukunji cluster
119
3.12 Enterprises based on size and mode of production. Examples
referenced in this section are mapped onto the 2 × 2 matrix
120
3.13 Product innovation levels of enterprises of varying levels of
formality. While the formal Small-scale innovation sector showed
xi
xii
3.14
3.15
3.16
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
5.1
5.2
5.3
5.4
6.1
8.1
list of figures
the most continuous innovation, formality was not necessarily
a predictor of the product innovation level
123
Most business owners say they collaborate with other business people
and/or fundis to improve their production processes. Very few
receive institutional support or work in complete isolation
124
Fundis most often received training from other fundis in the cluster.
Some received training from employers, relatives or friends. Very few
received training from professional instructors
125
This generalized model shows the typical flow of innovation between
and within the informal sector. Jua kali innovators most often adapt
formal designs to available materials, production methods, style
trends and customer needs. Other jua kali rapidly copy these adapted
designs. Occasionally, a “reverse innovation” may occur in which
formal solutions are adapted from informal ones
125
Range of cosmetic products and frequency observed – percentage of
respondents manufacturing each product
154
Examples of personal care products manufactured by in-house
informal manufacturers
155
Range of home care products and frequency observed – percentage of
respondents manufacturing each product
156
Examples of home care products manufactured by informal
manufacturers
158
Examples of improvements in soap packaging
160
Example of process innovation – crafting low-cost equipment
161
Examples of sophisticated equipment made available to informal
manufacturers by technology transfer organizations
168
Percentage of respondents engaging with formal
organizations
169
The system of innovation and production in the informal
manufacturing of home and personal care products in South
Africa
171
Respondents’ suggestions of suitable mechanisms of knowledge
appropriation – frequency of suggested mechanisms
178
Ghana’s national innovation system and traditional medicine
203
Innovations in the value chain
209
FDA herbal medicine applications and approvals, 2000–2012
210
Examples of liquid and dry herbal medical preparations on sale in
Ghana
214
Typology of formal and informal appropriation
mechanisms
235
Proportion of countries using different types of survey in
Africa
351
TABLES
1.1 Employment in the informal economy as a percentage of
non-agricultural employment by five-year periods in various regions
and sub-regions
page 22
1.2 Employment in the informal economy as a percentage of total
non-agricultural employment by five-year periods in Northern
Africa
24
1.3 Employment in the informal economy as a percentage of total
non-agricultural employment by decade in Sub-Saharan
Africa
26
1.4 Employment in the informal economy as a percentage of total
non-agricultural employment by five-year periods in Latin
America
27
1.5 Employment in the informal economy as a percentage of total
non-agricultural employment by five-year periods in Asia
28
1.6 Employment in the informal economy as a percentage of total
non-agricultural employment by five-year periods in transition
countries
29
1.7 Main components and characteristics of non-agricultural
employment in the informal economy by region in
2005–2010
30
1.8 Contribution of informal sector to GDP in various developing
countries: 2000s
33
2.1 The flawed juxtaposition of informal versus formal enterprises
62
2.2 Typology of informal sector entities in West Africa
65
2.3 Features of innovation in the informal economy – evidence from the
case studies
75
3.1 Producers taking part in this case study
105
3.2 KIPI filing costs and duration from the Kenya Industrial Property
Journal (Kenya Industrial Property Institute 2013), copyright cost
and duration from the Copyright Board website (Kenya Copyright
Board 2013)
128
3.3 Acts, agents, programs and targets for policies relating to IP and the
informal sector
136
xiii
xiv
list of tables
4.1 Profile of the informal manufacturers of home and personal care
products
152
4.2 “Degree of informality” of respondents
153
4.3 Perception of own product quality by informal manufacturers of
home and personal care products
159
4.4 Significant improvements to products and processes, as reported by
respondents
159
4.5 Key features of innovation by informal manufacturers of home and
personal care products
162
4.6 Obstacles to innovation, as reported by respondents
163
4.7 Main sources of knowledge reported
166
4.8 Reported knowledge flows
169
4.9 Knowledge flows among producers/manufacturers
170
4.10 Functions of actors in the innovation system and assessed impact on
informal manufacturers of home and personal care products
172
4.11 Cost of appropriation
174
4.12 Appropriation mechanisms used by informal manufacturers
176
4.13 Respondents’ assessment of the IP policy landscape in South
Africa
178
4.14 Opinions about knowledge appropriation
179
5.1 Ghana health status indicators, 1988–2008
196
5.2 Comparative health statistics for Ghana and other selected African
countries
197
5.3 Level of formality of traditional herbal practitioners: registration,
contracting of bank loans and contribution to social security
200
5.4 Grouping of TMPs and number of employees
201
5.5 Functions of actors in the traditional medicine innovation
system
204
5.6 TMP specialities
212
5.7 Selected enterprises and drugs on EDL
215
5.8 Number of registered trademarks in Ghana, 2000–2014
218
6.1 Appropriation in the country case studies
246
7.1 Examples of conventional instruments of innovation policy and their
treatment of the informal economy
306
7.2 Policy approaches to the informal economy
312
8.1 Innovation surveys in Africa
340
8.2 List of countries with informal sector surveys
350
8.3 Types of surveys for the measurement of the informal sector, by
sub-regions in Africa
351
CONTRIBUTORS
peter arhin is the Director of the Traditional and Alternative
Medicine Directorate, Ministry of Health in Ghana. He is a lead reviewer
and coauthor of twenty-one institutional publications of the Ministry of
Health Ghana, as well as a contributor to several WHO and WAHO
publications on benchmarks, training and regulation of complementary
medicine services. Peter has coauthored several publications in clinical
pharmacology and authored four books. Peter Arhin obtained his
Bachelor of Pharmacy and Master of Pharmacy (Pharmacology) degrees
from Kwame Nkrumah University of Science and Technology (KNUST)
in Kumasi, Ghana. He also holds Postgraduate Certificates in Leadership
and Public Administration from the Ghana Institute of Management and
Public Administration in Accra.
stephen awuni is a research scientist of the Science and Technology
Policy Research Institute (STEPRI), working within the Agriculture,
Medicine and Environment Division (AMED) of the institute. He
obtained an MPhil in Environmental Science, and a BSc in Zoology
from the University of Ghana. His research interests are mainly traditional medicine, innovation studies, climate change and environmental
management. He has coordinated a number of projects including the
Traditional Herbal Medicine Study in Ghana and was part of a project
team that revised the Ghana Herbal Pharmacopoeia in 2015. He is
a member of Operationalizing Green Economy in Ghana Project, and
the National Contact Point (NCP) for food security, sustainable agriculture, marine and maritime research, and the bio-economy of Horizon
2020 – EU Framework Programme for Research and Innovation.
shamnad basheer is Honorary Research Chair Professor of IP Law at
Nirma University, India, and Visiting Professor of Law at the National
Law School of India University, Bangalore. He is the founder of the
popular Indian intellectual property blog, SpicyIP, IDIA (a project to
xv
xvi
lis t o f contributors
train underprivileged students for admission to leading law schools) and
P-PIL (a synergistic collaboration between legal academia and the legal
profession to promote public interest goals). Following his graduation
from the National Law School of India University, Bangalore, he worked
with one of India’s leading IP firms and then finished his LLM and PhD
from the University of Oxford as a Wellcome Trust scholar. For his
various contributions to intellectual property law and legal education,
he was recently awarded the Infosys Prize (in the Humanities category)
by a jury headed by the Nobel Laureate Professor Amartya Sen.
christopher bull is a senior lecturer and a senior research engineer
at the Brown University School of Engineering. He holds degrees in
Mechanical Engineering (ScB), Electrical Engineering (ScM) and
Material Science (PhD). Chris teaches courses in industrial design, social
entrepreneurship, appropriate technology and sustainable energy. His
research includes technology and development, energy systems and
neural implants. He is the coauthor of Appropriate Technology: Tools,
Choices, and Implications and co-editor of A Field Guide to Appropriate
Technology, both with Barrett Hazeltine, and has worked on grassroots
technical development in Kenya, Tanzania and India.
jeremy de beer creates and shapes ideas about technology innovation,
intellectual property, global trade and development. He is a tenured
Full Professor of Law at the University of Ottawa’s Centre for Law,
Technology and Society. Professor de Beer is a cofounder and Director
of the Open African Innovation Research (Open AIR) network, a multidisciplinary group of international experts, and coauthor/editor of five
books, including Intellectual Property and Innovation: Collaborative
Dynamics in Africa. As a practicing lawyer and legal expert, he has argued
numerous cases before the Supreme Court of Canada, advised businesses
and law firms both large and small, and consulted for agencies from
national governments and the United Nations.
jacques charmes, economist and statistician, is Emeritus Research
Director at the French Scientific Research Institute for Development
(IRD). He has been involved in the design and analysis of many surveys
on the informal sector in Africa, north and south of the Sahara. Since the
mid-1970s, he has written many articles, reports and manuals on the
measurement of the informal sector in the labor force and in National
Accounts. He has compiled data on the size, contribution and
list of contributors
xvii
characteristics of the informal sector and informal employment across
developing regions and over decades. His quantitative approach is combined with qualitative research that has given him an understanding of
how master craftsmen teach their apprentices. He has been involved in
discussions about the definitions of concepts of informality at the ILO
and OECD.
steve daniels is a designer and entrepreneur with a passion for
cultures of making. He founded Makeshift, a media company that
uncovers hidden creativity, and wrote Making Do, which chronicles his
research on Kenya’s informal engineering systems. He is currently the
President of Able Health, a software company that helps doctors get paid
based on the quality of care. Previously at IBM, he helped lead design
transformation efforts and received patents and awards for his work on
Watson, Smarter Cities, health care and crowdfunding. He is the founder
of the Better World by Design conference and has spoken at TED, SXSW
and the New York Forum.
george o. essegbey is the Director of the Science and Technology
Policy Research Institute (STEPRI) of the Council for Scientific and
Industrial Research (CSIR) in Ghana. With a PhD in Development
Studies, he has conducted substantial research on science, technology
and innovation and development, including micro and small enterprises
and intellectual property rights. In Ghana he was a member of the
National Development Planning Commission (NDPC). He has published extensively on innovation and has conducted studies for various
international organizations including the World Bank, IFPRI, UNESCO,
UNEP and World Intellectual Property Organization (WIPO).
kun fu works as a research associate in the Innovation and
Entrepreneurship Department at Imperial College Business School. She
holds a PhD in Business Administration and Management from Bocconi
University. Her research interests lie in the fields of technology innovation and entrepreneurship. She studies how entrepreneurs react to their
contexts and examines the outcomes of this process such as firm creation,
growth aspiration, technology innovation and diversification. Kun has
also undertaken consultancy assignments for national governments, such
as the Swedish Agency for Growth Policy Analysis; international organizations, such as WIPO; and private sector enterprises, such as Shell.
xviii
l i s t o f c o n tr i but o r s
xiaolan fu is the Founding Director of the Technology and
Management Centre for Development (TMD), Professor of Technology
and International Development and a fellow of Green Templeton
College, University of Oxford. Her research interests include innovation,
technology and industrialization; trade, foreign direct investment and
economic development. She was appointed by the Secretary General of
the United Nations to the high-level advisory 10-Member Group to
support the UN’s Technology Facilitation Mechanism and the
Governing Council of the UN’s Technology Bank for the Least
Developed Countries. She is project leader of the ESRC/DFID-funded
project on the Diffusion of Innovation in Low-Income Countries with
high relevance to this book.
fred gault is a professorial fellow at the United Nations University in
the Netherlands, UNU-MERIT, where he has contributed to projects on
innovation in Africa. These include overseeing case studies on innovation in various contexts, including business activities in the informal
economy and grassroots innovation in agriculture. He is also part of
the team that supports work on the African Innovation Outlook,
a product of the African Union. As a professor extraordinaire at the
Tshwane University of Technology in South Africa, he is part of
a network of researchers with a wide range of interests, including the
informal economy. In Cape Town, he chairs the Advisory Committee of
the Centre for Science, Technology and Innovation Indicators (CeSTII).
His most recent edited book is the Elgar Handbook of Innovation
Indicators and Measurement, published in 2013.
barrett hazeltine was Professor of Engineering at Brown
University and is now Professor Emeritus. From 1972 to 1992, he was
also an associate dean of the College. He has taught at the University of
Zambia, the University of Malawi, the University of Botswana and Africa
University in Zimbabwe. Other countries in which he has done teaching
or consulting include Bangladesh, Kenya, Indonesia, Mozambique,
Nigeria and South Africa. He was a Fulbright lecturer in 1988–1989
and 1993.
johannes jütting is the manager of the PARIS21 Secretariat, hosted
at the OECD. He leads the partnership’s work in supporting developing
countries to strengthen their capacity to better produce and use statistical
data for policy making and monitoring of development outcomes. He
l i s t o f c o n t r i b u tor s
xix
also contributes to the reflections on the design and implementation of
the OECD Development Strategy as well as the Post-2015 Development
Framework. Prior to his position at PARIS21, Johannes joined the
Development Centre of the OECD in 2002 as a Senior Economist.
From 2006 onward, he led the Poverty Reduction Unit. Prior to joining
the OECD in 2002, he was a research fellow at the Center for
Development Research in Bonn (ZEF) (1997–2002). Johannes holds
a PhD in Development and Agriculture Economics and received his
habilitation in development economics from the University of Bonn.
dick kawooya is an assistant professor at the School of Library and
Information Science, University of South Carolina, and a contributor to
the Open AIR project in Uganda. He served as the lead researcher for the
African Copyright and Access to Knowledge (ACA2 K) Project. His
current research focuses on IP rights in informal sectors in the African
context, specifically relationships between IP rights and informal sector
activities. He holds a PhD in Communications and Information from the
University of Tennessee, where his doctoral research explored Ugandan
traditional musicians and their IP ownership.
mary n. kinyanjui is a senior research fellow at the Institute for
Development Studies, University of Nairobi, Kenya. She researches on
small businesses, informality and social institutions and issues of international development. She has published widely in journals such as the
International Journal of Entrepreneurship and Small Business,
Hemisphere, African Studies Review, African Geographical Review and
the Journal of East African Development and Research. She has been
a visiting scholar at the International Development Centre (IDC) of the
Open University in the United Kingdom and the United Nations
Research Institute for Social Development in Geneva. She recently published Women and Economic Informality in Africa: From the Margins to
the Centre (Zed Books, 2014).
joseph kiplagat is the Director of Industrial Information Research
and Policy at the Ministry of Industrialization and Enterprise
Development in Kenya. He holds a doctorate in Mechanical
Engineering. He spearheads the formulation of key policy documents
in the areas of industrial and enterprise development whose implementation constitutes the driving engine and building blocks for Kenya’s
industrialization process and by extension the achievement of Kenya’s
xx
li st of contributors
Vision 2030. He also coordinates the collection and dissemination of
industrial information and conducts industrial research on the development of Micro, Small and Medium Enterprises (MSMEs). He is a senior
lecturer at the School of Engineering at Moi University in Eldoret, Kenya,
where he teaches Applied Mechanics and Engineering Materials. Joseph
has also served as Dean for the Faculty of Science and Engineering at
Masinde Muliro University of Science and Technology in Kakamega,
Kenya.
almamy konté is Senior Expert in Innovation Policy at the African
Observatory for Science, Technology and Innovation (AOSTI),
a specialized technical office of the African Union Commission based
in Malabo, Equatorial Guinea. He was the Director of Technological
Research in the Ministry of Scientific Research in Senegal and
a member of the Steering Advisory Committee of the Centre for
Science, Technology and Innovation Indicators (CeSTII) of South
Africa. He has recently published a paper on the innovation process in
the informal ICT sector in Senegal. Almamy holds a PhD in Physics and
has many years of experience as a lecturer and researcher at University
Cheikh Anta Diop of Dakar and University Gaston Berger of Saint-Louis,
where he was the head of the Computer Science Department.
erika kraemer-mbula is a senior lecturer and research fellow at the
Institute for Economic Research on Innovation, Tshwane University of
Technology, South Africa. She is also an associate professor extraordinary at the Centre for Research on Evaluation, Science and Technology,
University of Stellenbosch, South Africa. Erika’s research interests are on
the systemic relationships between science, technology and innovation,
sustainable development and various routes to the expansion of creative
competencies in Africa in a range of economic activities, both formal and
informal. Initially trained as an economist, Erika holds a Master’s in
Science and Technology Policy by SPRU from the Science and Policy
Research Unit (University of Sussex, United Kingdom), and a doctorate
in Development Studies from the University of Oxford. In her career,
Erika has adopted a cross-disciplinary approach to explore alternative
development paths for African countries.
bengt-å ke lundvall is Professor of Economics at the Department of
Business and Management at Aalborg University. His research is organized around a broad set of issues related to innovation systems and
l i s t o f c o n t r i b u tor s
xxi
learning economies. Since 2002 he has been Secretary General for the
worldwide research network Globelics. In close collaboration with
Christopher Freeman, Bengt-Åke Lundvall developed the idea of innovation as an interactive process in the first half of the 1980s and the concept
of a national system of innovation in the second half. In the beginning of
the 1990s, he developed the idea of “the learning economy” in collaboration with Björn Johnson.
adriana mata greenwood is a member of the Department (previously Bureau) of Statistics of the International Labour Office. She has
written on methodological issues relating to labor statistics, mainly in the
areas of working time, underemployment and gender. Recently, she
collaborated in the preparation of a manual on volunteer work and
finalized the manual on informal economy statistics. She currently provides technical assistance to countries on these issues, as well as on the
design of labor force and establishment-based surveys for the measurement of work-related income statistics, and is preparing a manual on this
issue.
philippe mawoko is the Director of the African Observatory for
Science, Technology and Innovation (AOSTI) within the African
Union Commission. Currently, Dr. Mawoko serves as a member of the
Advisory Board of the United Nations University Maastricht Economic
and Social Research Institute on Innovation and Technology (UNUMERIT). From 2007 to 2010, he coordinated the African Science,
Technology and Innovation Indicators Initiative (ASTII) and the
African Mathematical Institutes Network for the Office of Science and
Technology (OST) of the NEPAD Planning & Coordinating Agency. He
worked as a program manager in the NEPAD e-Africa Commission from
2003 to 2007. Formerly Minister of Post and Telecommunications in the
Democratic Republic of Congo (DRC), Dr. Mawoko led the initial policy
reform in the post and telecommunication sector in the DRC.
Dr. Mawoko holds a doctorate in Mathematics from the University of
Salzburg in Austria. He has lectured on Mathematics and Statistics in
several universities, including the University of Zimbabwe in Harare.
phil mjwara has served as the Director-General of South Africa’s
Department of Science and Technology (DST) since April 2006. In this
capacity, he is responsible for all policy development in the science and
technology sector in South Africa. Prior to his appointment at DST,
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Dr. Mjwara was the Group Executive for Research and Development and
Strategic Human Capital Development at the Council for Scientific
Industrial Research (CSIR). He has also held positions at the then
Department of Arts, Culture Science and Technology, as Director of
Technology; at the University of Pretoria as Professor of S&T policy;
and at the universities of the Witwatersrand, South Africa and Fort Hare
as a physics lecturer. Phil led the team that conducted the first South
African technology foresight project. He has published and presented
numerous papers relating to physics, technology analysis and foresighting-related topics. Dr. Mjwara is also the General Secretary of the
Academy of Science of South Africa and has served on various advisory
councils and review boards. He also serves on the Council of the
University of Johannesburg. He is the co-chair of the intergovernmental
Group on Earth Observations, based in Geneva.
nonhlanhla mkhize is the Chief Director of Innovation for Inclusive
Development at the Department of Science and Technology where she is
responsible for a program focused on knowledge, evidence and learning
for informing and influencing how science, technology and innovation
may be used to achieve and advance inclusive development. She has
presented at various national and international forums on how science,
technology and innovation may be better integrated and exploited for
socio-economic benefit, particularly for the excluded. She has served in
the South African government in various socioeconomic development
positions, mainly focused on inclusion. She has also represented South
Africa in a number of international engagements, including those
intended to enhance the role and participation of the informal sector in
innovation. She holds a Master’s in Science from the University of
Pretoria.
anneline morgan is currently seconded to the SADC Secretariat as
the Senior Technical Advisor: Science, Technology and Innovation,
responsible for facilitating and coordinating regional science, technology
and innovation policies, strategies and programs in support of the SADC
Member States. Prior to her secondment, she held the position of
Director: Africa Cooperation at the South African Department of
Science and Technology, where she was responsible for managing international engagements and partnerships with African countries in the
area of science and technology. Ms. Morgan has been instrumental in
championing regional cooperation in the area of science, technology and
list of co ntr ibutors
xxiii
innovation, which has resulted in the initiation of several regional programs. She holds a Master’s of Management in Public Policy from the
University of the Witwatersrand, South Africa.
emmanuel sackey is the Intellectual Property Development Executive
at the African Regional Intellectual Property Organization (ARIPO),
a lecturer at the Africa University in Mutare, Zimbabwe, and a member
of several scientific and research associations. He has published several
articles on IP and coauthored two books on the TRIPS Agreement and
Access to Essential Medicines as well as IP and food security. He has been
instrumental in ARIPO policy development and strategic planning.
Emmanuel Sackey holds a Master of Philosophy in Food Science and
Technology with a specialization in Product Development and Food
Biotechnology, as well as a BSc in Chemistry.
judith sutz is a full professor and academic coordinator of the
Scientific Research Council of the University de la República, Uruguay,
where she inaugurated the teaching of Science, Technology and Society.
She is currently the President of the Globelics Scientific Board. Her
current research is related to the structure of innovation systems in
developing countries and the role of universities. Judith Sutz was
a member of the Task Force on Science, Technology and Innovation
for the UN Millennium Development Goals Program (2002–2004). From
1991 to 1997, she was the Secretary of Science, Technology and
Development of the Latin American Commission of Social Sciences
(CLACSO). She has worked as a consultant for several national and
international organizations.
colin c. williams is Professor of Public Policy in the Management
School at the University of Sheffield in the United Kingdom. His research
focuses on the informal economy and entrepreneurship. His recent
books include Measuring the Global Shadow Economy: The Prevalence
of Informal Work and Labour (2016), Entrepreneurship and the Shadow
Economy: A European Perspective (2016) and Confronting the Shadow
Economy (2014).
sacha wunsch-vincent is the senior economist under the chief
economist at WIPO. He is one of the main authors of the World
Intellectual Property Report and Editor of the Global Innovation Index.
Sacha’s primary research is concerned with the interaction of innovation,
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l i s t o f c o n tr i but o r s
intellectual property and economic development. Before joining WIPO,
he was an economist at the OECD Directorate for Science, Technology,
and Industry for seven years, and before that the Swiss National Science
Fellow at the Berkeley Center for Law and Technology, University of
California, Berkeley. He has served as an advisor to various governments.
Sacha holds a Master’s in International Economics from the University of
Maastricht and a PhD in Economics from the University of St. Gallen. He
teaches at Sciences Po (Paris) and the World Bank Institute.
FOREWORD
bengt-å ke lundvall
Secretary General, Globelics and Professor at the Department of Business and
Management, Aalborg University
This book is timely and important. Developing countries need to build
development strategies and design public policies on the basis of what
they have. As demonstrated in this book, in Africa, as in most lowincome countries in other parts of the world, most people work in the
informal sector. When they work, they use more or less advanced tools
and produce more or less sophisticated products, sometimes doing
things in new ways and delivering new kinds of products and processes.
This book provides conceptual frameworks to understand such processes
and ideas about how to measure such activities and outcomes as well as
recommendations for policy.
The book is unique in addressing the role of innovation in the informal
sector in a systematic manner. General analysis of this phenomenon is
combined with in-depth case studies analyzing three different technological fields in three different countries, helping the reader get a concrete
understanding of what is at stake. One important insight when it comes
to innovation is that there is a need to look into the interaction between
the formal and informal sectors. Workers move between formal and
informal work, and enterprises that operate in the formal sector may
depend upon activities in the informal sector – or vice versa.
The book corrects a general misunderstanding about economic growth
and the evolution of the informal sector. While it is correct that the
informal sector constitutes a bigger share of all economic activities in the
poor countries, there is no simple correlation between the rate of economic growth and the rate of reduction in informal sector activities as
a share of economic output and employment. The fact that African
countries with high growth rates have been characterized by a growing
share of workers in the informal sector can be interpreted in different
ways. Some would say that it reflects a highly problematic growth path
where some leading natural resource sectors related to mineral and oil
have very low capacity to create jobs. Others would argue that the natural
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foreword
resource-based sectors that dominate growth can play a dynamic role in
relation to the whole economy (Lundvall and Lema 2014).
The project that led to this book was initiated by member countries of
the World Intellectual Property Organization (WIPO) and one important purpose was to understand the role of the protection of intellectual
property (IP) in the informal sector. Do innovators within that sector
make efforts to protect new ideas that are materialized in new processes
and new products? What kind of means do they use? Would innovation
activities be stimulated by changes toward more formal means of protection? Chapter 6 and the three case studies indicate that formal IP rights
are not significantly used in the informal sector.
One way to understand related difficulties is to consider the link
between innovation and different kinds of knowledge. It is useful to
view the innovation process as one where “knowledge” is both an input
and an output. Innovations typically reflect the introduction of a new
combination of existing knowledge into the economy, and the innovation itself represents new knowledge. But knowledge is complex. Some
knowledge takes the form of information that is easy to absorb and
diffuse. Such knowledge can be regarded as a public good.
If innovations take this form – as they do, for example, when it comes
to the development of drugs that can easily be copied by others – public
production or IP rights need to be introduced in order to keep the search
for new or better drugs moving ahead.
But there are important elements of tacit knowledge that are necessary
to develop and use new technologies and products. As we have demonstrated elsewhere (Jensen et al. 2007), it is useful to distinguish between
two “modes of innovation.” Some processes of innovation are rooted in
experience-based learning (by doing, using and interacting (DUI)) while
others are more directly linked to scientific information (science, technology and innovation (STI)). The DUI mode dominates in lowtechnology areas such as construction, clothing and food production
while the STI mode dominates in sectors such as informatics, pharmaceuticals and aerospace.
It is quite obvious that the dominant mode of innovation in the
informal sector is based upon experience-based (DUI) learning.
Therefore it is not surprising that we find very little evidence of formal
IP right protection in the sector. The proposal that there should be
a creative search for alternative incentives that fit better the characteristics of the informal sector is especially interesting. In the case of
f o r e wor d
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informal sector innovators in low-income countries, mechanisms involving social recognition might be of special interest.
I would like to congratulate the editors and those who have contributed to this project and to the book. It represents a major step toward
reaching a systematic understanding of the role of innovation in the
informal sector. The next step could be to analyze the same phenomenon
from a different perspective where the focus is upon the tacit dimension
of the innovation process and upon embodied knowledge. There is little
doubt that learning and formation of human skills taking place in the
informal sector are crucial for innovation and economic development.
References
Jensen, M.B., Johnson, B., Lorenz, E. and Lundvall, B.-Å. 2007. “Forms of knowledge
and modes of innovation,” Research Policy 36(5): 680–93.
Lundvall, B.-Å. and Lema, R. 2014 “Growth and structural change in Africa:
Development strategies for the learning economy,” African Journal of Science,
Technology, Innovation and Development 6(5): 455–66.
FOREWORD
phil mjwara
Director-General, Department of Science and Technology, South Africa, and
General Secretary of the Academy of Science of South Africa
The Republic of South Africa has made substantial efforts to advance STI
and is increasingly making its mark in the continent and the international arena at large. Projects such as the Square Kilometer Array are
testimony to this. Due to the country’s political history, the majority of
the population did not play an active role in STI until after 1994. Since
then, the country’s main goal for the last two decades has been to ensure
that there is broader participation in the generation of STI, and broader
enjoyment of the benefits it brings. Knowledge is the currency of any
country’s innovation system, and it is important to recognize that such
knowledge is not confined to large institutions or corporations but is
spread among all members of the society.
The National Development Plan and its vision for 2030 identify STI as
an important area in which South Africa needs to continue investing in
order to improve the lives of the South African people. Over the years, the
Department of Science and Technology (DST) has invested in targeted
projects addressing broader societal needs. Some examples include information and communication technology projects connecting rural communities to the Internet for the first time, research to discover vaccines
for diseases such as HIV and TB and the exploitation of indigenous plants
for medicinal purposes.
Informal economic actors remain marginalized, in both rural and
urban settings. Many people operating informally are severely affected
by poverty, low levels of education and limited income-generating
opportunities. Their creative talent and ideas need to become part of
our collective pool of knowledge, constituting our knowledge-based
economy. There is still little we know about the informal economy and
the innovations that are generated by informal economic actors.
This volume provides valuable insights that will help guide further
research and evidence-based policy not only in South Africa but in
emerging economies in general. This type of evidence, if collected consistently and systematically, would help us draw on a formidable yet
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xxix
traditionally neglected source of economic growth and creativity: the
informal economy. This volume informs and complements some of our
ongoing efforts including the work from the recently established unit on
innovation for inclusive development at the DST.
It is essential to ensure that STI contributes to socioeconomic development, to address the triple challenges of poverty, inequality and
unemployment. Emerging economies can become global pioneers in
this regard, opening new paths to more inclusive forms of development.
PREFACE
The informal economy in developing countries is of undeniable importance. It provides a source of income, employment and livelihood to
a very large portion of the population, surpassing formal economic
structures in many countries.
However, informality is a phenomenon with many facets that scholars
and practitioners are still trying to unpack. Informality is tightly linked to
exclusion, poverty and marginalization. At the same time, many innovators in developing countries work informally, finding creative solutions
to everyday problems.
A central concern of this book is to better understand whether innovative solutions can be found in the informal sector, and whether such
innovations can be promoted and supported in such a way that they lead
to more equitable scenarios in developing countries.
The origins of this work lie in a project initiated by the Member States
of the World Intellectual Property Organization (WIPO) to implement
Recommendation thirty-four of WIPO’s Development Agenda via the
Committee on Development and Intellectual Property (CDIP).
Specifically, the task was to more empirically assess the interactions
between the informal economy, innovation, knowledge appropriation
and development. The objective was to lift the veil on this underresearched area of innovation of importance to developing countries.
The resulting research project has been ongoing since 2011 with the
following steps:
First, a conceptual study was developed reviewing existing research
regarding the informal economy, innovation and IP. This study provided an analytical framework and methods to study innovation in the
informal economy for further empirical research and fieldwork.
A workshop on “Innovation, Intellectual Property and the Informal
Economy” hosted by the Institute for Economic Research on
Innovation (IERI) at Tshwane University of Technology in Pretoria,
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pr eface
South Africa, from November 19 to 21, 2012, brought together experts
and stakeholders to discuss and refine strategies for successfully carrying out the project. The project was also coordinated with the ongoing
research of the Open African Innovation Research (Open AIR) network carried out with financial support from Canada’s International
Development Research Centre and the Deutsche Gesellschaft für
Internationale Zusammenarbeit.
Second, three studies were conducted exploring innovation in three
informal sectors: metal manufacturing in Kenya, the manufacture of
home and personal care products in South Africa and herbal medicines in Ghana. The output is based on unique fieldwork and structured interviews and questionnaires. As existing innovation surveys
did not prove useful in the informal context, a dedicated model
questionnaire for the informal economy was developed, also yielding
new research approaches and metrics. Representatives of the informal
sector and policy experts were involved in this process.
Third, and on the basis of the aforementioned material, the present book
chapters were developed. In particular, existing outputs were finetuned, and chapters were added to provide a more detailed treatment
of IP issues, statistical requirements and challenges, and policy
recommendations.
We hope that this book will be of interest and value to innovation
scholars, statisticians and policy makers alike. In relation to the academic
community, the importance of the informal economy for development
and innovation is not matched by sufficient economic and, in particular,
empirical work on the matter. In relation to the community of statisticians, interest is growing to establish measurement tools such as innovation surveys and qualitative studies more tailored to the needs of
developing countries. Finally, current policy approaches are not designed
to foster innovation in the informal sector; this is true despite the fact that
policy makers have generally moved beyond the notion of simply wanting to “suppress” the informal economy. The book offers new policy
recommendations in response.
There are many individuals and organizations to thank for their help
with this book – too many to list. However, first and foremost we would
like to thank the numerous (and often anonymous) informal entrepreneurs who patiently helped us shape and refine our questionnaires,
responded to our questions and inspired us with their resilient and
creative approach to life, often in very trying circumstances. We would
preface
xxxiii
also like to thank the staff at the Institute for Economic Research on
Innovation, the DST-NRF Centre of Excellence in Scientometrics and
Science, Technology and Innovation Policy (SciSTIP) and the WIPO
Secretariat – in particular WIPO’s Traditional Knowledge Division –
for their valuable inputs into and support for this project.
The Department of Science and Technology in South Africa, the
Southern African Development Community (SADC) Secretariat, the
African Observatory of Science, Technology and Innovation (AOSTI)
and the Member States of WIPO generally – and the delegations of
Kenya, South Africa and Ghana more particularly – have been a source
of encouragement and intellectual input.
The study also benefited from expert comments at the 6th Micro
Evidence on Innovation and Development Conference in Cape Town,
South Africa, November 21–23, 2012; the Academy of Innovation and
Entrepreneurship Annual Conference in Oxford, August 29–30, 2013; the
Open AIR Conference on Innovation & IP in Africa, Cape Town,
December 9–13, 2013; the WIPO CDIP side event on Innovation, IP
and the Informal Economy, Geneva, May 22, 2014; the Conference on
Micro Evidence on Innovation and Development (MEIDE) in New Delhi,
February 10–12, 2015; and the Globelics conference Innovation to Reduce
Poverty and Inequalities for Inclusive and Sustainable Development,
Havana, September 23–25, 2015. Prominent initial policy recommendations were also showcased as part of the United Nations 2013 Annual
Ministerial Review of the Economic and Social Council on March 14,
2013, in Dar es Salaam, Tanzania.
We hope that this book will lay important groundwork for future
empirical work, for the development of appropriate metrics and for
crafting new innovation policy approaches pertinent to the fast-paced
informal economy.
Erika Kraemer-Mbula
Sacha Wunsch-Vincent
DISCLAIMER
The views expressed herein are those of the authors and do not necessarily reflect the views of the World Intellectual Property Organization
(WIPO) or its member states.
xxxiv
u
Introduction
erika kraemer-mbula and sacha wunsch-vincent
Innovation-driven growth is now firmly on the agenda of developing
countries. Numerous national innovation policies are being designed to
foster innovation and harness it for growth. But importantly, innovation
policies and programs need to be mindful and inclusive of the distinctive
features and needs of middle- and low-income countries.
A vital specificity of many developing countries is the ubiquity of the
informal sector and its demonstrated contribution to economic output
and employment. In developing countries, the informal economy is often
a greater source of innovation than the formal sector. Small or larger
family entities and enterprises that constitute the informal economy
produce new products or processes under conditions of scarcity in very
diverse sectors, ranging from automotive and health to household appliances. In informal manufacturing clusters, products range from simple
goods like kitchenware and furniture to more complex tools and
machines. This type of innovation is rarely the result of research and
development (R&D); rather, it tends to be driven by knowledge gained
through adopting, adapting and improving existing good ideas, best
practices and technologies in novel ways to solve problems in light of
available materials and customers’ limited budgets. Moreover, it has been
argued that the informal economy also constitutes a low-risk test bed for
innovations.
However, too little is known about the innovation systems surrounding the informal economy. Most evidence relies on anecdotal studies
rather than systematic research based on solid analytical frameworks.
As a result, policy makers face a dearth of data or rigorous analysis to
support their policy decisions when it comes to innovation in
a developing-country context.
This book aims both to provide a more rigorous assessment of how
informal innovations are generated, monetized and diffused, and to
encourage and support further research on these crucial issues. It seeks
1
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e rika kra e mer-mbula a nd sacha w uns ch-vincent
to understand what drives innovation in the informal economy, and
whether and how innovative actors secure some return on their innovations. Firms in the formal sector that invest in innovation commonly aim
to reap a return on their investment by maintaining some form of
exclusivity over their know-how. This is done by being first to market,
by keeping innovations secret or by using formal intellectual property
rights (IPRs). But the role of IPRs and appropriation mechanisms such as
secrecy, contracts and social norms of local communities in the informal
economy are poorly understood. On the one hand, the absence of more
formal appropriation systems might lead to information and knowledge
diffusing more freely in the informal economy. On the other hand, actors
may have fewer incentives to invest in machines or human capital and
may be unable to scale up innovations to a sufficient level and reach.
The absence of branding, for instance, may make it harder for consumers
to distinguish between products by different producers within the sector,
reducing the possible rewards to producers of good quality.
What policies will best foster innovation in the informal economy and
harness its impacts? Neither current policy documents nor the academic
literature propose a policy framework in this regard. This book assesses
whether traditional innovation policy approaches are relevant in the
informal context and highlights the objectives that a new innovation
“policy mix” must address. Finally, the book proposes a measurement
agenda for statisticians, in order to capture informal innovation in
developing countries, its drivers and related barriers.
A number of prominent books and articles stress the importance of
the informal economy for economic development. Yet the literature on
the informal economy does not directly address issues of innovation,
and the literature on innovation pays little attention to the informal
economy. As a result, there are few studies relating to informal sector
innovation, and those there are typically call for more research in this
field (Srinivas and Sutz 2008; Daniels 2010; Gault 2010; Kraemer-Mbula
and Wamae 2010; Muchie et al. 2015). This book responds to that call
and pushes the boundaries of research in the field of informal economy
innovation, first by conceptually integrating so-far separate analyses of
innovation and the informal economy, and second by using research
methods not often used by those studying the economic and employment
aspects of innovation or the informal economy. In addition, this book
provides unprecedented coverage of knowledge appropriation in the
informal economy. Many questions arise regarding appropriation
mechanisms in the informal economy: are incentives for innovation,
introduction
3
diffusion and impact different in the formal and informal economies?
Does the informal economy rely on different appropriation mechanisms
than the formal sector? Indeed, are there efforts to appropriate in the
informal economy, or is there any opposition to appropriation? Are
innovation outputs and technical know-how communicated differently
in the informal economy than the formal economy? In sum, this book
contributes to the general debate on innovation, IP and development,
which now attracts keen academic interest.
The book consists of eight chapters, which, variously, elaborate on
conceptual aspects, review existing literature, analyze evidence and
recommend new approaches for innovation policy and research.
Chapter 1 by Jacques Charmes examines how the definition of the
informal economy has evolved over recent decades and introduces some
estimates of its size in different regions of the world. Charmes argues, in
line with most recent research, that economic activity is best understood
as taking place within a formal–informal continuum; with different
activities and actors occupying different points along the continuum.
In other words, rather than seeing the informal economy as a separate
economic sphere, the focus should be on understanding the complex
inter-relationships between formal and informal activities. Drawing on
a range of sources, he provides long time series of statistics to portray the
size of the informal economy in terms of its contributions both to
employment and to gross domestic product (GDP). These figures
include the latest statistics by regional breakdown and in selected developing countries, making this one of the most complete and up-to-date
depictions of the informal economy in developing countries available.
As Professor Charmes shows, estimates suggest that over the past
two decades informal employment or employment in the informal economy made up more than half of non-agricultural employment in most
middle- and low-income countries. Sub-Saharan Africa is the region
where the informal economy is believed to make the largest contribution
to GDP – nearly two-thirds of GDP, including agriculture and half of
non-agricultural gross value-added. It is followed in Southeast Asia by
India, with around 50 percent of total GDP, then come countries in the
Middle East, North Africa and Latin America.
Descriptive statistics suggest a negative correlation between the percentage of employment in the informal sector and GDP per capita.
Employment in the informal sector is also positively correlated with
poverty across countries. However, there is no evidence that informal
employment does or does not cause low GDP or high poverty or that
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e rika kra emer-mbula a nd sacha wuns ch-v incent
informality will fade away with economic development. Indeed, in most
regions studied there has been a marked increase in informal employment
along with pronounced economic growth. Professor Charmes’ analysis
supports finding elsewhere in the literature that the informal economy is
a “permanent feature” of regions such as Latin America and Africa.
Each chapter of this book is accompanied by comments from academics or policy makers, reflecting our desire as editors to include as
many viewpoints as possible and provide breadth as well as depth.
Chapter 1 is complemented by comments from Rafael Diez de Medina
and Adriana Mata Greenwood of the Department of Statistics of the
International Labour Organization (ILO) and Johannes Jütting of the
Organisation for Economic Co-operation and Development (OECD).
The comment from the ILO provides additional insights into the definition of the informal economy, highlighting a persistent lack of harmonization and consensus regarding measurement which limits the
international comparability of the data. The OECD comment points
out interesting areas for future research such as the exploration of the
role of the informal economy as a “shock absorber” in times of economic
recession, the gender dimensions of informal employment and the perceptions and legitimacy of state institutions over marginalized communities in the context of developing countries.
Chapter 2 by Jeremy de Beer, Kun Fu and Sacha Wunsch-Vincent
reviews “what we know and do not know about innovation in the
informal economy.” It makes a valuable attempt to integrate the literatures on innovation studies and the informal economy, which have
traditionally remained disconnected. This disconnect can be explained
partly by the emphasis that the literature on innovation has given to
formal scientific and technological components of the innovation system
while neglecting aspects that are central to developing countries, such as
the informal economy. The literature on the informal economy has
recognized its central economic and social role in developing countries,
but has largely equated informality with survivalist activities with little or
no potential for innovation. In order to develop a fuller picture, the
chapter addresses several key questions. Who is the archetypical innovator in the informal economy? What types of innovation are generated?
What is different from what one would encounter in the formal economy? The authors argue that innovation within the informal economy
should be conceptualized within an innovation systems framework, putting particular emphasis on the geographical territory in which informal
activities take place, usually at the local level.
introduction
5
As well as conceptually integrating two scholarly literatures, the
chapter also synthesizes evidence discussed in the subsequent chapters
on three African countries. This reveals several key findings: (1) the
informal economy is as diverse as the formal economy. Furthermore, in
each of these diverse activities the incidence and role of innovation,
including the interactions with innovation in the formal sector, are likely
to be different; (2) innovation does take place in the informal economy in
the form of new products, product improvements, process improvements and the utilization of new tools. This type of innovation has
been characterized as “quick responses to market demand and supply,”
solving problems to overcome shortcomings of the formal economy and/
or to adapt foreign products to local conditions. (3) Adaptation and
imitation are more frequent than original invention in the informal
economy. (4) Firms in the informal economy tend to operate in clusters
that facilitate a rapid transfer of skills and knowledge across firms.
This seems to have a dual impact on innovation. On the one hand,
information diffuses rather freely in the informal economy, and specialized resources are often shared. However, clustering can also have
a negative impact on the appropriation of innovation activities, as competition over a similar product and quality range can be fierce, making it
impossible to prevent others from copying one’s innovation. (5) Many
micro-firms in the informal economy demonstrate low capital intensity
and face limitations on technical upgrading and limited skills. These
constraints affect the scale at which innovation-related production and
trade occur in the informal economy. (6) Actors in the informal economy
draw significantly on external agents as sources of innovation –
a phenomenon also described as “inbound open innovation.” (7) Skills
are acquired through early formal education, learning by doing through
work experience and learning by training through apprenticeships in the
informal or formal sector. A combination of some formal education,
specific vocational training and work experience is relevant in building
innovative capacity within informal economy firms.
A comment on this chapter by Colin C. Williams of the University of
Sheffield outlines the treatment of the concept “informal economy” in the
literature. Professor Williams highlights the underlying views of hierarchy shaping the “subordinate” status of the informal economy and how
these views have also manifested in a restricted understanding of the
possibilities of innovation in the informal economy. Another comment,
by Fred Gault of UNU-MERIT and IERI-TUT, raises important questions about the assumptions made in the literature in relation to informal
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erika kra emer-mbula and sacha wuns ch-v incent
economic activities, calling for the need to revisit the concepts of “firm”
and “market” in the context of informality. Professor Gault stresses that
certain features of innovation in the informal economy, such as the role
of users and the importance of learning, require further attention in order
to design innovation policies that are more suitable for entrepreneurs in
developing countries.
Chapters 3, 4 and 5 in this book are dedicated to three case studies
conducted in Kenya, South Africa and Ghana, respectively. The three
country studies follow a similar methodology, based on a systemic
view of innovation, examining informal entrepreneurs in three different sub-sectors: metal workers in Kenya, manufacturers of home
and personal care products in South Africa and manufacturers of
traditional medicines in Ghana. Comparable first-hand evidence was
collected in the three countries, allowing us to identify commonalities
in terms of learning, innovation and knowledge flows. However, the
analyses also indicate significant differences between sectors and
countries, suggesting not only the diversity of the informal economy,
but also the importance of understanding the local context in order to
better appreciate the priorities and behavior of informal
entrepreneurs.
Chapter 3 by Christopher Bull, Steve Daniels, Mary Kinyanjui and
Barrett Hazeltine explores the flow of ideas and innovations in the
informal metalworking sector of Nairobi, Kenya. The goal of this chapter
is to explore how products and processes are developed and disseminated, and whether and how formal and informal intellectual property
(IP) appropriation mechanisms are used. Data were gathered using
a scripted interview with workers in the Kamukunji cluster in Nairobi,
informal interviews with workers and business people outside the cluster,
meetings with government and NGO officials, and by documenting
product taxonomies and reviewing policy documents and government
communications. Key findings include a significant gap between formal
appropriation mechanisms and the informal sector, a host of policies that
offer opportunities for informal enterprises and poor documentation of
programs that implement those policies.
The accompanying comment by Joseph K. Kiplagat of Kenya’s
Ministry of Industrialization and Enterprise Development emphasizes
the key role that the jua kali (informal) sector plays in the social, cultural
and economic life of Kenya. As the son of a fundi (the term used for
“makers” or “informal workers”), Kiplagat is well placed to highlight the
creative and entrepreneurial potential of the Kenyan informal sector.
introduction
7
Chapter 4 by Erika Kraemer-Mbula is concerned with the informal
manufacturing of home and personal care products in South Africa.
On the basis of primary data, the chapter explores various types of innovation by informal manufacturers, paying close attention to the context in
which innovations emerge. Kraemer-Mbula identifies connections
between the formal and informal economies, leading to knowledge being
shared, exchanged, combined and applied to create new products, services
and processes. The chapter does not examine informal manufacturers in
isolation, but as part of the broader economic, social and institutional
system in which they operate. It maps the innovation system around
informal manufacturers, exploring relationships and interactions across
the productive chain of home and personal care products, and with an
array of formal and informal organizations. From this analysis, KraemerMbula develops several policy recommendations.
Chapter 4 is complemented by a comment from Nonhlanhla Mkhize
of the Department of Science and Technology, Ministry of Science and
Technology, South Africa. She calls for evidence on innovation dynamics
in the informal economy to be linked more closely to existing policy
frameworks guiding education, economic and innovation activities in
South Africa. There is still a perception that innovation is exclusive to the
formal domain of the economy, indicating that further evidenceinformed decision and policy making is needed in order to pave a more
inclusive development path for South Africa.
Chapter 5 by George Owusu Essegbey and Stephen Awuni analyzes the
practice of traditional herbal medicine in Ghana. The authors conducted
a survey of traditional herbalists in Ghana to assess, among other things,
their modes of operation and any product, process and institutional
innovations in their practice. They found that there has been
a significant improvement in the manufacturing of traditional herbal
medicine in Ghana over the years through innovation. The authors
elaborate on the drivers of innovation such as policy initiatives taken to
enhance traditional medicine practice, regulations, training and competition in the marketplace. They argue that traditional herbal medicine
practice cuts across the continuum of informal–formal economic activity, and policies aimed at promoting traditional herbal medicine and
stimulating innovation need to take account of this. According to their
findings, IP mechanisms have potential to foster innovation. However,
work is needed both to raise awareness of IP and to review IP systems and
knowledge appropriation mechanisms to ensure that they are suitable for
the sector.
8
e rika kra emer-mbula a nd sacha w uns ch-vincent
In his comment on the chapter, Peter Arhin, Director of Traditional
and Alternative Medicine Directorate (TAMD), Ghana, outlines the
regulatory reforms experienced by the traditional health system in
Ghana in recent years. He highlights not only some achievements but
also some remaining challenges, in particular difficulties that manufacturers of traditional medicines experience in accessing financial
resources, technical expertise and support for knowledge appropriation.
On the basis of these observations, he suggests concrete policy recommendations, including the promotion of local manufacturing and the
development of a suitable institutional infrastructure able to push the
manufacturing of traditional medicines to international levels of competitiveness while maintaining their relevance to users.
Chapter 6 by Jeremy de Beer and Sacha Wunsch-Vincent explores
how innovation is protected in the informal sector. Firms that invest in
innovation commonly aim to reap the returns from it by maintaining
some form of exclusivity over their know-how related to new processes
or products or by selecting other means of gaining a competitive
advantage. Mirroring the spectrum from formality to informality that
characterizes the informal economy generally, a range of formal, semiformal and informal appropriation mechanisms is used to appropriate
innovation. Formal mechanisms of appropriation take the form of
IPRs. Semi-formal means of appropriation include secrecy, publishing,
non-competition clauses, non-disclosure agreements, contracts and
others. Informal forms of appropriation may include lead time, complexity of design or technology, after-sales and services, and customer
loyalty. The authors emphasize that even in the formal economy,
different firms deploy diverse strategies to appropriate returns from
innovation.
Innovation appropriation in the informal economy specifically is an
under-explored topic. A review of existing literature creates the first
impression that actors in the informal economy either give little consideration to appropriating returns on their innovations or rely on semiformal or informal rather than formal appropriation mechanisms.
Analysis of the evidence provided by the case studies supports two points.
First, the majority of innovation appropriation mechanisms in the informal economy are informal in nature, with lead-time, sales or service
efforts, customer loyalty and after-sales efforts being the most important
mechanisms. Moreover, the innovation system around informal economic activities largely rests on “collective learning experiences” based
on low entry barriers and free flows of knowledge. Appropriation efforts
introduction
9
must also be considered in light of the social systems in which informal
economic activity occurs, with knowledge flows characterized by trust,
reputation, reliability, social and cultural signaling, and a willingness to
pool resources and collaborate. Second, however, constant copying and
the absence of appropriation mechanisms may constitute a barrier to
scaling up innovative activity in the informal economy. Entrepreneurs
are unable to grow their businesses beyond a certain stage, as they lack
control over their innovations. As the authors conclude, the crucial
policy question is not whether appropriation methods are relevant in
the informal economy, but rather which mechanisms (formal and/or
informal) may be most appropriate or promising in the specific case
and sector under consideration.
This chapter is complemented by three comments: Emmanuel Sackey,
Chief Examiner of the African Regional Intellectual Property
Organization; Dick Kawooya of the University of South Carolina; and
Shamnad Basheer of Nirma University, India, and SpicyIP.
Sackey corroborates the picture of low awareness and uptake of IP
among informal innovators. To some extent, he argues, this is the case
with micro, small and medium enterprises in general, especially in Africa.
While there may be some differences between formal and informal small
businesses in terms of attitudes toward and awareness of IP, the evidence
remains insufficient. He highlights the need for IP offices in developing
countries that are more proactive and understanding of the informal
economy, and also notes a connection with traditional knowledge and
indigenous knowledge, where the IP system has similar shortcomings.
Kawooya raises important questions concerning the sustainability
and scalability of informal enterprises, and the possibilities offered by
vertical integration and linkages with the formal sector. He highlights the
role of intermediaries as key drivers of collaboration between formal and
informal enterprises, opening opportunities for knowledge transfer and
innovation.
In the final comment to this chapter, Basheer encourages a creative
exploration of newer models of incentivizing innovation in the informal
economy. He provides examples from India of alternative ways in which
regulation and policy can manage issues of knowledge appropriation,
especially in relation to traditional knowledge. He also cautions against
“formalizing” the informal economy, indicating that the informal economy may have important lessons for the formal economy on a variety of
fronts.
10
e r i k a kr a e m e r - m b u l a a n d sa c h a w u n s c h- v i n c en t
Chapter 7 by Erika Kraemer-Mbula and Almamy Konté explores
whether current policy approaches to the informal economy aim to foster
innovation and whether current approaches to innovation policy take
into consideration the informal economy. The authors explore concrete
alternatives to improve the distributional impact of innovation policies,
particularly as regards to informal economic actors. They highlight
problems in ensuring policy coherence when dealing with informality
in developing countries, in that economic development resources are
concentrated at the national level while regulatory and management
responsibility for the informal economy rests with local government.
Traditionally, the declared policy objective has typically been to suppress, regulate or formalize the informal economy. However, experts and
policy makers are starting to see the need for a more coordinated and
structured approach to the informal economy. This shift in policy thinking has been gradual, with a small number of countries developing more
inclusive and integrated policies recently. Nevertheless, systemic interventions remain rare, and the nature of intervention models at the
national level is often inadequately suited to local needs on the ground,
with coordination between national and local levels often misaligned.
On the basis of empirical evidence from the three country studies, the
authors identify a range of policy interventions with the potential to
positively affect innovation in the informal economy. This analysis
leads them to explore an integrated framework for innovation policy
that serves transformational change – a systemic policy approach that
recognizes the importance of inclusion, demand-led innovation and
learning processes including policy learning. They argue that an integrated framework for innovation policy must respond to the reality of
developing countries, focusing on the capacity of policy frameworks to
deliver in terms of institutional forms and target all economic and social
actors including those operating informally.
The chapter is complemented by comments from Judith Sutz of the
University of the Republic in Uruguay and Anneline Morgan, Senior
Technical Advisor on Science, Technology and Innovation at the
Southern African Development Community (SADC) Secretariat. Sutz
emphasizes the universality of some of the conclusions of the chapter,
providing interesting examples from Latin America, in particular
Uruguay. She highlights the important role of intermediaries in channeling collective action by informal actors and stresses the importance of
unlocking the great potential that universities have to contribute to
social developmental needs, including the needs of informal workers.
introduction
11
Morgan grounds the chapter in the reality of Southern Africa. She makes
a compelling call to develop policy processes and frameworks that provide room for the voices of diverse communities, including the informal
sector. In the context of regional integration, she argues that the policy
environment in SADC ought to facilitate interactions, partnerships and
dialogue between and among public and private sectors and actors in the
informal economy.
Chapter 8 by Jacques Charmes, Fred Gault and Sacha WunschVincent builds on the preceding chapters to shape an agenda for the
measurement of innovation in the informal economy. The first part of
the chapter discusses innovation measurement approaches applied to the
formal sector: What can be learned from them, and can the definitions
and methods be transposed to the informal sector? The second part
reviews measurement efforts targeted at the informal sector to date.
It also explores the integration of efforts to measure innovation in the
formal sector with studies of the informal sector. Methodological considerations relating to sampling and general survey deployment are
discussed. Finally, the authors assess the possibility of conducting semistructured interviews and more ad hoc surveys in informal sectors or
clusters in specific countries.
In the coming years, many new efforts to collect data in developing
countries, such as the third edition of the African Innovation Outlook,
will widen the scope of reporting and analysis in its plans to include
coverage of innovations in the informal sector. The suggestions in this
chapter are intended to lay important groundwork for future empirical
work, to help develop appropriate indicators and support new
approaches to innovation policy in developing countries. The authors
make pragmatic suggestions, noting potential opportunities and challenges. They conclude that there are two viable ways to improve measurement of informal sector innovation in developing countries: (i)
adding a few innovation questions to existing large-scale surveys of the
informal economy and/or (ii) conducting ad hoc questionnaire- and
interview-based sectoral studies in selected countries, as done in the
country case studies presented in Chapters 3–5.
Chapter 8 is followed by a comment from Philippe Mawoko, Director
of the African Observatory for Science, Technology and Innovation
(AOSTI). Makowo points out that policy makers are giving innovation
a central role in attempts to tackle present and future challenges, manifest
among others in the newly adopted Science, Technology and Innovation
Strategy for Africa (STISA-2024). While noticeable efforts are being
12
er i k a kr a e m e r - m b u l a a n d s a c ha wun s c h -vi nc e n t
devoted to measuring and tracking innovation among formal enterprises,
there is still an important gap in measuring innovation in the informal
economy. In this regard, he believes that the analysis in this book, and in
Chapter 8 in particular, should prove useful in AOSTI’s program of work.
More generally, this book should be of value to scholars, statisticians and
policy makers. In providing both empirical evidence and reflections on
concepts, methodology and policy, it paves the way for much future work.
References
Daniels, S. 2010. Making Do: Innovation in Kenya’s Informal Economy.
New York, Analogue Digital Publishing.
Gault, F. 2010. “Innovation and development,” in Gault, F. (ed.) Innovation
Strategies for a Global Economy. Cheltenham, Edward Elgar Publishing, pp.
133–64.
Kraemer-Mbula, E. and Wamae, W. 2010. “Adapting the innovation systems
framework to sub-Saharan Africa,” in Kraemer-Mbula, E. and Wamae, W.
(eds.) Innovation and the Development Agenda. Paris, OECD Publishing,
pp. 65–90.
Muchie, M., Bhaduri, S., Baskaran, A. and Sheikh, F.A. 2015. Informal Sector
Innovations: Insights from the Global South. Oxford, Routledge.
Srinivas, S. and Sutz, J. 2008. “Developing countries and innovation: searching
for a new analytical approach,” Technology in Society 30: 129–40.
1
The Informal Economy
Definitions, Size, Contribution and Main Characteristics
jacques charmes
Introduction
The informal economy has prompted many zoological metaphors. Hans
Singer, one of the fathers of the concept in the early 1970s, compared it to
a giraffe: difficult to define by usual standards but easy to recognize when
you meet one (reported by Lubell 1991). It is not a giraffe, but a unicorn,
replied Bruno Lautier (1990): the literature abounds with definitions, but
you will never actually encounter it, because it does not exist. The giraffe
is sometimes reappropriated and changed into an elephant (Mead and
Morrisson 1996), a metaphor that would seem to imply that as well as
being difficult to define but easy to recognize, the informal economy is
“too big to fail” – or at least too big for the State to ignore or remove
through simple policy measures. One could also compare it to
a chameleon, for its ability to become invisible when the State or the
law is too restrictive or inappropriate. And Serge Latouche (1989) used to
say that informal sector operators are “ingenious but not engineers,
enterprising but not entrepreneurs, industrious but not industrialists,”
meaning that their contribution cannot be captured adequately through
the usual standards and norms.
All this highlights the permanent difficulty of reaching agreement on
a common definition that would satisfy all users of the concept.
Unfortunately, and despite many efforts toward an international definition, there are still many different approaches to understanding the
phenomenon – albeit not quite as many as there are authors, as was the
case in the 1970s and 1980s. International definitions of employment in
the informal sector and informal employment were adopted in 1993 and
2003 by the International Conference of Labour Statisticians (ICLS)
under the auspices of the International Labour Organization (ILO) and
inserted into the System of National Accounts (SNA) in its fourth and
13
14
j acq ues c h ar m es
then fifth revisions, in 1993 and 2008, respectively. But the concepts of
underground, black, gray, parallel, non-observed economy remain as
complementary or alternative, though different, ways of approaching
the phenomenon (Schneider and Enste 2000; OECD 2002; Schneider,
Buehn and Montenegro 2010), while some authors continue to assimilate, confound or restrict informality to self-employment.
An anecdote may indicate the importance of these variations in understanding the concept. In 1987, during the Fourteenth ICLS, a preliminary
discussion took place about measuring employment in the informal
sector. Many contributors spoke of “moonlighting,” a term widely used
to characterize the underground economy, but the representative of
Kenya – where the concept of informal sector was coined at the beginning of the 1970s – took to the floor to declare that in his country, the
informal sector was comprised not of people operating by moonlight but
rather those working in the open sun; indeed, in Kenya the term jua kali,
which means in Swahili “under the burning sun,” is used to describe
informal workers (see Box 1.1). The Fifteenth ICLS resolution, adopted
in 1993, duly noted that “activities performed by production units of the
informal sector are not necessarily performed with the deliberate intention of evading the payment of taxes or social security contributions, or
infringing labor or other legislations or administrative provisions.
Accordingly, the concept of informal sector activities should be
box 1.1 jua kali: origins of a local concept for
designating the informal sector
Kenneth King, who has been studying the informal sector in Kenya since the early
1970s, notes how the way locals describe it has changed:
Jua kali in Swahili means “hot sun.” But over the course of the 1980s, and
perhaps a little earlier, it came to be used of the informal sector artisans, such as
car mechanics and metalworkers, who were particularly noticeable for working under the hot sun because of the absence of premises. People began to talk
of taking their car to jua kali mechanics. Gradually the term was extended to
refer to anyone in self-employment, whether in the open air or in permanent
premises. On 28 May 1988, The Standard reported that the Minister of
Technical Training and Applied Technology wished to encourage the use of
the term jua kali rather than informal sector, and had therefore announced
that the small-scale industry which had come to be known as the informal
sector would henceforth assume the name Jua Kali Development Programme.
Source: King (1996).
informal economy
15
distinguished from the concept of activities of the hidden or underground economy.”
I begin the discussion in this chapter with a brief reminder of the
concepts of informal sector, informal employment and informal economy
and related ways of measuring them. I then present an assessment of
trends in the size of the informal economy and its contribution to GDP.
Following that, I attempt to assess the social importance of the informal
economy and its potential role in innovation. Finally, I conclude by
stressing the variety of activities in the informal sector.
Conceptualizing and Measuring the Informal Economy
Conceptualization and Definitions
The concept of “informality” was born in 1971, quasi-simultaneously at
the two extremes of the African continent: in Ghana with the notion of
“informal income opportunities” proposed by Keith Hart in 1971 (see
Hart, 1973) and in Kenya with the multi-criteria definition of the informal sector in the ILO report of the World Employment Programme (see
Box 1.2).
Hart’s concept focused on the individual, and inspired many sociological and anthropological studies in Africa and elsewhere (Bromley
and Gerry 1979); in Latin America, in particular, it influenced the
regular labor force surveys that started measuring the so-called marginalization of workers on the basis of a level of earnings under the
minimum wage and in connection with poverty: the concept of “working poor” was preferred to the concept of “informal workers.” The ILO
definition focused on the establishment or enterprise and underpinned
many studies and surveys by the ILO in Africa (Nihan and Jourdain
1978; Nihan, Demol and Jondoh 1979; Maldonado 1987) through its
Jobs and Skills Programme for Africa (JASPA), in Latin America
(Tokman 1987) through its Regional Programme on Employment for
Latin America and the Caribbean (PREALC) and in Asia generally at
the capital-city level.
Both the individual-based and the enterprise-based approaches saw
the State as the central cause of informal economic activity, either
because the emerging capitalism supported by newly independent
States had an intrinsic need for such a labor reserve/surplus (Lebrun
and Gerry 1975; Gerry 1979) or because private initiative was stymied
16
j acq ues c h ar me s
box 1.2 the multi-criteria definition of the ilo report
The ILO report on Kenya is one of several reports of the World Employment
Programme conducted by the ILO in the 1970s. The Kenya mission was headed
by Hans Singer, with Richard Jolly, Dharam Ghai and John Weeks from the
Institute of Development Studies and Ajit Bhalla and Louis Emmerij from the
ILO among the most well-known participants. The authors note that their
thinking has been “greatly influenced and helped by a number of sociologists,
economists and other social scientists in the Institute of Development Studies at
the University of Nairobi” and add: “One begins to sense that a new school of
analysis may be emerging, drawing on work in East and West Africa and using the
formal–informal distinction to gain insights into a wide variety of situations”
(p. 6, footnote 1).
The definition is given in the introduction to the report (p. 6):
Informal activities are the way of doing things, characterized by –
(a) ease of entry;
(b) reliance on indigenous resources;
(c) family ownership of enterprises;
(d) small scale of operation;
(e) labor-intensive and adapted technology;
(f) skills acquired outside the formal school system; and
(g) unregulated and competitive markets . . .
The characteristics of formal sector activities are the obverse of these,
namely –
(a) difficult entry;
(b) frequent reliance on overseas resources;
(c) corporate ownership;
(d) large scale of operation;
(e) capital-intensive and often imported technology;
(f) formally acquired skills, often expatriate; and
(g) protected markets (through tariffs, quotas and trade licenses).
Source: ILO (1972)
and diverted by State-created barriers. The first view of the State’s role
was inspired by the Marxist theory of the labor reserve/surplus (Hart
mentions “the reserve army of underemployed and unemployed,” as do
Lebrun and Gerry) and focused on the lower tier of the working poor,
whereas the second view focused on the upper tier, “the modern informal
sector,” as Georges Nihan – not afraid of a contradiction in terms – put it.
This was the most visible part of the informal sector, in fixed
i n f o r mal eco n o my
17
establishments, and also the most likely to develop, grow and modernize,
a conception and theory that culminated in Hernando de Soto’s observation (1986) that it could take several years in Peru for a start-up to
become compliant with the law, whereas a few days, if not less, would
suffice in the United States.
There have been many two-tier conceptions of the informal sector.
Gary Fields (1990) identified “voluntary participation in upper-tier informal activities but not easy entry ones” opposed to the constrained lower
tier, echoing the evolving micro-enterprise sub-sector opposed to the
survivalist “involutive” sub-sector of Philippe Hugon (1980), not to
mention the intermediate or “missing middle” sector coined by John
Page and William Steel (1986). These conceptions have remained
a strong feature of the World Bank’s research on the sector up to recent
work by Perry et al. (2007), which revisits Albert Hirschman’s Exit, Voice
and Loyalty (1970) and applies it to informal sector operators, distinguishing informality driven by exclusion from informality driven by
voluntary exit. Such conceptions of a dichotomy within the informal
sector ultimately pave the way for the dissolution of the more basic
dichotomy between formal and informal in favor of a continuous spectrum of economic activity, a view expressed by Guha-Khasnobis, Kanbur
and Ostrom (2006) in the introduction to their book.
Activities should not be regarded as illegal just because they do not
comply with official regulations. As noted by Charmes (1990), the State’s
inability to make operators follow the laws it enacts is more a matter of
inadequacy, powerlessness and even unwillingness to forgo jobs spontaneously created in a context of high unemployment and underemployment. The 1993 ICLS resolution (ILO 1993b) recognizes that informal
activities “are not necessarily performed with the deliberate intention of
evading the payment of taxes or social security contributions, or infringing labor or other legislations or administrative provisions.” This implies
that non-registration – of the individual in labor or social security
registers or of the enterprise in fiscal or commercial registers – is
a basic criterion for the definition of informality.
Statistical Definitions and Methods of Data Collection
It is not necessary to recall in detail here the international definitions that
are applied – with national variations and adaptations – in statistical
surveys. A brief reminder will suffice. A two-pronged definition is used.
18
j acq ues c h ar m es
An establishment-based definition of the informal sector was adopted in
1993 following the approach in the ILO’s report on Kenya (1972) and
subsequent research on the “modern” informal sector of microenterprises in sub-Saharan Africa. This was complemented a decade
later by a job-based definition of informal employment, returning to
the original idea of Hart (1973) but based on a rapid increase in the
externalization of labor and the development of outworkers, home-based
workers and precarious jobs correlative with globalization. The two
definitions overlap in some respects, and some further explanation is
required regarding their scope in the labor force and among the institutional sectors of the SNA.
The informal sector was defined by the Fifteenth ICLS (ILO 1993a,
1993b) as comprising enterprises of own-account workers and enterprises of informal employers (a dichotomization that may remind one of
the two tiers or sub-sectors identified by analysts). The definition refers to
the characteristics of the economic units in which people work: criteria
include legal status (individual unincorporated enterprises of the household sector), non-registration of the economic unit or of its employees,
a small number of workers (either of workers engaged or paid employees)
and at least some production for the market. The conference recommended household, establishment and mixed (household/establishment)
surveys as means of capturing the informal sector; in the mixed-survey
approach, all economic units operated by a household member are
enumerated in the sampled households and then surveyed in a second
stage through an establishment questionnaire. Later, in 1997, the Delhi
Group on informal sector statistics was set up by the UN Statistical
Commission in order to improve and develop the definition of the sector
and collection of data about it. Since then the group has met regularly,
and one of its main outcomes has been the ILO manual Measuring
Informality: A Statistical Manual on the Informal Sector and Informal
Employment, published in 2013.
The Seventeenth ICLS (ILO 2003) adopted guidelines defining
informal employment as comprising all informal jobs carried out in
informal enterprises, households or formal enterprises. Under those
guidelines:
Employees are considered to have informal jobs if their employment
relationship is, in law or in practice, not subject to national labor legislation, income taxation, social protection or entitlement to certain employment benefits (advance notice of dismissal, severance pay, paid annual or
sick leave, etc.). The reasons may be the following: non-declaration of the
i n f o r mal eco n o m y
19
jobs or the employees; casual jobs or jobs of a limited short duration; jobs
with hours of work or wages below a specified threshold (e.g. for social
security contributions); employment by unincorporated enterprises or by
persons in households; jobs where the employee’s place of work is outside
the premises of the employer’s enterprise (e.g. outworkers without
employment contract); or jobs for which labour regulations are not
applied, not enforced, or not complied with for any other reason.
Informal employment is thus usually defined, for employees, by the
absence of social protection or non-payment of social contributions
(mainly health coverage), or the absence of employment benefits.
Individuals who benefit from social protection through the contribution
of another member of the family do not themselves thereby amount to
formal employees; consequently, the definition should relate to the payment of social contributions by the worker concerned rather than their
entitlement to social benefits.
This new extended definition of informality is interesting in that it
meets a practice common in various parts of the developing world (in
Latin America and some Asian countries) where labor force surveys are
often used to collect data on social protection coverage. As a consequence, the absence of social protection has become the main criterion
determining informal employment, in preference to the absence of a
written contract (which applies to paid employees only), and questions
about social protection, especially health protection, have been rapidly
adopted in countries where household surveys are less regular or did
not include such questions. Nevertheless, practices continue to be
diverse across regions and countries; the ideal consists of data collection
through labor force surveys or other household surveys capturing
both informal employment and informal sector employment, but this
remains rare.
Crucially, any satisfactory definition needs to distinguish between the
informal sector and the informal economy. In this chapter the informal
sector is regarded as a component of the informal economy: employment
in the informal economy comprises everyone (whatever their employment status) working in informal enterprises plus everyone working
informally in other sectors of the economy, that is, formal enterprises,
households with paid employees (domestic workers) or own-account
workers producing goods (primary goods or manufactured goods) for
the household’s own final use. This definition diverges slightly from the
ILO compilations (ILO 2011) in that, although it refers to the informal
economy, it does not add up the two components of informal sector
20
j acq ues ch ar mes
employment and informal employment outside the informal sector and
does not propose an indicator for employment in the informal economy.
Employment in the informal economy, as defined in this chapter, is
broader than the concept of informal sector employment. Note, however,
that in analyzing innovation and intellectual property specifically, it is the
definition of the informal sector and its economic units (including subcontracted micro-enterprises and outworkers) that should be kept in
mind rather than the broader concept of the informal economy, as it is
in the informal sector that innovation processes take place, not among
unprotected workers in formal enterprises.
Measuring the contribution of the informal sector and informal
employment to GDP also requires an understanding of where these
activities and jobs are positioned in the various institutional sectors of
the SNA. The informal sector is a sub-sector of the household institutional sector; it is only part of it (and not necessarily the most important
part), and does not belong to any of the other institutional sectors.
Informal employment, on the other hand, cuts across all institutional
sectors, including the government sector, and cannot be defined according to the fundamental economic units of the SNA.
Regarding methods of data collection, and further to the recommendations of the Fifteenth ICLS in 1993, mixed (household/establishment)
surveys have tended to prevail since the 1990s.1 In this type of survey,
households are selected at random and then all or a sample of the
establishments operated by members of those households, from homebased own-account workers to micro and small entrepreneurs, is interviewed through an establishment questionnaire. However in emerging
economies where the micro, small and medium enterprises segment is
growing rapidly, direct sampling of establishments is preferred, combined with a household survey to capture home-based and mobile activities, provided that the density of establishments is known at the country
level from a recent establishment or economic census. In fact, such
economic censuses – which prevailed prior to the implementation of
mixed surveys – have continued to be carried out on a regular basis in
many countries because they are more likely to provide the detailed
information required by national accounts, even though they do not
cover the entire universe of informal activities as they miss home-based
and mobile activities.
1
See Chapter 8 for a fuller discussion of types of surveys.
i n f o r mal eco n o my
21
Trends in Size and Contribution of the Informal Economy
Trends in Employment in the Informal Economy
Although criteria for measuring the informal sector and informal
employment have been introduced into national surveys, policy makers
have sometimes been reluctant to use these terms: as already mentioned,
Kenya prefers to refer to jua kali, and Tunisia has designed policies
addressing crafts and small businesses. However, indicators of informality have been compiled year after year, their size and significance
depending on each country’s social structures, national and local economic policies and its government’s willingness to enforce fiscal or labor
legislation.
Today estimates of informal employment and informal sector employment exist in many countries, sometimes covering long periods. But
systematic and comprehensive worldwide comparisons remain difficult
for at least two reasons. First, harmonization of concepts at international
level remains elusive. Second – and above all – the relationship between
the two concepts of informal sector and informal employment is problematic. They are not mutually exclusive and so cannot just be added
together, but neither does informal employment include the informal
sector in its totality. This is why statistics on informal employment and
informal sector employment are generally presented separately. Statistics
on employment in the informal economy comprise employment in the
informal sector and informal employment outside the informal sector
(i.e. unprotected workers in the formal sector and domestic workers in
households, not to mention people working in the production of goods
for households’ own final use).
Despite such difficulties, macroeconomic estimates of the informal
economy as a share of labor force or production (GDP) have long been
produced by economists and statisticians and have been used for policy
purposes. Many estimates at the national level since the late 1970s exist,
but it was in 1990 that I presented a first tentative international comparison, in the OECD publication The Informal Sector Revisited (Turnham,
Salomé and Schwartz 1990). This first work was updated in 2002 for
Women and Men in the Informal Economy (ILO 2002b), prepared for
consideration by the Nineteenth International Labour Conference (ILC),
and in 2008 for the OECD publication Is Informal Normal? (Jütting and
de Laiglesia 2009). The tables presented in this chapter were prepared for
the 2014 edition of the ILO-WIEGO publication, and updated since then.
22
j acq ues c h ar m es
Table 1.1 Employment in the informal economy as a percentage of
non-agricultural employment by five-year periods in various regions and
sub-regions
Regions
Northern Africa
Sub-Saharan
Africa
Western Africa
Central Africa
Eastern Africa
Southern Africa
Latin America
Southern and
South-Eastern
Asia
Western Asia
Transition
countries
1975–
1979
1980–
1984
1985–
1989
1990–
1994
1995–
1999
2000–
2004
2005–
2010
67.3
34.1
72.5
76.0
47.5
86.9
47.3
63.3
53.0
70.0
39.6
83.0
52.9
52.5
65.2
54.2
69.9
55.9
43.2
20.7
75.6
80.5
65.4
62.7
57.7
69.7
22.6
Source: Charmes (2012), updated with new countries.
Note: Figures in italics are based on too few countries to be representative.
Table 1.1 attempts to assess employment trends in the informal economy by five-year periods over the past four decades. The interpretation of
this table requires three preliminary remarks.
First, the indicator is based on non-agricultural employment while the
definitions of the informal sector, informal employment and the informal
economy include agricultural activities. There are two reasons why an
indicator based on non-agricultural employment has been preferred.
In countries where agriculture is predominant and occupies the bulk of
the labor force (most sub-Saharan African countries and South and East
Asian countries, for example), the share of employment in the informal
economy including agriculture is above 90 percent, and changes over
time may not be visible because of the volume of the labor force.
Furthermore, the importance of change may remain hidden by the
dramatic flows of rural–urban migrations. An indicator based on nonagricultural employment makes these changes more visible: its greater
variability makes it a better tracker of change.
i n f o r mal eco n o m y
23
Importantly in the context of this book, the informal economy covers
a wide range of different activities in different industrial sectors, ranging
from street vendors to informal garment businesses, home-based microfirms, to manufacturing entities belonging to the craft industries as well
as modern types of manufacturing and service activities (such as metalworking or mechanical repairs). The informal goods sub-sector encompasses the production of tangible goods, including agricultural
production and the processing of agricultural and food products, mining
and quarrying, small-scale manufacturing (woodwork, furniture making,
garment making, welding and iron works, among others), building and
construction, while the informal service sub-sector includes transportation and storage, wholesale and retail trade, accommodation and food
service activities, motor vehicle repairs and maintenance, informal education services, health services and counseling services. Informal health
services include traditional birth attendants, herbalists and other traditional medical practitioners, especially in rural areas.
Second, the table is based on estimates prepared according to
various procedures that have changed over time depending on the
availability of sources and data and is therefore far from being homogeneous in definitions and methods of compilation. Sources for the
table are given in detail in Charmes (2009). From the middle of the
1970s to the end of the 1980s/early 1990s, the figures for the first three
five-year periods (in Northern Africa, sub-Saharan Africa and Asia)
mainly result from applying the residual method, which consists of
comparing total employment in population censuses or labor force
surveys and registered employment in economic or establishment
censuses or administrative records; censuses of establishments –
where they exist – make it possible to identify the informal sector,
on the one hand, and informal employment outside the informal
sector, on the other hand. From the beginning of the 1990s, the results
come mainly from the first mixed (household/establishment) surveys
and focus on the informal sector, while in the 2000s labor force
surveys become the main source of data and provide data on informal
employment and employment in the informal economy at large.
Third, another limitation comes from the fact that the set of countries
for which estimates are available varies from one period to another.
Consequently, the average may be non-significant unless at least
a small number of countries are present over all periods.
Despite these limitations, several observations and conclusions can be
drawn.
24
j acq ues c h ar me s
Table 1.2 Employment in the informal economy as a percentage of total
non-agricultural employment by five-year periods in Northern Africa
Regions/
countries/
years
Northern
Africa
Algeria
Morocco
Tunisia
Egypt
1975–
1979
1980–
1984
39.6
21.8
38.4
58.7
56.9
35.0
1985–
1989
1995–
1999
2000–
2004
2005–
2009
2010–
2014
34.1
47.5
47.3
53.0
50.2
25.6
42.7
44.8
47.1
55.2
41.3
67.1
35.0
45.9
45.6
78.5
36.8
51.2
40.7
70.1
40.2
49.6
39.3
37.3
1990–
1994
Source: Charmes (2012), updated with new countries.
Note: Non-weighted averages. Figure in italics refers to informal sector
employment only.
In all regions, the informal economy is on the rise, except in subSaharan Africa where it already peaked in the second half of the 1990s.
Northern Africa (Table 1.2), which is the region where estimates are
the most numerous over the four decades, can be taken as an illustration
of the countercyclical behavior of employment in the informal economy:
it increases when the rate of economic growth is decelerating and contracts when the rate of growth increases. Tunisia is a good example:
starting from a relatively high level (38.4 percent of total nonagricultural employment), employment in the informal economy drops
(down to 35 percent) in the middle of the 1980s, at which point the
implementation of structural adjustment programs induces its rapid
growth until the end of the 1980s (39.3 percent) and even the end of
the 1990s (47.1 percent). Then the informal economy drops dramatically
(35 percent) in the middle of the 2000s with the rapid growth of the
Tunisian economy, and it starts growing again until the end of the 2000s
(36.8 percent), and even more after the 2011 uprising. In Algeria, emerging from an administered and centralized economy, the informal economy grew continuously from 21.8 percent in the middle of the 1970s up
to 45.6 percent at the end of the 2000s, with a small and short decrease
(41.3 percent) at the beginning of the 2000s and a possibly more lasting
decrease since 2011. Morocco is characterized by a continuous increase
in the informal economy from 56.9 percent at the beginning of the 1980s
i n f o r mal eco n o m y
25
up to 78.5 percent at the end of the 2000s, then initiating a decrease, while
Egypt has also experienced countercyclical behavior in the growth of its
informal economy since the end of the 1990s.
Looking at the average for the region, the most recent period is
characterized by a considerable increase in employment in the informal
economy, growing from 47.3 percent at the beginning of the 2000s up to
53.0 percent at the end of the decade.
Table 1.3 groups sub-Saharan African countries by decades in order to
allow more observations for each period; there are eighteen countries for
the 2000s, eight for the 1990s and seven for the 1980s. Of the eighteen
countries for which data relating to the 2000s are available, only six provide
estimates for previous periods, making it difficult to assess the trend for the
region. Figures for the region suggest a continuously growing informal
economy – from more than 60 percent in the 1970s and more than
70 percent in the mid-1980s to more than 80 percent in the 1990s – until
the 2000s, which seem to be characterized by a decrease; but if we compare
the ten countries for which data are available in the 1990s (including
Tanzania and South Africa with data at the very beginning of the 2000s)
with the eighteen countries with data for the most recent period, then the
rate of employment in the informal economy drops fractionally from 72.2
to 71.7 percent between the two periods, a sign of relative stability.
It may be, then, that the informal economy in sub-Saharan Africa has
begun to stabilize or even reduce. This would be consistent with economic growth. According to the IMF, the economic growth rate in subSaharan Africa for the period 2000–2009 averaged 4.6 percent per year,
substantially higher than for the previous periods (2.1 percent during the
1980s and 2.2 percent during the 1990s) and also clearly higher than both
the population growth rate (2.5 percent) and the world economic growth
rate (2.6 percent) (IMF 2010).
In the most recent five-year period, employment in the informal
economy ranges from 32.7 percent in South Africa (a country with
a large base of wageworkers) to 96.3 percent in Benin and 90.5 percent
in Burkina Faso. Generally, the share of employment in the informal
economy seems higher in Central and Western Africa than in Southern
and Eastern Africa (Table 1.1).
In Latin America (Table 1.4), employment in the informal economy
seems on the rise, increasing from 54.2 percent at the end of the 1990s up to
57.7 percent at the end of the 2000s, though this trend could be decelerating in the last period: all countries for which an estimate is available for the
first half of the 2000s have seen their employment in the informal economy
26
j acq ues ch ar m es
Table 1.3 Employment in the informal economy as a percentage of total
non-agricultural employment by decade in sub-Saharan Africa
Regions/countries/years
1975–1979
1980–1989
1990–1999
2000–2010
Sub-Saharan Africa
Benin
Burkina Faso
Cameroon
Chad
Cote d’Ivoire
Democratic Republic
of Congo (ex Zaire)
Ghana
Guinea
Kenya
Lesotho
Liberia
Madagascar
Mali
Mauritania
Mozambique
Namibia
Niger
Senegal
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
63.0
70.0
81.2
92.9
77.0
70.0
96.3
90.5
84.0
70.0
95.2
69.7
77.0
59.6
65.3
63.1
64.4
61.4
86.7
71.6
78.6
80.0
94.1
73.5
76.8
70.7
56.4
73.7
82.7
87.2
43.8
62.9
76.0
58.3
32.7
46.0
73.5
76.3
51.6
Source: Charmes (2012), updated with new countries.
Note: Non-weighted averages. Figures in italics refer to informal sector
employment only.
decrease in the second half except Mexico and Peru. The share of informal
employment within non-agricultural employment ranges from 42.2 percent in Brazil and 42.8 percent in Uruguay to 71.3 percent in Peru,
75.1 percent in Bolivia and 75.2 percent in Honduras.
In Southern and South-Eastern Asia (Table 1.5), employment in the
informal economy has stabilized at around 70 percent of non-agricultural
employment, if the average excludes Mongolia (a country that could be
i n f or mal e co no my
27
Table 1.4 Employment in the informal economy as a percentage of total
non-agricultural employment by five-year periods in Latin America
Regions/countries/
years
Latin America
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Rica
Dominican Republic
Ecuador
El Salvador
Guatemala
Haiti
Honduras
Mexico
Nicaragua
Panama
Paraguay
Peru
Uruguay
Venezuela
1990–1994
1995–1999
2000–2004
2005–2010
52.5
47.5
56.9
60.0
54.2
53.3
63.5
60.0
35.8
38.4
44.3
47.6
53.5
56.6
55.9
60.8
57.7
50.0
75.1
42.2
51.1
74.9
61.4
48.2
48.8
53.5
68.2
56.1
55.5
92.6
58.2
59.4
37.6
65.5
38.8
46.9
50.1
49.4
67.9
43.4
49.4
75.2
54.3
69.4
44.0
70.7
71.3
42.8
48.1
Source: Charmes (2012), updated.
Note: Non-weighted averages.
more appropriately classified among the transition economies). Shares
range from 41.1 percent in Thailand to 84.2 percent in India and
86.4 percent in Nepal.
Countries of Western Asia can be classified with Northern Africa in
the Middle East and North Africa (MENA) region as they present many
similar characteristics, in particular low female activity rates. They have
an average share of employment in the informal economy of around
40–50 percent (43.2 percent in 2000–2004).
Lastly, transition countries (Table 1.6) are making their way out of
their former administered/centralized wage economies and see their
share of employment in the informal economy (still often measured
through the concept of informal sector, as in Russia and Ukraine)
28
j acq ues c h ar mes
Table 1.5 Employment in the informal economy as a percentage of total
non-agricultural employment by five-year periods in Asia
Regions/
countries/years
1985–
1989
1990–
1994
1995–
1999
Southern and
South-Eastern
Asia
Bangladesh
India
Indonesia
Mongolia
Nepal
Pakistan
Philippines
Sri Lanka
Thailand
Timor Leste
Vietnam
Western Asia
Iran
Lebanon
Palestine
Syria
Turkey
Yemen
52.9
65.2
69.9
76.2
39.2
73.7
83.4
77.9
39.0
57.4
70.5
64.6
72.0
51.4
51.5
43.5
41.7
57.1
42.9
30.9
2000–
2004
2005–
2010
69.7*
76.9
84.2
70.0
43.2
48.8
51.8
43.4
30.7
33.2
51.1
26.3
86.4
73.0
73.3
62.1
41.1
62.0
68.5
57.0
31.4
30.1
Sources: Charmes (2012), updated.
Notes: In bold: Non-weighted regional averages.
Figures in bold and in italics are averages based on a small set of countries.
Figures in italics refer to informal sector (and not to employment in the informal
economy).
* Excluding Mongolia.
increasing little by little, from 20.7 percent at the beginning of the 2000s to
22.6 percent at the end of the decade, with maxima in Kyrgyzstan (59.2 for
the informal sector) and Azerbaijan (45.8 percent), and minima in Ukraine
and Russia (9.4 and 12.1 percent, respectively, for the informal sector).
Apart from the transition countries, where it is starting from a low
base, employment in the informal economy represents more than 50 percent of total non-agricultural employment in all developing regions.
i n f o r mal eco n o my
29
Table 1.6 Employment in the informal economy as a percentage
of total non-agricultural employment by five-year periods in
transition countries
Regions/
countries/years
Transition
countries
Armenia
Azerbaijan
Kyrgyzstan
Macedonia
Moldova
Romania
Russia
Serbia
Slovakia
Ukraine
1995–1999
5.4
2000–2004
2005–2010
20.7**
22.6**
44.4
19.8
45.8
59.2
12.6
15.9
21.5
22.0
8.6
4.7
7.0
12.1
6.1
5.9
9.4
Sources: Charmes (2012), updated.
Notes: Non-weighted regional averages. In italics: Statistics on
employment in the informal sector.
**
Excluding Slovakia.
With declining or stabilized trends in sub-Saharan Africa, stabilized
trends in Asia and rather slow increases elsewhere, it seems that there
is a kind of convergence between the various regions at world level.
Clearly, however, not all actors in the informal economy are concerned
with innovation and intellectual property. It is mainly informal sector
operators and their workers that are involved in such processes and
concerns, while precarious informal wageworkers in the formal sector
and domestic workers within households are unlikely to be vectors of any
innovation: sub-contracted micro-enterprises, own-account outworkers
and home-based workers are captured as economic units in the mixed
and establishment surveys aimed at covering the informal economy, and
as such, they are clearly part of the informal sector as defined in 1993.
Table 1.7 summarizes some of the main characteristics of employment
in the informal economy.
Employment in the informal sector accounts for more than 80 percent
of total employment in the informal economy in sub-Saharan Africa and
Table 1.7 Main components and characteristics of non-agricultural employment in the informal economy
by region in 2005–2010
Regions/countries
Informal sector as
a percentage of
employment in the
informal economy
Percentage of
informal workers
outside informal
sector
Percentage of
Percentage of
self-employed in
women in the
the informal
informal economy economy
Percentage of
employment in
industries in the
informal sector
Middle East–North Africa
Sub-Saharan Africa
Asia
Latin America
Transition countries
58.7
80.4
79.4
64.6
50.5
41.3
19.6
20.6
35.4
49.5
16.4
51.1
35.8
46.5
33.2
41.4
24.2
41.7
26.8
18.0
Source: Charmes (2011).
39.9
64.9
53.3
52.1
32.7
informal economy
31
a little bit less in Asia, which means that in these two regions informal
employment outside the informal sector absorbs only 20 percent of the
workers in the informal economy, against nearly 50 percent in transition
economies, 41 percent in MENA and 35 percent in Latin America.
Contrary to popular belief, it is only in sub-Saharan Africa that women
outweigh men in the informal economy, as 51.1 percent of workers; in
other regions they are less likely than men to work in the informal
economy (from 46.5 percent in Latin America to 35.8 percent in Asia,
33.2 percent in transition economies and down to 16.4 percent in
MENA). However, female employment in the informal economy continues to be widely underestimated, especially because their secondary
activities in processing agricultural and food products in rural areas
are not well captured. Self-employment (mainly own-account workers
and unpaid family workers) represents between a third (transition economies followed by MENA), half (Latin America and Asia) and two-thirds
(sub-Saharan Africa) of employment in the informal economy, and
consequently even more in the informal sector. Lastly, industries account
for less than a quarter of total employment in the informal sector in
transition countries, sub-Saharan Africa and Latin America, but more
than 40 percent in the MENA countries and Asia. Conversely, services
(even without trade) are the major component of the informal sector in
transition countries, sub-Saharan Africa and Latin America.
Contribution of the Informal Economy to GDP
As explained above, the informal sector can be clearly identified as a
sub-sector of the unincorporated enterprises within the household institutional sector in the SNA, and its contribution to the GDP can be
measured relatively easily. This does not hold true for informal employment outside the informal sector, which cuts across all institutional
sectors of the SNA and is comprised of (1) informal workers of the
formal sector, (2) domestic workers and (3) subsistence producers in
the primary and secondary sectors. Whereas paid domestic services and
subsistence production for own final use are also components of the
household sector and can be identified in the SNA, informal employment
in the formal sector is never identified in the SNA. Countries that prepare
labor input matrices may estimate this component of total labor inputs,
but they rarely indicate its contribution to GDP (India is an exception:
Kolli and Sinharay 2011a, 2011b).
32
j acq ues c h ar m es
Indeed, in the fourth (SNA 1993) and fifth (SNA 2008, which dedicates
an entire chapter to the informal aspects of the economy: chapter 25)
revisions of the SNA, the informal sector was defined as a sub-sector of
the household institutional sector. As such, its contribution to GDP can
be measured. Informal employment in the formal sector, on the contrary,
is a hidden or non-observed part of the economic units constituting the
other institutional sectors of the SNA. Therefore, it cannot be easily
distinguished from the formal units and estimates are rarely available.
Estimates of the “underground” economy through econometric modeling are interesting (see, for instance, Schneider and Enste 2000;
Schneider 2004; Schneider, Buehn and Montenegro 2010), but the comparison of these results with current GDP is particularly difficult to
interpret because the national accounts already include part of the underground and illegal economy. The fact that private incorporated and
public enterprises may employ informal workers does not mean that
the contribution of these workers is not taken into account in the output
of the firms (unless the goods or services produced are illegal by nature),
although it does have an impact on the value added: supply and use tables
by product are the instruments by which national accountants attempt to
balance production and its uses (consumption, investment), as well as
reconciliation of the three GDP estimates – production, expenditure and
income. Part of the hidden economy – supposedly the major part – that
does not show up in one estimate may show up in one or both of the
others and so justify adjustments in the volume or value of output.
A tentative estimate of the informal sector contribution can be made
for those countries that compile household sector accounts. But the
availability of household accounts is not sufficient; the distribution of
gross value added (GVA) by industry is also required, because production for own final use (not transiting through the market) must be
excluded as it is not part of the international definition of the informal
sector. This can be dealt with by excluding agricultural and related
activities. Also to be excluded are imputed rents and paid domestic
services (which never exceed 1–2 percent of total GDP), while bearing
in mind that – depending on national definitions – some unincorporated
firms may belong to the formal sector within the household sector, but
the necessary data are rarely available; consequently, the results presented
in Table 1.8 remain proxies, but these proxies are acceptable. It is therefore necessary to isolate the informal sector by using the table of national
accounts that cross-classifies GVA by industry and institutional sector.
Although all countries distinguish the various institutional sectors in
i n f o r mal eco n o my
33
Table 1.8 Contribution of informal sector to GDP in various developing
countries: 2000s
Countries (years)
Informal sector
including
agriculture as
percentage of
total GDP
Informal sector
excluding
agriculture as
percentage of
total GDP
Informal sector
excluding
agriculture as
percentage of
non-agricultural
GVA
Northern Africa
Algeria (2003)
Egypt (2008)
Tunisia (2004)
Sub-Saharan Africa
Benin (2000)
Burkina Faso (2000)
Cameroon (2003)
Niger (2009)
Senegal (2000)
Togo (2000)
India (2008)
Latin America
Brazil (2006)
Colombia (2006)
Guatemala (2006)
Honduras (2006)
Mexico (2009)
Venezuela (2006)
Transition countries
Armenia (2008)
Azerbaijan (2008)
Belarus (2008)
Bulgaria (2006)
Estonia (2008)
Kazakhstan (2009)
Kyrgyzstan (2008)
Latvia (2007)
Lithuania (2008)
Macedonia (2008)
Moldova (2008)
35.8
37.9
27.8
41.8
63.6
71.6
55.8
57.6
72.6
51.5
72.5
54.2
29.2
21.6
37.5
36.9
31.5
30.9
17.0
19.5
27.5
17.8
6.7
21.6
10.7
23.0
45.2
11.3
14.1
22.5
20.0
23.9
27.1
14.7
29.8
31.3
33.6
21.7
36.0
29.0
35.1
32.2
38.4
24.0
27.1
30.4
16.9
34.1
50.2
61.8
36.2
46.3
51.5
48.8
56.4
46.3
25.2
29.4
30.2
20.8
32.3
34.0
18.1
15.7
10.7
15.5
12.4
3.4
15.1
9.8
18.7
20.3
9.9
11.8
12.4
11.0
16.3
13.9
19.5
13.1
3.7
16.5
10.1
20.0
27.5
10.2
11.8
14.0
12.3
34
j acq ues c h ar mes
Table 1.8 (cont.)
Countries (years)
Informal sector
including
agriculture as
percentage of
total GDP
Russia (2009)
Serbia (2008)
Slovenia (2005)
Ukraine (2008)
10.6
25.0
19.5
16.4
Informal sector
excluding
agriculture as
percentage of
total GDP
Informal sector
excluding
agriculture as
percentage of
non-agricultural
GVA
8.2
8.6
11.9
12.9
Source: Charmes (2012), updated.
Note: In bold: Non-weighted averages by region.
their national accounts, not all of them present accounts for the institutional sectors in detail, especially by industry. Compilations by the UN’s
Statistics Division, regularly updated, allow us to identify those countries with a detailed household institutional sector (United Nations
2004). Table 1.8 is based on these compilations plus national sources
and a special report by AFRISTAT (1999) on the national accounts of
the West Africa Economic and Monetary Union countries. As far as
possible, “imputed rents” and “private households employing persons”
have been subtracted.
In sub-Saharan Africa, the informal sector including the agricultural
household sector contributes nearly two-thirds of GDP (63.6 percent in
the arithmetical non-weighted mean), with a maximum in Niger
(72.6 percent) and a minimum in Senegal (51.5 percent). Excluding
agriculture, the informal sector represents approximately a third of
total GDP (31.3 percent), with a maximum in Cameroon (36.0 percent)
and a minimum in Burkina Faso (21.7 percent). Moreover, the nonagricultural informal sector is as high as 50.2 percent of non-agricultural
GVA, with a maximum in Benin (61.8 percent) and a minimum in
Burkina Faso (36.2 percent).
In Northern Africa, the contribution of the informal sector including
agriculture is equivalent to just over a third of total GDP (35.8 percent),
or nearly a quarter (23.9 percent) if the agricultural household sector is
excluded. Finally, the non-agricultural informal sector represents 27.1
i n f o r mal eco n o my
35
percent of total non-agricultural GVA. The minima for the three indicators are observed in Egypt (27.8, 14.7, and 16.9 percent, respectively) and
the maxima in Tunisia (41.8, 29.8, and 34.1 percent, respectively).
In India the informal sector including agriculture contributes 54.2
percent of total GDP (2008), and even excluding agriculture the figure
is 38.4 percent. With 46.3 percent of total non-agricultural GVA, the
informal sector stricto sensu is the highest contributor to non-agricultural
GVA among all countries reviewed in all regions.
In Latin America, there are six estimates available, but only four
countries have detailed their household sector accounts by industry.
Only global estimates that include agriculture can be generated for
Brazil and Mexico. The estimates here approximate and assimilate the
informal sector to the household sector (minus subsistence agriculture,
households with employed persons and imputed rents), but national
methodologies and official definitions may be more complex and, in
the case of Mexico and emerging economies, the informal sector is only
a segment of unincorporated enterprises of the household sector.
The informal sector including agriculture represents on average 29.2
percent of total GDP, with a maximum in Colombia (37.5 percent) and
a minimum in Venezuela (17.0 percent). Excluding agriculture, the
informal sector contributes on average 24.0 percent of total GDP (from
30.2 percent in Guatemala to 15.7 percent in Venezuela), and it contributes 25.2 percent of non-agricultural GVA (from 34 percent in
Guatemala to 16.3 percent in Venezuela).
Finally, the transition economies provide the highest number of estimates, from 15 countries. This is not surprising, given that the SNA has
been implemented recently in these former socialist countries, which were
used to applying a specific system of material balances. In applying a new
system, national accountants have tended to follow the rules of the central
framework of the SNA 1993 strictly. The private sector emerged only
recently in the transition countries – paid employment in public enterprises used to be the norm – and it is expected to grow more and more,
especially the micro-enterprises of the informal sector, making it particularly important to try to measure that sector. With an average contribution
of 19.5 percent to total GDP, the informal sector including agriculture is
most significant in Kyrgyzstan (45.2 percent) and least in Belarus (6.7
percent). Excluding agriculture, the contribution of the informal sector
drops to 10.7 percent on average (20.3 percent in Kyrgyzstan and 3.4 percent in Belarus) and to 13.9 percent of non-agricultural GVA (27.5 percent
in Kyrgyzstan and 3.7 percent in Belarus).
36
j acq ues c h ar mes
Sub-Saharan Africa is the region with the largest estimates for the
contribution of informal sector to GDP: nearly two-thirds including
agriculture, one-third excluding agriculture and half of all nonagricultural GVA. It is followed by India with around 50 percent of
total GDP including agriculture and 38 percent excluding it, and 46
percent of non-agricultural GVA. Then come the MENA countries
with, respectively, 36, 26 and 29 percent, Latin America with 29, 24 and
25 percent, and lastly transition countries with 19, 11 and 14 percent.
The informal sector – not only in its broad sense, including agriculture, but also in its strict sense, excluding agriculture – is the largest
contributor to GDP in the regions where agriculture is predominant
(sub-Saharan Africa and Asia).
Assessing trends in the contribution of the informal sector to GDP is
more difficult because changes in values are due only to assumptions by
national accountants and the only noticeable changes are structural,
when a new base year allows radical changes based on updated sources
and new surveys. To a certain extent, all these figures are underestimates because the informal economy in general and the informal sector
in particular are usually characterized by weak statistics, despite recent
progress of which the present compilation is an illustration.
Furthermore, as noted earlier, the contribution of the informal sector
to GDP does not take into account informal employment outside the
informal sector, which is scattered across various institutional sectors.
The volume of this sub-component of the informal economy can be
now estimated in terms of jobs: the question then is how much added
value can be imputed to those jobs. India attempted such an exercise
with its labor input matrix (Kolli and Sinharay 2011a, 2011b).
It estimated that informal employment in the public and private corporate sector stood at 43.9 percent in 2004–2005, contributing 21.6 percent to the GVA of those sectors in the same period (up from
12.1 percent in 1990–2000), and 34.7 percent to the GVA of nonagricultural activities (including the informal sector). But these figures
may be overestimates because they are based on the assumption that the
household sector can be assimilated to the informal sector. While that
may be roughly true in regions with large traditional subsistence agriculture and a small formal sector, it surely does not hold for emerging
economies.
i n f o r mal eco n o my
37
The Social Importance of the Informal Economy
From its very origin, the informal sector has been seen either as
a subsistence sector for the poor or as a potentially dynamic microenterprise sector, depending on the analyst’s perspective.
The latest statistics from the ILO (2011) suggest a negative correlation
between the percentage of employment in the informal sector and GDP
per capita (see Figure 1.1). Moreover, employment in the informal sector
is positively correlated with poverty across countries (see Figure 1.2).
Increasingly, the informal economy is seen as an important economic
pillar and source of livelihood, particularly in developing countries where
unemployment is growing rapidly. Informal activities play a critical role in
alleviating poverty, increasing job opportunities, supplying the formal
sector with intermediary products through sub-contracting arrangements,
and fostering adaptation and innovation. Furthermore, informal activities
address an important segment of otherwise unmet consumer demand,
producing goods for the majority of low-income people. They also reflect
the nature of the personal ties between the participants, defined by norms
and institutions that are in essence non-economic, while it is believed that
“[a] solidary ethnic community represents, simultaneously, a market for
culturally defined goods, a pool of reliable low-wage labor, and a potential
source for start-up capital” (Portes and Sensenbrenner 1993).
However, causal relationships between informal employment, per
capita GDP and poverty cannot be deduced from these observations.
There is no evidence that informal employment does or does not cause
low GDP growth or high poverty rates. It has already been mentioned
that trends in informal employment are generally countercyclical, but the
reality is more complex: the lower tier may be countercyclical while the
upper-tier is procyclical – not to mention informal employment outside
the informal sector, which may be pro- or countercyclical depending on
the rigidity of the contextual legal framework. These three segments may
follow different trends in various different contexts.
While some observers believe informal firms provide useful competition in the economy, recent years have seen increasing concern that such
competition is “unfair,” to the point where the need to transition from
informal to formal economic activity became an agenda item for the 2014
ILC (ILO 2014) and a recommendation has recently been adopted by the
2015 Conference (ILO 2015). Various factors can inhibit informal firms’
productivity, and available evidence shows that efficiency gains could be
derived by transferring production from low-productivity informal firms
Informal employment (percentage of total
non-agricultural employment)
90
MLI
IND
80
MDG
UGA
70
LBR
60
TLS
ZWE
HND
BOL
PER
PRY
SLV
ZMB
VNM
NIC
LKA
ECU
COL
MEX
ARG
VEN
CRI PAN
BRA
NAM
URY
THA
ZAF
AZE
TUR
ARM
EGY
50
40
LSO
30
20
DOM
MDA
MKD
10
SVK
SRB
0
4
5
6
7
8
9
10
GDP per capita (in logarithm)
Figure 1.1 Employment in the informal sector negatively related to GDP per capita, 2010 or latest available year
Source: de Beer, Kun and Wunsch-Vincent (2013), based on data in ILO (2011).
11
Informal employment (percentage of total
non-agricultural employment)
90
IND
80
PRY
70
PER
ECU
60
50
CRI
URY
40
MDG
HND
VEN
DOM
BRA
TUR
30
ARM
20
MDA
SRB
10
0
SLV
COL
BOL
0
10
20
30
40
50
60
70
Population living below the national poverty line (percentage of total population)
80
Figure 1.2 Employment in the informal sector positively related to population living below national poverty line, 2010 or latest
available year
Source: de Beer, Kun and Wunsch-Vincent (2013), based on data in ILO (2011).
40
jacques charmes
to more productive formal firms or by facilitating the formalization of
informal firms (Perry et al. 2007; Jütting and de Laiglesia 2009). A more
or less wide but invisible segment of the informal sector is comprised of
small firms that grow (“graduate”) by multiplication of small units that
remain invisible rather than by increasing their size in one single location: such an intermediary sector is the “missing middle,” which John
Page and William Steel (1986) refer to. Beyond the debate regarding
whether the informal sector should be stimulated or suppressed, it is
certainly toward this intermediary sector that the eyes of economists and
policymakers should turn, because it has proven its capacity to grow and
to be a breeding ground for innovation.
Conclusion
Progress made in defining and measuring the informal economy over
the past four decades now allows us to draw a more comprehensive and
detailed picture of a phenomenon that has long remained ignored,
underestimated and neglected. Two international definitions, the
design of ad hoc surveys and dedicated sets of question in permanent
labor force surveys have all helped considerably in this regard.
However, the two definitions remain non-complementary and it is
necessary to resort to the concept of employment in the informal
economy to reconcile them.
The informal economy supplies a majority of the labor force with jobs
for earning a living or operating small enterprises in most parts of the
world, but with regional specificities: 70 percent in South and South-East
Asia, and in sub-Saharan Africa (with most of these jobs in the informal
sector in these two regions) and 58 percent in Latin America, not even
counting agricultural jobs. Although such bulk employment may equate
to low productivity and low income, an important part of GDP is
generated by these activities: including agriculture, the informal sector
represents nearly two-thirds of total GDP in sub-Saharan Africa, more
than 54 percent in India and nearly a third in Latin America; and
excluding agriculture, it accounts respectively for half, 46 percent and
a quarter of non-agricultural GDP.
Contrary to widespread assumption, women do not outnumber men
in the informal economy except in sub-Saharan Africa: but this finding
suggests that much remains to be done in order to better capture their
economic participation, particularly in processing agriculture and food
i n f o r mal eco n o m y
41
products. The informal economy is, nonetheless, the major supplier of
jobs for women in most regions.
Recent recognition of the importance of informal economic activities
in the functioning of the labor market and in the generation of income
and wealth has encouraged more frequent and detailed data collection,
especially through permanent labor force surveys, so that the informal
economy, with all its components, could become a crucial indicator of
the functioning of the economy as a whole. The different groups of
informal economic operators – micro-enterprises in the informal sector, the self-employed, informal workers in the formal sector and
domestic workers – may follow different pro- or countercyclical trends
at the same time during crises or during periods of growth, and such
diverse behaviors are important to understand in order to design
appropriate and timely policy measures. In this sense, the concept of
the informal economy has come a long way; from defining it in simple
counterpoint to formal economic activity, scholars and analysts have
come to understand it as a continuum in its own sphere and with the
formal sector (see Chapter 2).
One gets a sense of the distance travelled in developing the concept
from the titles and content of the ILO reports submitted for discussion at
the annual ILC: from work on how to promote self-employment (1990)
and concerns about the dilemma of the informal sector (1991) to recent
considerations of decent work and the informal economy (2002a) and the
transition from the informal to the formal economy (2014 and 2015).
The informal sector is challenging, but neither doomed nor about to
disappear. It may well be a strong actor in innovation.
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AFRISTAT 1999. Etude sur l’élaboration d’un socle méthodologique de
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Charmes, J. 1990. “A critical review of concepts, definitions and research on
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Laiglesia, J.R. (eds.), pp. 27–62.
Charmes, J. 2011. “A worldwide overview of trends and characteristics of
employment in the informal economy and informal sector in a gender
perspective,” contribution to the update of the ILO/WIEGO publication
Women and Men in the Informal Economy: A Statistical Picture.
Charmes, J. 2012. “The informal economy worldwide: trends and
characteristics,” Margin: The Journal of Applied Economic Research 6(2):
103–32.
Charmes, J. 2013. Informal Sector, Informal Employment and National
Accounts. Yaoundé, CM, African Group on Employment and Informal
Sector (AGEIS).
De Beer, J., Kun, F. and Wunsch-Vincent, S. 2013. “The Informal Economy,
Innovation and Intellectual Property – Concepts, Metrics and Policy
Considerations,” WIPO Economic Research Working Papers No. 8.
Geneva, Economics and Statistics Division, World Intellectual Property
Organization.
De Soto, H. 1986. El otro sendero. Lima, El Baranco.
Fields, G.S. 1990. “Labour market modelling and the urban informal sector:
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Gerry, C. 1979. “Petty production and capitalist production in Dakar: the crisis
of the self-employed,” in Bromley, R. (ed.) The Urban Informal Sector:
Critical Perspectives on Employment and Housing Policies. Oxford,
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Guha-Khasnobis, B., Kanbur, R. and Ostrom, E. (eds.) 2006. Linking the
Formal and Informal Economy: Concepts and Policies (UNU-WIDER
Studies in Development Economics). Oxford, Oxford University Press.
Hart, K. 1973. “Informal income opportunities and urban employment in
Ghana,” Journal of Modern African Studies 11(1): 61–89.
Hirschman, A.O. 1970. Exit, Voice and Loyalty. Responses to Decline in Firms,
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Hugon, P. 1980. “Dualisme sectoriel ou soumission des formes de production
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ILO 1972. Employment, Incomes and Equality. A Strategy for Increasing
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ILO 1991. The Dilemma of the Informal Sector, 78th session of the
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ILO 1993a. Statistics of Employment in the Informal Sector, Report for the 15th
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ILO 1993b. Report of the Conference, Report of the 15th International
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ILO 2002a. Decent Work and the Informal Economy, Report VI, 90th session of
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ILO 2015. Recommendation 204 – Recommendation Concerning the Transition
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79–89.
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Saavedra-Chanduvi, J. 2007. Informality, Exit and Exclusion (World Bank
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c o m ment 1. 1 adr i an a mat a greenwood
45
COMMENT 1.1
adriana mata greenwood
International Labour Organization2
Professor Charmes introduces the concept of the informal economy by
tracing the various paths of thought that led to the internationally agreed
definitions of the “informal sector,” adopted by the Fifteenth ICLS in
1993, and of “informal employment,” adopted by the Seventeenth ICLS
in 2003. These international definitions were the first attempt at an
international agreement on the subject. They are very flexible, allowing
many different adaptations at national level. Two factors motivated this
lack of rigor at the time: there was not much experience in measuring the
informal economy, and it was believed to manifest itself differently in
different countries. The idea when these definitions were adopted was to
test different approaches at the national level and eventually arrive at best
practices. The result, however, has been that twenty years later national
definitions and approaches to measurement remain highly heterogeneous, resulting in statistics that are not comparable between countries,
nor sometimes even within countries for different points in time.
No consensus between countries is yet in sight, unfortunately. In Latin
America, the ILO has been working together with countries to harmonize
the measurement criteria applied in national labor force surveys and to
agree on a common algorithm to arrive at derived measures. In other
regions the ILO continues to promote the consistent measurement of
employment in the informal economy in order to enhance international
comparability. The release of the Manual on Informality (ILO 2013) and
the organization of regional workshops in Africa, Asia, the Arab region
and Latin America are other means that the ILO has been using to
promote international coherence.
The international definitions of 1993 and 2003 are operational definitions, meaning that they lend themselves to direct measurement through
three types of surveys: household-based surveys, establishment-based
surveys and mixed surveys. The ICLS did not adopt a concept of the
informal economy, although one was adopted by the ILC in 2002 as part
of ILO efforts to promote decent work for workers who are often not
recognized or protected under legal and regulatory frameworks (ILO
2
The views expressed herein are those of the author and do not necessarily reflect the views
of the International Labour Organization.
46
j acq ues ch ar m es
2002). The ILC definition understands informality as non-compliance
with official regulations.3 This is too restrictive for statistical purposes,
where the low level of organization of informal economic units is also
considered, as reflected, for example, in the reliance of informal sector
units on family workers.
As Charmes notes, the ILO now has a global program that aims to
facilitate the formalization of the informal economy. The objective is
to promote the creation of decent jobs in the informal economy and to
preserve these in the formal economy. Activities include, among other
things, extending social security coverage, compliance with legal requirements and the organization of workers and employers, and they target
specific actors of the informal economy, such as micro and small enterprises, domestic workers and workers in non-standard forms of employment. In particular, the ILC adopted in June 2015 the Recommendation
concerning the transition from the informal to the formal economy, which
is meant to be a tool to guide countries in implementing this transition
(see ILO 2014, pp. 21–30).
Charmes also provides global and regional estimates of the share of
employment in the non-agricultural informal economy and of its share of
GDP and GVA. While acknowledging the various limitations of the
estimates, these figures are extremely valuable and confirm the great
importance of the informal economy: it employs most workers in developing regions and its contribution to GDP is fundamental. The figures
also show that the importance of the informal economy is increasing in
almost all regions. However, it should also be noted that it may be
becoming less significant in some countries (ILO and WIEGO 2013), in
response to national policies and programs.
The activities that people and economic units carry out in the informal
economy are very diverse, as Charmes observes, and encompass practically all manufacturing and service activities in the economy. Among this
wide range of activities, however, it is not certain that innovation is
higher in activities related to traditional crafts or that require traditional
knowledge. Clearly, statistics need to be produced, covering all types of
3
It includes “all economic activities by workers and economic units that are – in law or in
practice – not covered or insufficiently covered by formal arrangements. Their activities
are not included in the law, which means that they are operating outside the formal reach
of the law; or they are not covered in practice, which means that – although they are
operating within the formal reach of the law, the law is not applied or not enforced; or the
law discourages compliance because it is inappropriate, burdensome, or imposes excessive
costs.”
c o mmen t 1. 1 adr i an a mat a g reenwood
47
economic activity in the informal economy for us to be certain that
innovation occurs more frequently in these types of activities than in
others. In principle, innovation can occur in any type of activity and can
be carried out by any worker.
Workers in informal economic units are probably innovating all the
time because of the circumstances in which they work. They face unforeseen constraints every day: they often lack necessary tools or equipment,
the materials they have to work with may be deficient or may vary over
time, availability of other resources may be variable and so on. This
means that in order to carry out their work they have to adapt constantly
to the situation at hand, improvising new ways of producing the required
goods or rendering the required services. This in turn results in totally
new articles or services, or in modified versions of existing ones.
It can therefore be said that, in contrast to innovation in formal sector
units, innovation in informal units is the result of an imposed situation
rather than a deliberate activity: workers are obliged to innovate more than
they choose to innovate. In addition, given its adaptive nature, innovation
by workers in informal economic units tends to consist of small incremental changes as opposed to single large changes to products or services,
which may be characteristic of formal sector units. Another distinction
from innovation in the formal sector is that these adaptations often
respond to a precise set of constraints that may change in time and place,
meaning that innovation may not be replicable or useful in another setting.
Charmes is surely correct to argue that in order to quantify the amount
and type of innovation that goes on in the informal economy, it is not
practical to focus on workers; we should instead observe the economic
units where they work. One needs to measure whether activities that led
to innovations in products or services occurred during a specific reference period, and what those innovations were. In order to obtain such
information, the ideal respondent is probably the owner or manager of an
informal sector unit. An owner or manager can report on innovations in
their economic unit, as carried out by themselves, their contributing
family workers or their employees.
Surveys that measure innovation already exist, mostly in OECD
countries,4 and follow the recommendations found in the Manual on
Collecting Data on Innovation (OECD/Eurostat 2005). Unfortunately,
they cover only formal sector units. The Manual does mention informal
4
They aim to obtain information on four areas of innovation: product innovation, process
innovation, organizational innovation and marketing innovation.
48
j acq ues ch ar mes
sector enterprises, but only to say that measuring innovation by them is
very difficult and so it does not provide guidelines for these types of units.
Nevertheless, the questionnaires used in this type of survey could be
adapted to informal sector units, taking into account the specificities of
respondents and of the innovation activities that occur in informal units;
for example, that owners or managers in the informal sector are often less
skilled than formal sector ones, that innovations are made up of small
changes and that they often respond to specific constraints. An adapted
questionnaire might then need to
(a) use simple language;
(b) limit the range of innovation areas for which information is
requested to products and processes;
(c) limit the reference period to a short period;
(d) expressly request information on changes done because of a lack of
proper tools or equipment, raw materials, and so on; and
(e) stress that small changes also need to be reported.
Prior to actually applying such a questionnaire, careful testing would be
needed in order to ensure that informal sector entrepreneurs understood
the questions, those questions were meaningful to their work, they were
able to respond confidently and their responses were valid. An innovation
survey for informal sector entrepreneurs may be applied as a module of an
ongoing household survey, administered to all potential entrepreneurs in
the informal sector as identified from the main questionnaire.
References
ILO 2002. Effect to be given to resolutions adopted by the International Labour
Conference at its 90th Session (2002), (b) Resolution concerning decent
work and the informal economy, ILO Governing Body, 285th Session,
Seventh item on the agenda (Geneva, doc. GB. 285/7/2).
ILO 2013. Measuring Informality: A Statistical Manual on the Informal Sector
and Informal Employment. Geneva, ILO Department of Statistics.
ILO 2014. The transition from the informal to the formal economy. Report V
(1) International Labour Conference, 104th Session, 2015.
ILO; Women in Informal Employment: Globalizing and Organizing (WIEGO)
2013. Women and Men in the Informal Economy: A Statistical
Picture, second edition. Geneva, ILO/WIEGO.
OECD/Eurostat 2005. Oslo Manual: Guidelines for Collecting and Interpreting
Innovation Data, third edition. Paris, OECD/Eurostat.
co mmen t 1. 2 j o h an n es jüt ti n g
49
COMMENT 1.2
johannes jütting
Organisation for Economic Co-operation and Development
Informal employment is the norm, not the exception, in many parts of
the world: more than half of all jobs in the non-agricultural sectors of
developing countries – over 900 million workers – can be considered
informal. If agricultural workers are included, the estimates rise to some
two billion people. Informality is thus a reality for two-thirds of the global
labor force. In some regions, including sub-Saharan Africa and South
Asia, over 80 percent of non-agricultural jobs are informal. On top of
this, the majority of agricultural jobs are also informal, including those of
self-employed farmers as well as the great majority of day and casual
laborers.
Against this background, Professor Charmes’ chapter does three
things. First, it presents the history of the development of the concept
informal economy and its link to sometimes overlapping approaches such
as the informal sector, informality and informal employment. It also discusses the statistical manifestations of those concepts and their development over time. Second, it provides readers with a comprehensive
overview of the size and development of informal employment in relation to overall employment, and of the contribution of the informal
sector to the overall economy. Third, it discusses externalities of the
informal sector when it comes to the “social sphere” and “innovation.”
My comment here will focus on the following three questions:
(1) What main new insights do we gain from Charmes’ analysis, given
the increased focus on this topic in the past decade?
(2) What additional issues should be examined to help us gain
a comprehensive understanding?
(3) What are the implications of this work for the design of effective
policies addressing the complex issues of informal employment and
the informal sector?
Starting with question 1, the main general conclusion is that the informal
economy persists or grows in times of economic distress and financial
crisis as well as when economies are growing. While this general statement requires further nuance, it seems clear that overall positive economic development with real per capita growth, for instance, in Africa,
may not translate into the creation of more and better jobs for the
50
j acq ues c h ar mes
majority, in particular young people. The same seems to hold true for
Asian countries; for example, India and the Philippines. Whether informal employment behaves countercyclically is highly debatable; in fact,
the data provided do not allow for this conclusion. This is particularly
true when we look at the most recent data, for 2010–2014, for Northern
Africa. One might assume that the economic and financial crisis would
have led to a huge increase in informal employment and the role of the
informal sector, but this seems to have been the case only in Tunisia.
Going forward, it would be interesting to do specific research into how
the informal sector was able to play the role of a shock absorber and what
lessons can be drawn from this for public policy.
Another interesting aspect of the paper is the detailed description that
it provides of the contribution of the informal sector to GDP, including
descriptive statistics with again a very comprehensive picture using time
series data as well as covering all regions of the world. Finally, Charmes
describes and explains the various challenges when it comes to measurement and turning the data into statistics – challenges that hugely impact
the overall reliability of the data.
Turning to the second question, the emerging consensus is that informal employment may be voluntary or involuntary. Gary Fields’ pioneering work (1990, 2005) laid the foundation of a model that divides
informal employment into two segments: a minority of entrepreneurs
who opt to work informally, basically to avoid paying taxes and social
security contributions and to evade regulation, and a large majority of
workers who are forced into the sector, making up the lower tier of
informal employment. The latter face very bad working conditions and
little or no chance to work their way to a better job.
Certain groups, such as young people and women, require specific
attention as they are over-represented among the informally employed.
Women seem to be disproportionately involved in the most vulnerable
forms of informal employment (Jütting, Luci and Morrisson 2011). Until
recently, researchers and policy makers concentrated chiefly on gender
differences in labor-market participation and the barriers that women
face in employment. Although this remains an important concern,
a second aspect of labor-market outcomes should be added: gender
differences in the quality of jobs and inequality of access to good, secure
and well-paid jobs. Understanding why women are over-represented in
informal work is of primary importance for designing more effective
policies that allow a country’s workforce, including women, to engage in
comment 1.2 johannes jüt ti n g
51
productive activities. Furthermore, there is a need to better understand
the predominance of informal employment among the youth.
Informal employment can result both from people being excluded
from formal jobs and from people voluntarily opting out of formal
structures. In many middle-income countries, for example, incentive
structures drive individuals and businesses out of the formal sector.
In Latin America, formal workers are often required to pay for
a mandatory bundle of benefits, some of which they do not want.
Likewise, many businesses opt out of the formal structure because inefficiencies in business registration and social security administration inflate
the costs of remaining in the formal economy.
What kind of policy lessons can be drawn from this analysis in order to
better deal with persistent informal employment and the informal sector
from the perspective of workers?
A better understanding of the complexity of informal employment and
a more nuanced approach to addressing the specific needs of informal
workers are urgently needed. Informal employment comprises different
phenomena that require distinct policy approaches. A critical first step is
to identify the types of informal employment present in a country.
A three-pronged strategy can then be adapted to the situation in that
country:
(1) For the world’s poor, working informally is often the only way to
participate in the labor market. Policies should thus try to unlock
these people from their low-productivity activities, enable them to be
more productive and provide them with opportunities to climb the
social ladder. Specific recommendations include active labor-market
policies such as training and skills development programs that reopen the doors to the formal sector.
(2) Where informal employment is a deliberate choice to avoid taxes or
administrative burdens, governments should aim to establish efficient formal structures that encourage people to join or rejoin the
formal market – structures that offer the same or higher levels of the
flexibility and efficiency that informal channels may provide. In this
way, informal workers, who frequently have strong innovation and
growth potential, can more effectively contribute to a country’s overall competitiveness. Targeting those who voluntarily opt out of the
formal sector also involves establishing credible enforcement
mechanisms. Spending more resources on labor inspections, for
52
j acq ues c h ar m es
example, may help to identify law-breakers and increase compliance
with a country’s rules and regulations.
(3) In many low-income countries, informal employment is mainly
a consequence of insufficient job creation in the formal economy.
While global employment levels have largely followed the growth in
working-age populations, there is a need for a general push for more
employment opportunities within the formal sector. Governments
should support small businesses in complying with formal requirements and encourage large companies to create formal employment
opportunities.
Targeted policies can do much to reduce the level of informal employment in a country, but they are no substitute for trust. A thriving
informal sector is, above all, an expression of a lack of trust in public
institutions, a negative perception of the role of the state and limited
understanding of the benefits of social security. It is basically a sign of
a broken social contract. Restoring that contract requires a change in
people’s attitudes and beliefs. More innovative policies, such as information campaigns on the benefits of formal work and the risks of informal
employment, can prompt that kind of change.
References
Fields, G.S. 1990. “Labour market modelling and the urban informal sector:
theory and evidence,” in Turnham, D., Salomé, B and Schwarz, A. (eds.),
The Informal Sector Revisited (Development Centre Seminars Series).
Paris, OECD Publishing.
Fields, G.S. 2005. A Guide to Multisector Labour Market Models (Social
Protection Discussion Paper Series no. 0505). Washington, DC, World
Bank.
Jütting, J., Luci, A. and Morrisson, M. 2011. “Why do so many women end up
in bad jobs? A cross-country analysis,” European Journal of Development
Research 24: 530–49.
2
Innovation in the Informal Economy
jeremy de beer, kun fu and sacha wunsch-vincent
Introduction
As Chapter 1 showed, the central economic and social role of the
informal sector is increasingly appreciated. Yet while evidence shows
that informal entrepreneurs can drive innovation, research on innovation in developing countries has been devoted mostly to formal sectors,
organizations and institutions. What is lacking are studies assessing the
role of innovation emanating within and from the informal sector. Who
is the archetypical innovator in the informal economy? What types of
innovations are generated? What is different from what one would
encounter in the formal economy?
Finding answers to these questions is a new field of research. On the
one hand, the literature devoted to the study of the informal sector does
not directly address the topic of innovation. In fact, the ability of the
informal economy to do “new things in a different way,” its inventive
ingenuity, rarely features as a topic at all. On the other hand, the equally
vast literature on national innovation systems in countries at different
stages of development largely overlooks the informal sector.
The objective of this chapter is to push the boundaries of research in
this field, first by conceptually integrating so far separate analyses of
innovation and the informal economy and second by using research
methods not often used by those studying the economic and employment
aspects of innovation or the informal economy. The findings are based on
an analysis of the existing literature, but more importantly on analytical
fieldwork conducted for this book in three countries, and in the context
of research undertaken by the Open African Innovation Research (Open
AIR) network.1
1
www.OpenAIR.org.za.
53
54
j e r e m y d e beer , kun f u an d sacha wu nsc h- vinc ent
Defining Innovation
At the outset, it is important to establish a clear conceptual understanding of innovation. Often innovation is equated with research and development (R&D) – intensive technological breakthroughs or, in IP circles,
patentable inventions. In the context of this book, however, a broader
and deeper understanding of innovation is needed.
One does not need to reinvent the wheel for this purpose. In high- and
low-income countries alike, for measurement purposes, innovation is
now understood as the “implementation of a new or significantly
improved product (good or service), or process, a new marketing method
[e.g. a novel product design], or a new organizational method in business
practices, workplace organization or external relations” (OECD/Eurostat
2005, p. 46). This definition includes incremental innovations that are
new to the firm or new to the country.
According to this well-established innovation framework, innovation activities could include the acquisition of machinery, equipment,
software and licenses, engineering and development work, design,
training, marketing and R&D where undertaken to develop and/or
implement a product or process innovation. Motives to innovate
include the desire to increase market share or enter new markets, to
improve the product range, to increase the capacity to produce new
goods and to reduce costs.
While the above characteristics mainly describe innovation in relatively developed countries, they have also been adapted to developing
countries and provide a good conceptual guidepost for studies of innovation in the informal economy.
However, measures of innovation based on the conventional definition given above may not always be appropriate in the context of developing countries or activities in the informal sector. Generally, definitions
of innovation in developing countries posit it as a way to improve
people’s lives by transforming knowledge into new or improved ways
of doing things in a place where, or by people for whom, they have not
been used before (Kraemer-Mbula and Wamae 2010a). In Chapter 8 of
this book, we examine how existing metrics, survey instruments, notions
of collaboration and linkages, and impact assessment tools apply – or do
not apply – in this setting.
i n n o v at i o n i n t h e i n f o r ma l e c onom y
55
What We Know about Informal Sector Innovation
in Developing Countries
Clearly, innovation-driven growth is no longer the prerogative of highincome countries. Fostering innovation is now firmly on the agenda of
many low- and middle-income countries to spur economic and social
development (Lundvall et al. 2009; Gault 2010; Hollanders and Soete
2010; NEPAD 2010; Dutta et al. 2015).
The fact that innovation should not be equated simply with
R&D-intensive technological breakthroughs or patentable inventions is
important in this context.
It is notable, however, that for the most part, studies and metrics of
innovation in developing countries focus on large-scale, formal sector
R&D activities, organizations and institutions.
Several insights can be drawn from this literature.2 Generally, there is
a lower level of science and technology (S&T) activity in developing
countries than in developed countries, in part due to human capital
and infrastructure constraints. Often, government and international
donors are the main funders of S&T. National public research organizations are the main R&D performers. Also, government S&T expenditures
often focus on agriculture rather than on engineering or industrial
research. There is a lack of applied research, a deficit of trained engineers
and scientists, weak technological capability and mostly inadequate
scientific and technological infrastructures in these economies.
Limited science–industry linkages are explained by the low absorptive
capacity of firms and an ensuing lack of “business” demand for S&T.
Questions also persist about the relevance of research to the business
sector. Finally, there is a lack of policies and institutional structures
necessary to facilitate the establishment of new firms, as well as constrained access to financing.
While assessments of innovation systems in developing countries have
produced a number of important insights, the informal sector is usually
not considered a potential source of innovation. As noted by Maharajh
and Kraemer-Mbula (2010, p. 138),
The informal sector, especially in developing countries, comprises millions of enterprises that operate under extreme conditions of survival,
scarcity and constraints. The dynamics of innovation in the informal
sector, which is most extensive in developing countries, are largely
2
For a summary of this literature, see WIPO (2011).
56
j e r e m y d e beer , kun f u an d sacha wu nsc h- vinc ent
ignored in the literature on both developing and more developed economies. Yet disregarding the role of such innovation in developing countries
produces misleading, asymmetrical or ineffective innovation strategies.
At best, the limited literature focused on innovation in the informal
economy has concentrated on the “development of technological capacity” and/or the purchase and use of machines to produce a given set of
outputs (ILO 1972, 1992).
To be fair, an economic literature has developed that focuses on urban
informal entrepreneurs in developing countries (Nordman and
Coulibaly 2011; Ouedraogo et al. 2011; Grimm, Knorringa and Lay
2012; Grimm et al. 2012; Thai and Turkina 2012). The group of researchers involved in these studies consists mostly of labor economists who
have continually improved the methods for surveying informal sector
firms via better questionnaires and better sampling and data collection
strategies (Joshi, Hasan and Amoranto 2009). However, these studies
generally do not focus on innovation, neither explicitly nor – for the most
part – implicitly.
In addition, a fast-growing body of recent research has begun to
identify innovation in low-income economies. Many terms and definitions have emerged in this context: “grassroots” innovation, “base-ofthe-pyramid” (BoP) innovation, innovation “for the poor by the poor,”
“frugal,” “jugaad” and “inclusive” innovation are just some examples that
are relevant to this study of the informal economy,3 although these terms
are not synonymous (Gupta 2013). Some of this literature focuses on
serving low-income populations through innovations on the consumption side, namely radically lower-cost goods and services that meet poor
people’s ability to pay, thus providing business strategies for global firms
entering emerging markets (Radjou, Prabhu and Ahuja 2012). Other
studies look at the actual experiences and perspectives of “knowledge
rich – economically poor people,” explaining how groups such as the
Honey Bee Network have helped to catalog 140,000 grassroots innovations throughout India during the past twenty years (Gupta 2012b). This
blossoming part of the literature increasingly encapsulates the study of
the informal sector, though often without defining it as such.
Innovation in the informal sector is also largely overlooked in the
available survey data. Even in those countries and regions for which
surveys of the informal economy exist – for example, establishment
3
See, for example, Gault et al. (2012), pp. 23–32; Gupta (2012a, 2012b), pp. 28–39; and
Radjou, Prabhu and Ahuja (2012).
i n n o vat i o n i n t h e i n f o r mal e c onom y
57
or enterprise surveys and mixed surveys along the lines discussed in
Chapters 1 and 8 of this book – the information gathered about
informal employment and economic units is not directly related to
innovation. Such data cover matters such as the socio-demographic
characteristics of workers, terms of employment, wages and benefits,
and the place of work and working conditions. Survey data and
analysis that focus on firms relate to, for example, the size, type and
industry of enterprise; bookkeeping and accounting practices of
enterprises; input purchasing and investment; sales and profits; access
to credit, training and markets; forward and backward linkages; major
difficulties encountered in developing the business; and demands for
public support (ADB 2011). One exception aside – see Fu et al.
(2014) for work surveying formal and informal textile firms in
Ghana carried out in parallel to the fieldwork underlying this
book – there has been no survey specifically examining innovation
in the informal sector.
Partly in consequence, few existing innovation or S&T policy frameworks do target innovation in the informal economy (see Chapter 7 of
this book and IDRC 2011).
In the following section, the innovation system approach is used to
overcome the current knowledge gap and distil the main characteristics
of innovation in the informal sector.
Analyzing Informal Innovation Systems
Whether exploring innovation within a conventional, formal paradigm
or in the emerging context of informality, there is a consensus that the
analysis of so-called innovation systems is required (see, e.g. Nelson
(1993), Freeman (1987) and Lundvall (1992) on the innovation system
literature).
This systemic approach takes a broader understanding of innovation,
beyond R&D, taking into account the role of firms, education and
research organizations and S&T policies and including the public sector,
financing organizations and other actors and elements that influence the
acquisition, use and diffusion of innovations (Freeman 1987; Lundvall
1992). Understanding innovation as a systemic process puts emphases on
its interactive character, the connections among actors involved in innovative activities and the complementarities that emerge between incremental, radical, technical and organizational innovations in the context
58
j e r e m y d e beer , kun f u an d sacha wunsc h- vinc ent
in which they emerge. Innovation systems thus evolve as the result of
different development trajectories and institutional evolution – with very
specific local features and dynamics.
The existing literature building on the innovation system approach has
largely been applied in high-income countries and the formal sector, but
researchers are now starting to apply and modify the innovation system
framework to the conditions of developing countries, where economic
activities are largely informal (Kraemer-Mbula and Wamae 2010b, Gault
et al. 2012; Konté and Ndong 2012; WIPO and IERI, 2012). Funding
agencies also increasingly appreciate the need for better understanding
of – and support for – the linkages between the supply of new ideas from
research and the demand for those ideas by local economies (Rath et al.
2012).
Usefully, this more recent work in developing countries also stresses
the importance of the localized character of systems of innovation
(Cassiolato and Lastres 2008). For instance, the work of the Research
Network on Local Productive and Innovative Systems (RedeSist) in
Brazil has highlighted the local dimension of innovative and productive
processes, aiming to identify challenges in and concrete opportunities
for fostering local development (see also Soares, Scerri and Maharajh
2013). These systems range from the simplest, most modest and disjointed to the most complex and articulated (De Matos, Soares and
Cassiolato 2012). They include actors with (a) different dynamics and
trajectories, from the most knowledge intensive to those that use traditional or indigenous knowledge, and (b) different sizes and functions,
originating in the primary, secondary and tertiary sectors and operating
on a local, national or international plane (De Matos, Soares and
Cassiolato 2012). This work provides a useful platform for incorporating a set of economic, political and social actors, including informal
entrepreneurs that mainly operate “locally” in relatively small geographical territories.
Figure 2.1 illustrates how the informal economy would fit within such
a “local innovative and productive system” framework, alongside the
formal sector, suppliers, users and broader innovation parameters such
as the economic and social context, the productive and national Science,
Technology and Innovation (STI) infrastructure and relevant policies
and regulations.
At the core of this framework, we find a diverse range of productive
structures in developing economies. These comprise formal and informal
suppliers exchanging goods, services and knowledge with formal and
Geopolitical, social and
international context
Industrial policies,
STI policies
National STI
infrastructure
Productive
infrastructure
FORMAL
INFORMAL –SEMI FORMAL
Support and
promotion
organizations
Financing
organizations
Support and
promotion
organizations
Financing
organizations
Training,
education,
certification
Representation,
civil society,
NGOs
Training
organizations
Representation,
associations
Formal
suppliers
Informal
suppliers
Main
informal
productive
activity/
nucleus
Formal market,
distribution and
commercialization
Informal market,
distribution and
commercialization
Final
consumer/
user
Service providers
Flows of goods
and services
Information
flows
Productive chain
Social, political
and civil orgs
Figure 2.1 The informal economy in a local innovation framework
Note: Adapted from De Matos, Soares and Cassiolato (2012). Erika Kraemer-Mbula with comments from Christopher Bull, George Essegbey
and participants in the International Workshop on “Innovation, Intellectual Property and the Informal Economy,” Pretoria, South Africa,
November, 2012.
60
j e r e m y de beer , k un f u an d sa ch a w u n s c h- v i n c en t
informal businesses (in agriculture, manufacturing or services), which in
turn transform those inputs into goods and services that are distributed
and commercialized through both formal and informal channels until
they reach the final customers or users. This diverse productive system in
developing countries is largely populated by micro and small enterprises,
and the majority of them are informal.
The flows of goods and services around micro and small enterprises
tend to remain in their immediate locality, especially in a context where
insufficient infrastructure (both physical and digital) may limit the geographical coverage of productive activities. Similarly, the information
and knowledge that is assimilated and used by productive organizations
also tends to remain local. These knowledge flows would involve what are
commonly known as the formal organizations – comprising training and
education organizations, banks and other financial organizations, as well
as formal representative associations, non-governmental organizations
(NGOs), community-based organizations (CBOs) and the like. There are
also relevant organizations that may not hold a legal status but have some
degree of structure and often membership, such as associations of traditional healers, apprenticeship training organizations and so on. It is
inherently difficult to delimit these types of organizations, but they are
nonetheless very relevant in shaping and steering knowledge flows,
especially at the local level. In this respect, the local innovation system
encloses the space where learning processes happen, productive and
innovative capabilities are created and tacit knowledge flows are
exchanged. In their context, therefore, territory, history and cultural
context do matter.
Also importantly, as the figure illustrates, the informal economy is not
disconnected from the range of economic and productive actors surrounding it. It interacts with and is influenced by parameters that are
shared by formal sector innovation actors and networks. Moreover, the
formal sector is impacted by the presence and activities of the informal
sector as well. The most appropriate conceptualization of the informal
economy (IE) is as a continuum from formal to informal, where different
activities and actors occupy different places along the continuum.
The transition from informal to formal status is gradual; single firms,
households and workers may carry out some activities informally and
others formally at the same time. In some circumstances, the IE competes
with the formal sector. Often, however, the IE produces for, trades with,
distributes for and provides services to the formal economy, interacting
symbiotically (see Box 2.1).
i n n o v at i o n i n t h e i n f o r mal e c onom y
61
box 2.1 evolving understanding of the informal economy
Traditionally, formal and informal firms and their characteristics have been
juxtaposed as extremes on two opposite sides of a spectrum.
A typified view of the informal sector firm retained the following characteristics: (i) low entry requirements in terms of capital and professional qualifications; (ii) a small scale of operations, often with fewer than five employees; (iii)
unskilled labor/skills often acquired outside formal education; (iv) laborintensive methods of production and simple/adapted technology; (v) scarce
capital, low productivity and minimal saving; (vi) an unregulated and competitive
market; and (vii) family ownership of enterprises.
These characteristics were often contrasted to the somewhat idealized characteristics of formal firms, which are often presented as having the exact opposite
characteristics, that is, large scale of operations, skilled labor, capital-intensive
production and so on (ILO 1972; see Table 2.1).
As argued above, the more appropriate conceptualization of the informal
sector is to look at it as a continuum, from formal to informal, where different
activities and actors occupy different locations along the continuum. In reality,
small firms in the formal sector probably share many commonalities with firms of
the IE as to what innovation and the use of appropriation mean. The transition
from informal to formal enterprise status is also gradual; indeed, single firms and
single households/workers can carry out some activities informally and others
formally at the same time.
The degree of informality, the type of activity, the technology used, the profile
of the owner and the market characteristic in which the informal sector firm
operates vary significantly from one firm to another. Some IE actors are single
street traders with limited education and skills who essentially operate for subsistence. Others can be unofficial firms with labor-intensive or more knowledgeintensive operations. The latter can operate in markets with high barriers to entry
and capital requirements and can be dynamic businesses with wage employment.
In some sectors, firms in the IE are perceived to be more competitive than
those in the formal sector. Indeed, firms may prefer to remain small and informal,
rather than large and formal, if they perceive advantages in doing so. Such
advantages may include greater agility to respond to changes in the technological
or competitive landscape, or resilience in the face of systemic macroeconomic
risks and adversity such as the recent global economic crisis.
Often, the IE produces for, trades with, distributes for and provides
services to the formal economy. In some circumstances, the IE competes
directly with the formal sector, at times with an unfair advantage, for
example, because of tax or regulatory avoidance (Banerji and Jain 2007).
In other circumstances, formal and informal actors and activities interact
(Thomas 1995; United Nations 1996). Also, these informal firms often
Table 2.1 The flawed juxtaposition of informal versus formal enterprises
Informal firms
Formal firms
Business size
Start-up capital/ qualification
Factor of production
Work conditions
Skills
Small – fewer than five workers/paid employees
Low – easy to start a business
Labor intensive
Unprotected by contracts, social welfare or unions
Skills passed on through informal apprenticeships
Raw materials
Infrastructure
Resources
Selling price
Demand
Quality
Proximity to consumers
Profit
Medium of exchange
Market linkages
Scrap from formal and informal sources
Unreliable power and insecure premises
Limited access to capital goods and funding
Affordable to local population
Low
Low-quality goods
Close
Low
Cash
Poor distribution network, fragmented informational
environment
Adapts well to market conditions
Efficiency through coordination among businesses
Risk avoiders
Embedded in social relations
Large – greater than fifty workers
High – difficult to start a business
Automated production
Protected by contracts, social welfare and unions
High-level skills from formal training
institutions
New from local and imported sources
Reliable power and secure premises
Extensive access to capital goods and funding
Out of reach of local population
High
High-quality goods
Distant
High
Cash and bank credit (e.g. credit card)
Well-established distribution network
Flexibility
Efficiency
Risk attitude
Culture
Difficult to adapt
Efficiency through vertical integration
Risk takers
Relies on impersonal written rules of the firm
i n no v at i o n i n t h e i n f o r ma l e c onom y
63
have direct backward or forward linkages with the formal sector.4
Individuals switch between formal and informal work or, in many
cases, engage in both types of activities. These linkages are important
for understanding how firms “graduate” from an informal to a formal
status (Charmes 2009) – not least because the economic literature suggests that informal enterprises that have links to the formal sector are
more profitable and dynamic than those that do not (Grimm et al. 2012).
This framework has been applied in the field research underlying this
book.
The lessons generated are summarized in the following sections of this
chapter. Importantly, the informal economy and its various sub-sectors and
clusters are above all extremely diverse, as was noted in Chapter 1.
The heterogeneity of the informal sector has been one of the most fundamental findings of research on this topic for decades (Mead and Morrisson
1996).
Naturally, the diversity of the informal economy is also reflected in the
innovation that goes on within it. Innovation activities are extremely
diverse, as are the sources of knowledge, learning and innovation that
shape and diffuse them. Broad generalizations about the entire informal
sector must therefore be treated with caution. The incidence, characteristics, role and impact of innovation vary widely across the wide spectrum of
varied informal economy clusters and sub-sectors. The findings presented
in this book bear witness to the great heterogeneity that exists among
informal firms within and across different sectors in terms of not only
technological capabilities and capital endowment but also their interactions
with the formal sector (see also Kraemer-Mbula and Wamae 2010a).
This in itself is not necessarily surprising or a source of concern.
Innovation in the formal sector also varies greatly across firms, sectors
and regional clusters.
More generally, the findings in this book suggest that differences
between formal sector and informal sector firms may be overstated.
Empirical studies often conclude that informal firms behave much like
a “normal firm” with formal skills but that they operate under various
market imperfections. Furthermore, informal enterprises in developing
countries are often as technologically innovative as their formal sector
counterparts, or even more so. Clearly, both formal and informal
4
Backward linkages from the informal sector involve trading of goods produced in the
formal sector by the informal sector so that informal traders act as a link between formal
producers and customers. Forward linkages from the informal sector involve the production of goods and services in the informal sector for use in the formal sector.
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j e r e m y de beer , kun f u an d s acha wu nsc h- vinc ent
enterprises are affected by the same “backdrop” that characterizes
a developing-country economy – the institutional structures/constraints
that may hinder access to financial resources, skills of the workforce,
access to training, facilities, and other essential factors. In addition,
however, mainstream producers in the formal economy actually often
overlook many local needs, either because the market is not attractive
enough to make a profit or because a certain product cannot reach the
local market due to some technology, skill or environment-related constraint. Often, too, formal sector firms operate in rather uncompetitive
markets with no incentive to innovate. Finally, they often lack absorptive
and technical capacities and skills to innovate.
With these caveats in mind, the following insights into firms and
innovation in the informal sector emerge from the fieldwork undertaken
for this book and other recent research.
Firm Typology in the Informal Sector
Classifying entities in the informal sector into clearly distinguishable and
markedly different groups has conceptual and practical appeal.
The literature often classifies the informal sector into two clearly distinct
segments, the so-called lower tier and upper tier (House 1984; Fields 1990;
Mead and Liedholm 1998; Nichter and Goldmark 2009). The upper tier is
characterized as having a growth orientation whereas lower-tier entrepreneurs are focused on survival (Grimm, Knorringa and Lay 2012).
Evidently, informal sector actors of the lower tier have different characteristics from upper-tier actors with respect to firm demographics, profitability, growth prospects and linkages with the formal sector (Ouedraogo
et al. 2011). A bifurcation between a rather small group of successful
entrepreneurs and a larger group of firms that struggle to survive is the
evident result (Grimm, Knorringa and Lay 2012).
This binary classification is not perfect. Indeed, detailed empirical
studies focusing on firm characteristics in the informal economy and
our own fieldwork and survey results suggest that one can really distinguish three types of entities in the informal economy. In this updated
framework, the so-called lower tier must be further subdivided between
entrepreneurs who simply struggle to survive and those who have a more
systematic approach to business organization and relevant profitability,
but do not yet meet the criteria for membership of the small upper tier.
As noted by Grimm, Knorringa and Lay (2012), who summarize the
literature in this regard: “the typical informal entrepreneur, also in
i n no v at i o n i n t h e i n f o r ma l e c onom y
65
non-dynamic economies in Africa, should not too easily be labelled
a survivalist waiting for a job opportunity, without entrepreneurial capacities or growth potential. We . . . show that among those entrepreneurs
typically considered survivalists – mainly because they operate with very
little capital and generate low profits in absolute terms – there is
a substantial share of entrepreneurs with business skills and an entrepreneurial behavior that resembles [that] of upper tier entrepreneurs.”
As Maloney (2004) notes, self-employment instead often serves as the
“unregulated developing country analogue of the voluntary entrepreneurial small firm sector in more developed countries.”
Following this three-tier approach, a study of the informal sector in
West Africa covering Benin, Côte d’Ivoire and Togo by Grimm,
Knorringa and Lay (2012) identifies three sets of firms: (i) a limited
number of high-growth firms referred to as “top performers”; (ii)
a greater number of small structures with particularly high returns on
investment but little capacity to expand, referred to as “constrained
gazelles”; and (iii) a majority of firms termed “survivalists” that are
essentially concerned with making a minimum of income for subsistence
and are generally unable to consider making significant strides in more
formal innovation (see Table 2.2). “Constrained gazelles” are mainly
constrained by their business environment and thus external factors –
lack of access to capital, insurance and productive infrastructure – rather
than internal constraints such as education and specific business skills.
Concerning the upper tier, only a minority of firms in the informal sector
can aspire to experience significant growth in revenue, to reinvest these
proceeds and to have the luxury of thinking more systematically about
various forms of product, process, organizational or marketing innovation.
These firms are close to the formal end of the informal–formal spectrum,
Table 2.2 Typology of informal sector entities in West Africa
Upper
tier
Middle
tier
Top
performers
Constrained
gazelles
Lower
tier
Survivalists
Better-off, growth-oriented entrepreneurs with high
capital stock and medium to high return.
Share many characteristics with top performers,
including high capital returns, but face low capital
stocks and constrained growth.
Share little or no characteristics with top performers;
face low capital stock and low return.
Source: Adapted from Grimm, Knorringa and Lay (2012).
66
j e r e m y de beer , k un f u an d sa ch a w u n s c h- v i n c en t
with significant scale, an established firm structure and organization, significant revenues and ability to invest, and overall rather formalized transactions and links to the formal economy. At the top of this scale, there are
even dynamic, high-growth informal firms that operate in modern hi-tech
industries (Günther and Launov 2006).
The findings of the country fieldwork for this book show that the
great majority of firms are micro and small enterprises, clearly different from those upper-tier firms with fast growth, profitability,
capital and other investments, and an established and growing organizational structure.
Evidence from the home and personal care sector in South Africa – see
Chapter 4 in this book – reveals that the majority of firms in the sector are
micro-enterprises, with about 90 percent of the companies comprised of
just the owner or only one or two employees. Most informal enterprises
had been established recently (60 percent were between one and three
years old) and reported low turnover. The fieldwork on Ghana’s herbal
medicine sector described in Chapter 5 shows similar patterns.
Traditional Medicine Practitioners (TMPs) are predominantly micro or
small entrepreneurs; 70 percent of TMPs sampled in the study have no
more than five employees.
The studies also show that only a minority can be regarded as upper
tier. Few actors can be associated with highly innovative firms that
increase their scale and scope. Indeed, only a handful of entrepreneurs
in small businesses have formalized their practice and set up modern
enterprises for the production and supply of herbal products.
Undeniably, most micro-firms do not grow their business. Kabecha
(1998) even argues that in the informal sector technology has often
been used to maintain the market, not expand it.
Yet if one adopts a broad understanding of innovation as applied in
this book, it is not necessarily reserved to the upper tiers of the economy.
While categorizing some firms as upper tier is useful, the spectrum of
informal economy firms is large and quite fluid, so any classification must
be used with care.
The dominance of micro-firms and the lack of firms with significant
revenue growth does not mean that innovation is not taking place in the
informal economy. While individual firms in specific informal sectors may
be small, they are part of a broader, highly dynamic cluster or network of
entrepreneurial firms with overall medium- to large-scale operations.
A number of entities harbor the potential for innovative activities, as
a strong entrepreneurial dynamism is present despite low capital stocks.
i n n o v at i o n i n t h e i n f o r ma l ec onom y
67
Education, Training and Knowledge Spillover
Micro-entrepreneurs generally tend to acquire knowledge and skills on
the job in the form of “learning-by-doing,” “learning-by-training” and
through apprenticeships in formal or informal workshops.
The customary view is that learning and innovation in the informal
economy are often based on apprenticeships where senior artisans train
younger ones. A significant, often anthropologic, literature has been
devoted to the study of these apprenticeships and the passing of knowledge (King 1974; Charmes 1980).
This model of learning and skills diffusion via apprenticeships is still
operational today (Kinyanjui 2008). For example, a study of automotive
artisans in Uganda as part of the Open AIR project shows that senior
artisans help relatives or friends out of generosity; in return young
artisans who are eager to learn provide cheap labor (Kawooya 2014).
Once they master particular skills, the senior artisans assign them to
specific tasks. When their training is completed, junior artisans often
leave and perform similar tasks in close geographical proximity, raising
important issues of how know-how and innovations are appropriated by
the original inventor. Junior apprentices acquire know-how in the course
of apprenticeship and then go on to improve processes. At times, an
apprentice has been reported to “steal” the master’s secrets (Charmes
1980). When that is done, he or she is ready to go and establish his or her
own enterprise.
But skills in the informal economy are not derived solely from such
types of apprenticeship. First, the dense relationships in innovation
clusters lead to an efficient diffusion of knowledge and know-how.
The study of the creation of Kashmiri Pashmina Shawls in India shows
how the passing on of skills in close-knit inter-organizational networks
helps share knowledge and innovation (Sheikh 2014).
Increasingly, informal sector firms show an openness to codified
forms of knowledge. In addition to the approaches described above,
skills are acquired through earlier formal education (Kraemer-Mbula
and Wamae 2010a). Trial and error, assisted by books, manuals and the
Internet, and knowledge spillovers gained by importing and selling
equipment are also sources of advanced skills (ILO 1992). At higher
stages of development, a combination of some formal education, specific vocational training and work experience can be an important
source of innovative capacity among micro-enterprises in the informal
sector (Kabecha 1998).
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j e r e m y de beer , kun f u an d s acha wu nsc h- vinc ent
Moreover, supply-and-demand interactions play an important role
shaping learning and innovation processes in informal enterprises.
Studies suggest, for instance, that informal sector blacksmiths – who
are often farmers as well – better understand demand preferences in
the informal economy and are able to use local knowledge to produce
high-quality customer-tailored tools (Akbulut 2009). Customers prefer
their products because they are able to adapt them swiftly to changes in
farming conditions. Moreover, customers, suppliers and technology
transfer agencies regularly suggest technical and commercial solutions
to problems. Best practices are then transferred among manufacturers
(see Chapters 4 and 5).
Empirical studies have also discovered rather unusual knowledge flows
between the formal and informal sectors, where formally trained
designers and academic researchers sometimes draw on the expertise of
artisans in the informal sector to provide local society with innovative
products or services. The collaboration between informal sector automotive artisans and mechanics and formal university researchers in
Uganda is characterized by what is termed a “reverse knowledge flow,”
that is, the designs and production techniques of informal economy
actors are being introduced to the formal research centers and universities, not the other way around (Kawooya 2014).
As in the formal sector, imported products are an important
source of learning for product innovators. Import competition constitutes a supply-side stimulus, giving scope to micro-enterprises to
learn and imitate. However, the relative sophistication of imported
technology in relation to the sophistication of the local formal
industry and the skills of local entrepreneurs reduces the potential
to adapt equipment. When there exists no local formal industry, and
the technology gap between imports and local production is too
high, no local innovation will occur on the basis of imports,
a situation referred to as “technological dualism” in the literature
(Kabecha 1998). There is thus a link between the availability of skills
and capital upgrading in the informal sector and the nature of the
local formal industry. The existence of a local capital goods industry,
involved in the production of machinery and tools, creates skills that
are favorably used in the informal sector as well. Countries solely
importing machines from abroad were found to have entrepreneurs
with less ability to improve technological capability by demonstration and learning.
i n n o vat i o n i n t h e i n f o r ma l ec onom y
69
Sophistication of Inventive Activity: Innovation, Imitation
and Adaptation
Most empirical studies stress that entities are – despite their low capital
intensity and low use of technology – highly dynamic. Innovations take
place in relation to inputs, processes and outputs, allowing informal firms
to adapt to new circumstances and exploit market opportunities.
Early case study work focusing on “technological capabilities” already
revealed the innovative strain of micro-entrepreneurs in the informal
sector (Amin 1989; Khundker 1989; Ranis and Stewart 1999). The informal metal manufacturing and construction sectors of developing countries were studied as examples in the 1980s (Mlinga and Wells 2002).5
In particular, in the early 1990s the ILO led extensive case study work
across different regions to assess technological capability in the manufacturing sector.
In this research, the concept of innovation was relatively limited. It was
often understood as the purchase and use of new machines, that is, capital
accumulation to improve production processes. It was found that informal actors introduce new products or improve existing ones, that processes are made more efficient and that new tools are tested.
This earlier sector-specific work has been revived more recently with
new country- and sector-specific fieldwork such as the work conducted
for this book that stresses the adaptive and innovative nature of the
informal sector. These more recent dedicated surveys of microentrepreneurs or precise sectors are based on a broader understanding
of innovation as discussed above.
The new studies share some conclusions with earlier contributions to
the literature. Both earlier and current research suggests that there is more
adaptation and imitation than original invention in the informal economy
(ILO 1992; Chapters 3–6 of this book). Most of the studies cite examples of
adaptation of equipment of industrial origin rather than of any intrinsic
ability to create original technological components. This type of innovation has been characterized as “quick responses to market demand and
supply” (Bryceson 2002; Kraemer-Mbula and Wamae 2010b), “innovation
under conditions of scarcity” (Srinivas and Sutz 2008) or “tinkering on the
margins,”6 mostly problem-solving to overcome shortcomings that often
5
6
For earlier work on informal metal manufacturing, see King (1974), Aftab and Rahim
(1986) and ILO (1992).
A term suggested by Travis Lybbert (University of California, Davis) in the course of this
project.
70
j e r e m y de beer , kun f u an d s acha wu nsc h- vinc ent
but not exclusively originate from an underperforming formal economy,
for example, lack of parts or other supplies in the formal sector, and/or to
adapt foreign products to local conditions. Examples abound in the area of
self-construction of tools, metal manufacturing and, more generally, repair
and maintenance activities.
However, little consistent evidence emanates from these studies concerning the type of innovation taking place in the informal economy. It is
unclear which type of innovation – product, process, organizational or
marketing innovation – is most prevalent in the informal economy, and
whether innovation aims to improve product variety or product quality.
On the one hand, technological change often comes from entrepreneurs’ imitation of existing models for their own use in workshops, rather
than for sale on the market, for example, self-construction of tools to
improve processes (ILO 1992). The aim in such cases is to increase
production volume and reduce unit costs via process innovation and
new tools. This is clearly an important aspect; prices, especially relative to
the formal sector, are among the most important drivers of sales
(Kabecha 1997).
On the other hand, studies stress that informal economy firms are
more concerned with producing new products than utilizing technology
because the former can result in an immediate gain (de Beer, Fu and
Wunsch-Vincent 2013). Creating new products and product diversification are also a reaction to fierce competition among producers.
Among the few available studies, quality has been found to influence
consumers in the informal sector; it is associated not only with durability
(Kabecha 1997) but also with product design and packaging.
Business owners of informal metal manufacture firms in Kenya have
been found to focus on quality and style to differentiate their products
(see Chapter 3). This indicates that informal firms see value in improving
on and competing over the quality of the final product. The informal
sofa-makers of Gikomba in Nairobi adopt new coordination modes,
experimenting quickly and constantly to produce a large number of
new designs and develop new models, about 1,500 sofa frames per
week. Similarly, Chapter 4 reports that quite a few South African informal manufacturers of home and personal care products (40 percent of
respondents) regard quality as an important feature of their products and
perceive their goods to be of higher quality than those of their immediate
competitors operating nearby. The case study of traditional medicine in
the informal sector in Chapter 5 also finds quality driving innovation in
the various components of the value chain. In the production process,
i n n o vat i o n i n t h e i n f o r ma l e c onom y
71
adherence to quality assurance practices enables the traditional medicine
products to pass regulatory tests. Even going to market, the quality of
packaging differentiates products from competitors.
In general, issues relating to technology and capital affect the scale at
which innovation-related production and trade occur in the informal
economy. Even studies that tend to be optimistic about the level and
scope of innovation in the informal sector, such as Daniels (2010), see
“scalability” as an important problem. As the Oslo Manual notes, “[T]he
sometimes great creativity invested in solving problems in the informal
economy does not lead to systematic application and thus tends to
result in isolated actions which neither increase capabilities nor help
establish an innovation-based development path” (OECD/Eurostat
2005, p. 137). The informal sector’s challenge, to be more precise, is
not with innovation itself, but rather with its scalable application.
Technology, Capital and Capability
Many micro-firms in the informal economy demonstrate low capital
intensity and limited skills, using simple technologies and facing limitations to technical upgrading. A central problem is the lack of access to
techniques and technology and the lack of resources to develop processes
and improve machinery. Because of irregular cash flow, time away from
production to develop machinery, for instance, is in very short supply.
While large producers often have a selection of technology packages to
choose from, small entrepreneurs rarely have access to technology to
meet their needs.
Instead, informal enterprises often innovate, crafting affordable versions of expensive equipment by reassembling surplus components and
at the same time overcoming scarcity and other material constraints. For
instance, as reported in Chapter 3, informal metalworkers in Nairobi
produce commodity goods such as potato chip cutters using very basic
tools and materials but, alas, often with inadequate protective equipment,
for example, using cardboard face shields to protect workers. Informal
enterprises in the home and personal care sector in South Africa reproduce electric mixers using a secondhand electrical drill and other material found in a scrap yard (see Chapter 4). By doing so, they considerably
reduce the cost of machinery. While incremental in nature, these initiatives have significant implications for informal firms, which are able to
enlarge their scale of business and change their business models. At the
72
j e r e m y d e beer , kun f u an d sacha wu nsc h- vincent
same time, access to more sophisticated techniques and technology
remains elusive.
Furthermore, the skills acquired through traditional types of activities
can impose a constraint on the acquisition of new techniques requiring
education and training (Aftab and Rahim 1986, 1989; Aftab 2012).
Organization of Activities in Clusters and Linkages
to the Formal Sector
Few studies are available on linkages between the formal and informal
sectors, the clustering of informal sector activities and the impact of such
arrangements.
Existing studies do, however, reveal that instead of individuals, communities can best be regarded as the main agents of innovation (see
Chapter 6). Indeed, firms in the informal economy tend to operate in
clusters or “agglomerations,” including in the process of creating or applying new knowledge or generating new products or processes (Livingstone
1991). This clustering of operators and strong informal networks facilitates
a rapid transfer of skills and knowledge within the sector with a view to
solving problems (ILO 1992; Sheikh 2014). Moreover, clusters of informal
operators develop reputation over time that can effectively attract potential
buyers and suppliers (Chapter 3; Bull et al. 2014).
As shown by the country studies in this book, intermediary organizations within these clusters are said to play a strong role in improving
production conditions and profitability in the informal sector.
Previously, and despite operation in clusters, collective initiatives or
innovation-geared activities could be considered rare. Individual initiatives by informal sector entrepreneurs with limited support from the
wider institutional framework were mostly responsible for improving
production conditions and the profitability of commercial activities.
Some improvement has taken place in recent years, as initiatives have
sought to organize workers in the informal economy to achieve economies of scale (Kawooya and Musungu 2010; Kraemer-Mbula and Wamae
2010a). For example, the Kamukunji Jua Kali Association, the first
informal manufacturing association in Kenya, discussed in Chapter 3,
acts as a meaningful intermediary organization, promoting joint production and improvement of processes and also helping to gain recognition
of the cluster and government support for the artisans. Informal TMPs in
Ghana also make efforts to form associations to address issues of mutual
i n n o vat i o n i n t h e i n f o r mal e c onom y
73
interest relating to their practice. In their associations, they can socialize
with peers, more experienced practitioners and experts in order to
exchange ideas and information, obtain new knowledge, and advertise
and promote their products (see Chapter 5 and Essegbey et al. 2014).
Despite their evident positive impact, not enough is known about the
forward and backward linkages between informal and formal sector actors
and value chains (Kraemer-Mbula and Wamae 2010a). Backward linkages
show the extent to which informal sector enterprises obtain inputs from
the formal economy in the form of raw materials, technologies, intermediate products or final goods. Forward linkages show the ability of informal
enterprises to supply the formal sector with intermediary or final goods, for
instance, through sub-contracting. In particular, the role of formal scientific or R&D institutions in innovation activities within the informal
economy is under-researched. Yet these linkages can have an important
positive influence on technology diffusion and knowledge acquisition
(Bhaduri and Sheikh 2013; de Beer, Fu and Wunsch-Vincent 2013).
Connecting with formal organizations can facilitate links with other formal
structures and related opportunities for informal actors. Sometimes, too,
innovation in the informal sector occurs with the help of formal sector
scientific institutions. In sum, the systematic collaboration of the informal
economy with the formal sector for innovation, including with formal
sector institutions such as universities or public research centers, appears
to be the exception, not the norm. Promoting this collaboration is also not
traditionally a declared objective of government policy. These issues are
discussed in more detail in Chapter 8 of this book.
Where they do take place, however, formal–informal sector interactions are bearing fruit. Recent case studies show that the networking of TMPs in Ghana with local knowledge institutions and
regulatory bodies has upgraded their knowledge and stimulated innovations. Informal manufacturers in the home and personal care industry in South Africa who are able to connect with the wider innovation
system are also shown to be more likely to succeed in their innovation
efforts. As Kraemer-Mbula and Tau note (2014, p. 41), “88% of
manufacturers that interacted with formal organizations reported
a range of benefits as a result, whilst in 12% of the cases the services
provided by formal organizations did not seem to suit their needs.
The benefits reported ranged from using manufacturing facilities,
products manufacturing training (mostly linked to those interacting
with technology transfer organizations), support with book keeping,
mentorship and networking with other entrepreneurs.”
74
j er e m y d e b e e r , ku n f u a n d s a c ha wun s c h -vi nc e n t
In the traditional medicine sector in Ghana, for example, researchers
from the Centre for Scientific Research into Plant Medicine have facilitated innovation of traditional medical practitioners by helping to
develop product-testing methods and practices. A study of the agricultural subsistence sector in the United Republic of Tanzania and its
interaction with the Engineering Department of the local university
suggests that technological capabilities have been improved and newly
acquired – though at a basic level (Szogs and Mwantima 2009). A study in
Uganda shows the cross-fertilization and utilization of innovations
between formal institutions, as in universities and research centers, and
informal sector entities (Kawooya 2014).
As described earlier, the formal sector also receives fresh ideas and
inspiration from skillful and resourceful actors in the informal sector.
Innovative informal sector actors are found to inspire their formal sector
counterparts with new products or processes. In this sense, copying and
learning is not a one-way street between the formal and the informal
sector, but rather a dynamic, bi-directional process. One example is the
informal sector automotive artisans and mechanics providing knowledge
and practical inputs to formal university researchers in the aforementioned study in Uganda, helping them with the novel design and production of cars (Kawooya 2014).
Recognizing this, some more recent policy schemes aim to increase
linkages within the informal sector and also between the informal sector
and formal institutions and firms.
Table 2.3 synthesizes our findings about the characteristics of innovation in the informal economy based on our three case studies.
Barriers to Innovation in the Informal Sector
Despite their heterogeneity, informal sector enterprises face a number of
common obstacles to innovation and upgrading.
Evidently, constraints imposed by corruption, violence, threats to
health and safety and other risks may be highly relevant, although generally beyond the scope of this book. Obstacles to technological progress
in the informal economy are largely determined by infrastructure, financial, educational and skills, information and other constraints.7
7
Authors’ conclusion based on Aboagye (1986), Aftab (2012), Grimm, Knorringa and Lay
(2012), IDRC (2011), Kabecha (1998) and Nordman and Coulibaly (2011).
Table 2.3 Features of innovation in the informal economy – evidence from the case studies
Firms and entrepreneurs
Informal metalworking sector in Kenya
Three types of informal enterprises are
observed, over two-thirds of which employ no
more than one employee:
– clusters of micro-enterprises (e.g. Kamukunji)
with small revenues producing mass
commodity goods for low-income consumers
who care mainly about the functionality of the
product;
– clusters of micro-enterprises (e.g. Racecourse)
producing custom artworks for middle- and
upper-income markets with consumers
looking for better-quality products and
services;
– isolated small-scale enterprises founded by
skilled or creative jua kali or formal
entrepreneurs developing new products and
seeking formal intellectual property
protection.
Informal manufacture of home and personal care products in South Africa
A large number of newly established
micro-firms and informal
manufacturers are observed,
essentially catering to the demand for
cheap products while hiring few or no
employees (e.g. one or two people) and
generating only small revenues.
Traditional herbal medicine in Ghana
Predominantly micro or small
entrepreneurs are observed serving
primarily low-income households and
the poor, generating low revenues and
employing few employees (two people
on average).
Some TMPs are observed who have
formalized their practice and set up
larger commercial entities.
Table 2.3 (cont.)
Traditional herbal medicine in Ghana
Most craftsmen have primary school education
while some have completed secondary and
even tertiary schooling. There is also some
influx of workers trained in the formal sector.
Fundis most often receive training from other
fundis in the cluster. Some receive training
from employers, relatives or friends. Few
receive training from professional instructors.
Education levels of informal
manufacturers surveyed are high, with
one-third of respondents having some
tertiary education.
Training is often provided by suppliers
and technology transfer agencies.
Many informal actors learn informally
from other manufacturers, through
self-training and by experimentation.
Most TMPs are educated with many
going beyond secondary education.
Most TMPs acquire their skills for
practice through apprenticeship and
family traditional medicine practice.
Low levels of innovation are observed in
production clusters, mostly product
adaptations to suit available materials, tools
and skills. A moderate amount of product
innovation takes place in semi-formal small
enterprises and in informal clusters
producing for middle- and upper-income
buyers.
New products are mostly developed by informal
firms operating away from the large clusters
without fear of their products being quickly
copied.
Cost reduction, customer demand and creativity
of individual fundis are the primary drivers of
innovation.
Incremental product innovation and
occasionally incremental process
innovation occur in this sector.
Innovation activities are largely triggered
by information provided by suppliers,
and thus reactive rather than proactive
innovation.
Proactive innovation is often based on
the imitation of other formal and/or
informal micro-enterprises.
Some TMPs show no sign of innovation.
Some micro- and small-scale
practitioners adopt innovations
developed by others.
A more sophisticated category of
informal firms carries out product,
process and organizational
innovations in healthcare delivery.
Drivers of innovation are policy and
regulation in the public health sector,
competition with domestic and
imported traditional medicine
products, market demand and the
entrepreneurial spirit of the informal
sector.
Lack of machinery and adequate technology are
common in this sector.
Less advanced production technologies, simple
tools and basic material are prevalent among
informal micro-enterprises producing mass
commodity goods.
Informal metalworkers targeting middle- and
upper-income markets have access to
specialized suppliers for tools, hardware and
materials producing products with better
quality and novelty.
Innovative enterprises have sufficient cash flow
to support the development process.
Informal manufacturers mainly rely on
manual techniques and production
processes.
Owing to the lack of capital, informal
manufacturers use rather basic
equipment. The use of sophisticated
technology and equipment is reserved
to a minority.
Lack of machinery and equipment is
a major limitation on innovation.
There is a medium to high rate of
technological progress in production.
Some old modes of production are
giving way to modern machinery and
scientific equipment.
Most respondents are self-reliant
financially with little help to
accumulate capital to finance new tools
and materials.
Business in certain clusters (e.g. Kamukunji)
relies heavily on networks and collaboration
underpinned by trust-based relationships and
the sharing of resources within the cluster.
Informal entrepreneurs rely on
collaboration and the exchange and
sharing of ideas with other informal
manufacturers to innovate. A sense of
To a lesser extent, linkages with formal sector
firms also matter.
Producers in other clusters (e.g. Racecourse)
rely less on collaboration and openness but
share resources when needed. These firms
have more access to formal training, financing
and suppliers.
Innovative informal actors often have a network
of support organizations and intermediaries
edge
exchange.
About half of the respondents interact
with formal or semi-formal
organizations to access opportunities
and innovate.
Knowledge is acquired from both formal
sources such as suppliers, technology
transfer agencies, business incubators,
associations and networking initiatives
A strong tradition of knowledge-sharing
underpins innovation in the
traditional medicine sector.
TMPs join local, national and
international associations to foster
networking and facilitate the flow of
knowledge.
TMPs reach out to local knowledge
institutions, regulatory bodies and
other intermediaries to upgrade their
knowledge.
Universities and research institutions
promote innovation by upgrading the
knowledge base and by investing in
human resource.
Knowledge flows and
oration
Technology, capital, and capability
Education and training
Informal manufacture of home and personal care products in South Africa
Imitation, adaptation, and innovation
Informal metalworking sector in Kenya
Table 2.3 (cont.)
Informal metalworking sector in Kenya
Informal manufacture of home and personal care products in South Africa
(e.g. the Kenya Industrial Property Institute
and the Center for Intellectual Property and
Information Technology).
Via associations, sharing is encouraged by
holding meetings and by intervening when
a member works in secrecy.
The government shows support for informal
enterprises by encouraging partnerships with
the formal sector, e.g. via incentives for
vendors that partner with informal microfirms.
and informal sources such as
experimentation, self-training and
apprenticeship.
Formalization through business
registration is usually required in order
to access support from government in
the form of funding, training and
access to technology. As a result
existing policies are not always
available to spur knowledge creation
and diffusion.
Source: Authors based on Chapters 3–5.
Traditional herbal medicine in Ghana
Most TPMs surveyed want to team up
with somebody to commercialize their
enterprise on a large scale.
The Ministry of Health formulates
relevant policies and programs to
encourage knowledge-sharing and
further innovation in the TM sector.
i n n o vat i o n i n t h e i nf o r mal ec onom y
79
In terms of infrastructure, the most important constraints are a lack of
space and infrastructure to expand operations coupled with inconsistent
energy supply and other factors. In terms of financial constraints, informal sector actors face capital market imperfections as lenders are risk
averse and uncertain about lending to them, meaning they face pressure
to achieve immediate return. In terms of educational and skills constraints, informal sector operators often have insufficient education, skills
and knowledge, and classic training organizations are geared to supplying their services to formal enterprises only. At times, informal sector
operators lack the ambition and skills to successfully operate and grow
their business, with the focus being mainly on ensuring subsistence. Also,
informal entrepreneurs often face information constraints, in that information about new products and processes, new machinery or tools, or
changes in market demand does not reach them.
Institutional constraints pose severe limitations on informal economy
operators. For one thing, there is often a lack of government support and
policy measures aimed at stimulating and facilitating innovation in the
informal economy.
Social constraints also matter greatly. Informal entrepreneurs are often
obliged to share their profits with a family or extended network or to
invest in informal collective social insurance schemes, often discouraging
them from developing their business in the first place. Many also find
themselves obliged to employ family members, sometimes counteracting
efforts to have the right skills levels in place, and further diverting time
and pecuniary resources from investing in more appropriate infrastructure, machinery or innovation more broadly.
It is worth noting that these characteristics of, and barriers to, innovation are not unique to the informal economy in developing countries.
Formal enterprises also often operate far from optimal efficiency and
have few differentiated products. Important market failures relating to
economies of scale and externalities present high barriers to innovation
for formally established firms too.
Conclusion
Frequently, innovation in the informal economy takes place in clusters
that facilitate the flow of knowledge and technology via simple exchanges
of ideas. Depending on the sector in question and the appropriation
methods applied, entrepreneurs imitate and copy products from each
80
j e r e m y de beer , kun f u an d s acha wu nsc h- vinc ent
other, from local formal and informal industries and from imported
products. Labor migrates from the formal to the informal sector, and
vice versa, facilitating the transfer of knowledge.
Apprenticeships and on-the-job learning are common in the informal
economy and facilitate the intergenerational transmission of knowledge
and technology. Apprentices with sufficient skills or resources tend to
open their own operations in close proximity to their “master,” and often
copy the master directly. In sectors that rely on traditional knowledge,
oral transmission helps to preserve and transmit knowledge from generation to generation and within family or other social groups. A few
exceptions aside, there is less evidence to show that clusters rely directly
on knowledge from formal public research centers or other educational
institutions. This indicates that the linkages between informal and formal
public actors are underdeveloped. However, where a connection is made
and interaction takes place, the benefit for informal firms is substantial.
Innovation in the informal economy exhibits the following main
characteristics:
• Large amounts of constraint-based innovations take place under conditions of survival, scarcity and constraints to address mostly the needs
of less-affluent customers. There are, however, cases of innovative
products in the informal economy that are distributed to highincome customers and overseas markets.
• Innovations are rarely driven by R&D but are often driven by knowledge gained through adopting, adapting and improving available good
ideas, best practices and technologies in novel and economic ways to
solve customer problems.
• Incremental rather than radical innovations are the main source of
innovative performance. Sophisticated technologies and machinery
are rarely used. Adapting imported products or those from the formal
mainstream market to simple tools and material available locally is
a popular conduct of innovation in the informal economy.
• Innovations in the informal economy have various connections with
the formal sector. Knowledge, skill, capital, people and other types of
resources can sometimes flow both ways.
• Innovations in the informal economy often take place in geographically concentrated regions in a collaborative manner. This way of
organizing production and innovation helps entrepreneurs in the
informal economy build their collective identity and product brand.
i n n o vat i o n i n t h e i n f o r ma l e c onom y
81
• Innovations in the informal economy are not only economically viable
but also socially influential as they often affect a large share of population involved in the innovation system and value chain.
• The copying of ideas is rapid. Partly this is due to a lack of effort or
methods to appropriate techniques, designs and final outputs. Sharing
knowledge within clusters/communities is also the social norm in
many cases, encouraged and supported by the local culture.
Importantly, much of the evidence garnered in this chapter relies on
studies covering mainly goods-producing sectors. The focus is largely on
innovation in the agricultural and manufacturing sectors. This somewhat
neglects the fact that innovation also occurs in the service sectors such as
construction, wholesale and retail trade, transportation, food service and
other service activities.8 Technological capabilities, the type and sophistication of innovation and relevant horizontal lessons generated with
respect to firm characteristics, learning, knowledge creation and diffusion are potentially different in the service sector.
Finally, traditional knowledge practices of indigenous peoples and
local communities exist, which are often discussed separately from the
informal economy (see Drahos and Frankel 2012; Finger and Schuler
2004; and the treatment in Chapter 6). Studies of these practices and
communities that aim at deciphering innovation activities and impacts
and the subsequent development of traditional knowledge may also need
to be undertaken as part of future innovation research.
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COMMENT 2.1
colin c. williams
University of Sheffield
This chapter represents the first known attempt to analyze how innovation occurs in the informal economy in developing economies. In this
comment, I wish, first, to assert that many of the ideas raised are just as
applicable to western economies and, second, to identify the possible
future steps required to further understanding of how the informal
economy is a source of innovation.
The study of the informal economy has its origins in the developing
world and was largely confined to studies of developing economies for
many decades (Hart 1973). However, a burgeoning literature has recently
revealed the persistence of the informal economy in the western world.
Although the informal economy accounts for a larger proportion of GDP
and a greater proportion of the workforce in the developing world than in
the western world (Schneider 2008, 2013; Williams 2015), estimates
nevertheless suggest that the informal economy is equivalent to about
16 percent of GDP in OECD countries (Schneider and Williams 2013;
Williams 2014b) and that about 5 percent of the population annually
work in the informal economy (Williams 2014a).
In the early literature studying the informal economy in the western
world, such endeavor was largely represented as low-paid waged work
conducted under “sweatshop-like” conditions (Castells and Portes 1989;
Benton 1990). Indeed, even discussions of informal self-employment
depicted it as “precarious” or “false” self-employment arising as a result
of advanced capitalism sub-contracting and outsourcing to the informal
economy as a cost-reduction strategy (Gallin 2001; Davis 2006). Based on
this negative depiction, the policy approach advocated was its eradication
(Williams 2014a).
Following the turn of the millennium, however, this view and the
resultant policy approach have begun to be challenged. Grounded in
recognition that the vast majority of informal economic activity in
western economies is conducted on an own-account basis (European
Commission 2014; Williams 2014a), such activity has been re-read as
entrepreneurial endeavor and as constituting a “hidden enterprise culture” (Williams 2006, 2014c). The result has been a new sub-field of
entrepreneurship scholarship focused on “informal sector entrepreneurship” that has sought to understand the role played by the informal
co mmen t 2. 1 co l i n c. william s
89
economy in business start-ups (Williams and Martinez-Perez 2014a,
2014b): who engages in such endeavor (Small Business Council 2004;
Williams 2008), what types of activity are conducted (Williams 2007;
Dellot 2012; Barbour and Llanes 2013) and the motives for participating
in entrepreneurship in the informal economy (Snyder 2004; Williams
2010). One outcome has been a shift in policy approach. Rather than
pursue its eradication, much of the literature and many western governments are now seeking to harness this sphere (European Commission
2007; Williams and Nadin 2013, 2014; OECD 2014; Williams 2014b).
The current chapter is part of this shift.
One useful way to understand what is happening is to recognize that in
conceptual terms the binary hierarchy between the formal and informal
economy is being deconstructed. For Derrida (1967), western thought is
characterized by a hierarchical binary mode of thinking that, first, conceptualizes objects/identities as stable, bounded and constituted via
negation (e.g. the formal and informal economy) and, second, reads the
resultant binary structures in a hierarchical manner whereby the first
term in any dualism (the superordinate) is endowed with positivity (in
this case, the formal economy) and the second term, the subordinate (or
subservient) “other,” with negativity (the informal economy).
The outcome is to establish a relation of opposition and exclusion, rather
than similarity and mixture, between the two sides and to overlay onto it
a normative narrative of “progress” that privileges the superordinate “us”
over the subordinate “other.” This lens is a useful heuristic device for
viewing both the way in which the concept of the informal economy has
evolved and analyses of it like the one in this chapter. It becomes immediately obvious that much of literature over the past three decades or so in
the western world has been contesting the binary hierarchy between
formal and informal economy and that this chapter is part of that
process.
Conventionally, the informal economy was viewed as a residual and
marginal sphere, as separate and discrete from the formal economy, and
as a negative phenomenon. All these elements reflect its position as
a subordinate other in the formal/informal economy binary hierarchy.
The literature on the informal economy in the western world over the
past few decades has been deconstructing this conventional binary hierarchical depiction. It has shown that the informal economy is persisting
and even growing in the western world, that the formal and informal
economies are not discrete and separate realms and that the boundaries
are often blurred (for example, formal firms conducting a portion of their
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j e r e m y de beer , k un f u an d sa ch a w u n s c h- v i n c en t
trade off the books); and attempts have been made to revalue the “subordinate” status of the informal economy such as by showing how it is
a hidden enterprise culture.
The identification of innovation in the informal economy continues in
this tradition. It is part of this broader process of deconstructing the
conventional binary hierarchy. This signals the way forward and also the
barriers that need to be addressed when seeking to represent the informal
economy as a source of innovation. Innovation is itself the superordinate
term in an innovation/non-innovation binary hierarchy, and this chapter
and the book of which it forms part represent an attempt to break the
close association between two superordinate terms (the formal economy
and innovation) and two subordinate terms (the informal economy and
non-innovation). To do this, however, one cannot simply apply the
superordinate term of innovation to the subordinate term of the informal
economy. The innovation/non-innovation binary hierarchy itself needs
to be deconstructed. This chapter begins to do so by questioning what
constitutes innovation, such as when the authors note that there is more
adaptation and imitation than original invention in the informal economy. The problem remains that the innovation/non-innovation binary
hierarchy is closely associated with many other binary hierarchies such as
export production/local production, productive/unproductive, formal/
informal skills and external/local markets. To assert that a superordinate
term in one binary hierarchy (innovation) is associated with
a subordinate term in another binary hierarchy (the informal economy)
requires us to question the normative values attached to superordinate
and subordinate terms in many other binary hierarchies. This is perhaps
the biggest challenge now confronting those asserting that the informal
economy is a source of innovation. It requires the re-valuing of many
other subordinate terms (for example, local production, local markets,
informal skills) and the de-valuing of many superordinate terms (for
example, export production, external markets, formal skills). Unless this
is done, then perhaps the inevitable outcome will be to show only that the
informal economy is lacking in innovation relative to the formal
economy.
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Castells, M. and Portes, A. 1989. “World underneath: the origins, dynamics
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Davis, M. 2006. Planet of Slums. London, Verso.
Dellot, B. 2012. Untapped Enterprise: Learning to Live with the Informal
Economy. London, Royal Society of the Arts.
Derrida, J. 1967. Of Grammatology. Baltimore, John Hopkins University Press.
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Gallin, D. 2001. “Propositions on trade unions and informal employment in
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Hart, K. 1973. “Informal income opportunities and urban employment in
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Schneider, F. (ed.) 2008. The Hidden Economy. Cheltenham, Edward Elgar.
Schneider, F. 2013. “Size and development of the shadow economy of 31
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Schneider, F. and Williams, C.C. 2013. The Shadow Economy. London,
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Small Business Council 2004. Small Business in the Informal Economy: Making
the Transition to the Formal Economy. London, Small Business Council.
Snyder, K.A. 2004. “Routes to the informal economy in New York’s East
Village: crisis, economics and identity,” Sociological Perspectives 47:
215–40.
Williams, C.C. 2006. The Hidden Enterprise Culture: Entrepreneurship in the
Underground Economy. Cheltenham, Edward Elgar.
Williams, C.C. 2007. “The nature of entrepreneurship in the informal sector:
evidence from England,” Journal of Developmental Entrepreneurship 12(2):
239–54.
Williams, C.C. 2008. “Beyond ideal-type depictions of entrepreneurship: some
lessons from the service sector in England,” The Service Industries Journal
28(7/8): 1041–53.
Williams, C.C. 2010. “Spatial variations in the hidden enterprise culture: some
lessons from England,” Entrepreneurship and Regional Development 22(5):
403–23.
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Williams, C.C. 2013. “Evaluating cross-national variations in the extent and
nature of informal employment in the European Union,” Industrial
Relations Journal 44(5–6): 479–94.
Williams, C.C. 2014a. Confronting the Shadow Economy: Evaluating Tax
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Williams, C.C. 2014b. “Out of the shadows: a classification of economies by the
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co mment 2.2 f red g ault
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COMMENT 2.2
fred gault
UNU-MERIT and TUT-IERI
This chapter introduces a new field of research, the study of innovation in
the informal economy. It goes beyond the literature on the informal
economy as an object of study and literature on entrepreneurship that
does address the informal economy, but not so much the role of innovation. The literature on national systems of innovation has concentrated
on developed and formal economies, although there are efforts to look at
innovation systems in the context of development (Lundvall, Joseph,
Chaminade and Wang 2009).
To fill this gap, the chapter looks at the characteristics of innovators,
the types of innovations and the differences between innovation in the
informal and the formal economies. Significantly, it does this in a way
that supports measurement of the activities through surveys and case
studies. This draws on experience of measuring the introduction of new
or significantly improved goods or services onto the market (formal or
informal) and the development of new or significantly improved processes that get goods or services to market in a better way (the transformation of inputs into outputs and their delivery, the organization of the
business and the use of business practices, and the development of
existing markets or the discovery of new ones).
While these four types of innovations – product (goods or services)
and three types of processes – are found in the Oslo Manual, the Manual
also observes that “informality is not a favorable context for innovation”
(OECD/Eurostat 2005, p. 137). But the authors of this chapter show that
innovation does happen in the informal sector and that its characteristics
can be identified.
What is different in the informal sector is the emphasis on problemsolving and learning by doing, interacting and using rather than the
formal generation of knowledge through R&D, leading to new products
and processes and the protection of intellectual property through formal
instruments. Skills, absorptive capacity for knowledge and technological
capabilities are limited, and “firms” are small, yet there is innovation that
goes beyond just innovation for survival.
This raises a number of issues that need to be understood in order to
develop our understanding of innovation in the informal economy. How
big are the entities that engage in innovation? What are they? What
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j er e m y d e b e er , ku n f u a n d s a ch a w u n s c h- v i n c e nt
linkages exist between them and other groups and institutions, both
formal and informal? What characteristics does the market have (if
indeed there is a market)? And what are the implications of all this for
policy?
The fieldwork reported in this book finds that the bulk of firms in the
informal economy are micro-firms that may just be a means of surviving for the entrepreneurs; then come the “constrained gazelles” with
limited resources; and then the few high-growth firms. Such
a classification supports a differentiation of the analysis of the dynamics
of firm activity in the informal sector. Of course, this distribution of
firm size is also found in developed and formal economies, where
90 percent of firms will have fewer than twenty employees and the
activity of innovation is size-dependent: generally large firms have
a higher propensity to innovate.
However, there is a question about what is a firm in the informal
sector. It could be a sole proprietorship, a family group, a faith group or
some other group whose members have a reason for coming together to
engage in an economic activity. As the group operates in the informal
economy, it is unlikely to be registered and it is difficult to study using
conventional survey methods. While formal firms sell to markets at
economic prices, informal firms may be motivated by other things –
providing employment to the community or serving some other element
of the common good.
This brings the concept of “market” into question, and that is an
issue in measuring innovation. For there to be innovation, the Oslo
Manual requires that the new or significantly improved product be
put on the market or that the new or significantly improved process
(of any of the three types discussed) gets product to market in a better
way (see Chapter 8 of this book). This question of the role of the
market does not just arise in the informal economy, it is present when
dealing with public sector activities; these may be identical to the
innovation activities specified in the Oslo Manual, but, when it
comes to the activity of innovation, the connection with the market
is not there. The same problem arises when consumers modify goods
or services to meet their own needs, as they do not bring their product
to market and, in spite of an extensive literature on “user innovation”
(von Hippel 2005), the consumers are not innovators according to the
Oslo Manual.
The discourse around public sector innovation (Bloch 2013) and
consumer innovation (de Jong and von Hippel 2013) led me to suggest
co mment 2.2 f red g ault
95
that the phrase “introduced on the market” in paragraph 150 of the Oslo
Manual be replaced by “made available to potential users” (Gault 2012).
This would allow an institution in the public sector to be classified as an
innovator, and the same would hold for consumers so long as they share
the product or knowledge of the product with potential users. I raise the
point again here as it also has applications in the study of the informal
economy when the “innovation” is transferred through non-market
transactions.
Firms or groups of like-minded people can innovate and can make
their product available. As in the formal economy, they are actors in
a system, where the firm interacts with other firms and consumers and is
acted upon by framework conditions that may present barriers or opportunities for the firm to thrive. Understanding these linkages with other
institutions and accounting for education and skills, culture, health and
history is part of understanding an innovation system, and innovation
systems are present in informal economies just as they are in the formal
economy. The actors may be smaller, the human and financial resources
more limited, and the barriers greater, but the actors engage in their
activities and are influenced by their linkages, giving rise to short-term
outcomes and longer-term social and economic impacts. Understanding
this is part of the creation of a subject that addresses innovation in the
informal economy, and which studies the science of innovation policy
(Gault 2011).
At this point, one might ask why this subject is being created and what
use the new knowledge created will serve. The response is the generation
of better policies to promote innovation in the informal economy – or at
least not get in its way. Such policy matters and grows in proportion to
the amount of GDP generated by the informal economy. Without policy
dealing with innovation in the informal economy, there is a risk of
“misleading, asymmetrical or ineffective innovation strategies”
(Kraemer-Mbula and Wamae 2010). This provides substantial justification for the creation of a new subject dealing with innovation in the
informal sector, and this chapter is a step in that direction.
References
Bloch, C. 2013. “Measuring innovation in the public sector,” in Gault, F. (ed.)
Handbook of Innovation Indicators and Measurement. Cheltenham, UK
and Northampton, MA, USA, Edward Elgar, pp. 403–19.
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j e r e m y de beer , kun f u an d s acha wu nsc h- vinc ent
de Jong, J.P.E. and von Hippel, E. 2013. “User innovation: business and
consumers,” in Gault, F. (ed.) Handbook of Innovation Indicators and
Measurement. Cheltenham, UK and Northampton, MA, USA, Edward
Elgar, pp. 109–32.
Gault, F. 2011. “Developing a science of innovation policy internationally,” in
Husbands Fealing, K., Lane, J.I., Marburger III, J.H. and Shipp, S.S. (eds.)
The Science of Science Policy: A Handbook. Palo Alto: Stanford University
Press, pp. 156–182.
Gault, F. 2012. “User innovation and the market,” Science and Public Policy 39:
118–28.
Kraemer-Mbula, E. and Wamae, W. 2010. Innovation and the Development
Agenda. Paris, OECD Publishing.
Lundvall, B-A., Joseph, K.J., Chaminade, C. and Wang, J. (eds.) 2009.
Handbook of Innovation Systems and Developing Countries: Building
Domestic Capabilities in a Global Setting. Cheltenham, Edward Elgar.
OECD/Eurostat 2005. Oslo Manual: Guidelines for Collecting and Interpreting
Innovation Data, third edition (The Measurement of Scientific and
Technological Activities). Paris, OECD Publishing.
von Hippel, E. 2005. Democratizing Innovation. Cambridge, MA, MIT Press.
co mmen t 2. 3 xi ao l an fu
97
COMMENT 2.3
xiaolan fu
University of Oxford
This chapter prompts us to ask whether innovation is relevant for the
informal economy in developing countries.
Innovation will be low on most people’s list of priorities when they
think about issues facing poorer nations, and especially when they think
about the informal sector. Other concerns spring more readily to mind:
food security, water, health and the prevention of conflict. Innovation
may seem like a luxury by comparison, something countries can afford
only once they have transcended issues of survival.
But this attitude is probably outdated. Innovation and technical progress can provide fundamental solutions to the major challenges facing
low-income countries, such as poverty reduction, coping with environmental and resource constraints and sustainable development.
Innovation does not have to be a luxury. Sometimes it requires neither hitech research labs nor expensive equipment but more small-scale, smart
changes to processes and products driven by people on the ground.
Moreover, innovative capacity in low-income countries is important
in increasing their inward technology transfer. Technological innovation
is a key element of industrialization and catch-up in developing countries
and has traditionally been concentrated in a few developed countries and
among a small number of firms. Foreign sources of technology account
for a large part of productivity growth in most countries, and the development process in lower-income countries can be supported by tapping
into existing knowledge and know-how. Innovative capacity in lowincome countries becomes critical for the successful transfer and adaptation of knowledge. Yet several constraints and obstacles prevent firms
from innovating.
Nicely complementing the findings of this book, a project cofounded by the UK’s Department for International Development
(DFID) and the Economic and Social Research Council (ESRC) on
“The diffusion of innovation in low-income countries” (DILIC) carried
out a survey of 500 formal and informal firms in Ghana in 2013 aiming
to understand the form, nature and source of innovations in a lowincome country (Fu et al. 2014). The survey generated the following
findings:
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• Innovation occurs within a wide spectrum of sectors in the economy.
Firms in both the formal and informal sectors in Ghana undertake
relevant innovation activities, in both technological and nontechnological fields.
• Most research on the subject looks at the number of patents registered
or R&D expenditure to see if innovation has occurred, but in lowerincome countries such measures often miss the point completely.
In fact – and as the authors of this chapter recognize – most innovations in low-income countries are incremental in nature, demand
driven and mainly based on learning, adoption and adaptation.
In other words, they are adoptions and adaptations diffused mainly
within a country.
• The Ghana study found numerous instances of African entrepreneurs
discovering ingenious new ways to turn a profit. Their talent for
remodeling old car wheels into cooking stoves, developing ways to
preserve fresh mushrooms with the help of local universities, designing
amazing fashions from local textiles or making delicious food products
from the most humble ingredients – to name just a few examples – is
much more than just a local curiosity.
• Mostly innovations constitute “appropriate technology” and processes
in or for the base of the development pyramid. In other words,
innovation must be appropriate in its economic and technical aspects
and also socially appropriate for the characteristics of a given lowincome country. It thus addresses the constraints around resources,
skills institutions, affordability and accessibility in the country.
• Innovations in Ghana mainly originate and spread within Ghana,
especially when innovation occurs in the informal economy. Some
(mainly formal) firms source innovations directly from a range of
foreign countries, they adapt and localize them and then those localized innovations are diffused through various business and social
networks, industry associations and supply chains to the rest of the
economy and the informal sector.
• International knowledge is mainly acquired via imports, the Internet
and multinational enterprises in the same industry, as well as by
participating in export markets. Innovations originated by foreign
firms are more novel than those achieved by local firms, suggesting
potential knowledge and technology spillovers from the foreign entity
to local actors.
• The current role of universities and research institutions in innovation
creation and knowledge transfer appears to be limited.
co mmen t 2. 3 xi ao l an fu
99
• Firms have scarce knowledge of government policy instruments in
place to support innovation.
In sum, the Ghana research suggests that firms in low-income countries
are innovative, but also very largely unsupported. Too often in lowincome countries, and in the informal economy in particular, innovations are not recognized and innovation efforts in the firms are not
properly supported, for example, by mitigating financial and labor skills
constraints (see also Chapter 7 of this book). New thinking and policies to
recognize and support innovation are required in these countries to help
support long-term growth and development.
Innovation needs to be redefined to be more relevant to the informal
sector: based not so much on R&D but on the diffusion of ideas and
learning. Better metrics are also required to more accurately measure
innovation in this sector (see Chapter 8 of this book). A theory of how
innovation is created and diffused in the informal sector should be
developed, helping to create a road map to help upgrade capability in
this sector. We also need to better understand the role of networks and
clusters in facilitating knowledge transfer among firms in the informal
sector and in building greater network-based production capacity within
the sector. Finally, we need to investigate how government policies can
effectively help firms in the informal sector to address resource, capability
and institutional constraints, and so greatly stimulate creativity and
dynamism in the informal economy.
This book is an important step in the right direction.
References
Fu, X., Zanello, G., Essegbey, G., Hou, J. and Mohnen, P. 2014. Innovation in
Low-Income Countries: A Survey Report for the Diffusion of Innovation in
Low-Income Countries Project (DILIC). DFID-ESRC Growth Research
Programme, University of Oxford.
Thai, M.T.T. and Turkina, E. 2012. Entrepreneurship in the Informal Economy:
Models, Approaches and Prospects for Economic Development. New York
and London, Routledge.
3
A Study of the Informal Metalworking Sector
in Nairobi
christopher bull, steve daniels, mary kinyanjui
and barrett hazeltine
Introduction
This chapter presents an understanding of the flow of innovations
through Kenya’s informal metalworking sector and how appropriation
mechanisms (both conventional and unconventional) regulate that flow.
We examine the activity around intellectual property in the sector and
identify sources and conduits of innovation and factors that promote or
inhibit the dissemination or adoption of new ideas. This chapter complements the two other case studies in South Africa and Ghana presented in
Chapters 4 and 5.
In Kenya, informal manufacturers are relevant not only economically but also culturally. Known as jua kali (Kiswahili for “hot sun”),
their contributions pervade all parts of society, from the built environment to music, and many take pride in this work as an identity.
Originally reserved only for makers, or fundi, the term now applies to
all informal workers. We use the word fundi frequently to identify
a craftsperson or skilled worker and the phrase jua kali to include not
just the skilled workers but also traders, brokers, trainees and casual
laborers within the informal economy. Kenneth King was one of the
first to gather the stories of jua kali and their social, technical and
political environment, which he published in his book Jua Kali
Kenya: Change and Development in an Informal Economy, 1970–95
(King 1996).
Our work focuses on informal activity within Nairobi, with detailed
data obtained for a cluster of metalworkers in an area known as
Kamukunji. The products manufactured in Kamukunji are commodities
(cooking stoves, pots, pans, wheelbarrows and metal boxes) sold to the
low-income population in Kenya and are representative of goods
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a st u d y o f t h e i n f o r mal met al working s ec tor
101
produced in other metalworking clusters in Nairobi. Beyond the makers
and business owners, the cluster includes Association officers (who are
also active in production), input suppliers, trainees (who typically pay the
fundi or business owner for training) and brokers (on and off site) who
bring together producers and buyers.
Surveys, interviews, field observation and photographic documentation were combined to describe conditions and serve as the basis for our
analysis. Fieldwork includes photographic documentation of the cluster
and the street to illustrate the range of products, the variations in detail of
specific products and the formal-to-informal adaptation of products that
takes place.
In documenting innovation in Nairobi’s metalworking sector
(whether through photography or interviews), we specifically sought
out cases where products were originated or improved, new manufacturing processes were adopted or copyrightable stylistic changes were made
to a product. This included incremental innovations that were new to
a particular firm or cluster.
The Informal Metalworking Sector: Key Features
The Informal Economy of Kenya
The informal economy is a vital job creation engine in Kenya. The most
recent national survey (Kenya National Bureau of Statistics 1999) estimates that the sector employs 72 percent of the non-agricultural workforce. Data from the Kenya Integrated Household Budget Survey of 2004/
2006 indicate that 61 percent of the non-agricultural urban workforce is
informal (Budlender 2011). Another study (Kenya National Bureau of
Statistics 2009) estimates that the sector contributes over 90 percent of
new jobs each year. The informal economy is also a valuable contributor
to GDP at 34 percent (Kenya National Bureau of Statistics 1999). More
recent estimates put the GDP contribution of the informal sector at about
20 percent (Ouma et al. 2007), which is still a very significant portion.
More than one-third of the informal workforce is urban, with the
densest concentration in Kenya’s capital, Nairobi. Here, due to colonialera segregation, most informal workers can be found in the Eastlands, an
area where industry continues to expand. While informal industry can be
found anywhere, including residential zones like Kibera and
Kawangware, the most productive businesses are usually organized in
industry-based clusters of mixed manufacturing and trade. The positive
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ch ri s top h e r b ul l e t a l.
effects of cluster organization on industry growth, both informal and
formal, are well documented (Kenya National Bureau of Statistics 1999),
but we also find clusters to be loci of ideas. Clusters of businesses can be
known for particular products and designs, reflecting a type of specialization. Those working in a particular segment (for instance, artwork or
auto parts) tend to cluster in certain geographic locations. The informal
metalworking sector in Nairobi produces products and services ranging
from automotive repair and customization, consumed by the local market, to commissioned sculptures destined for hotels in Europe.
The Role of Metalworking
While employing a small portion of the informal workforce (18 percent,
according to the Kenya National Bureau of Statistics [1999]), the manufacturing sector is highly productive and particularly relevant to the
domestic and regional populations. Most informal manufacturers sell
locally or within East Africa, and, whether due to price or adaptation of
product design, certain segments of the market find these products more
accessible than imported alternatives. And while some clusters produce
commodity products for the so-called bottom of the pyramid consumers,
like the metal boxes described below, others make furniture, art and
architectural elements for middle- and upper-income local and foreign
markets. Some clusters produce items for other businesses, including
fabricating inputs for more sophisticated manufacturers.
Among the major manufacturing sectors – metalwork, woodwork and
textiles – metalwork has a particularly rich history. Metalworking has
been centralized in the Kamukunji jua kali cluster since Kenya’s independence in 1963 due to its proximity to the Machakos bus station, which
allows for easy distribution of products to the rest of the country (see
Figure 3.1). The founding entrepreneurs were reportedly highly skilled
workers moving from the formal sector (Kinyanjui 2008), but mainly
unskilled labor followed, giving rise to Kamukunji’s apprenticeship system and its reputation as an informal training center. Owing to the lack of
machinery, skills narrowed over time. The Kamukunji Jua Kali
Association was unofficially founded in 1984 to represent the artisans
working there. This marked Kenya’s first informal manufacturing association, which thrives today. In 1986, the cluster was recognized by the
government following a visit from President Daniel Moi, who promised
“shades” to provide workplaces out of the sun. The Association was
formally registered in 1992 (Kamukunji Jua Kali Association 2013).
Figure 3.1 Kamukunji cluster is outlined to the east (right) and Machakos bus terminus is outlined to the west (left).
Source: Google Earth, September 2013, modified by authors.
104
ch ris top h er b ul l et al .
President Moi made good on his promise, providing three long,
narrow shades (about 70 m × 7 m) arranged parallel to each other with
about 20 m between them (outlined to the right in Figure 3.1). The shades
have corrugated metal roofs and timber frames and are open beneath the
roof. Originally constructed to house about 375 artisans, each shade was
subdivided into sheds of about 40 m2, with ten artisans settled in each
shed. Over time, the sheds have been further subdivided and added to, so
that the 20 m separating the sheds, as well as the surrounding area, has
largely been roofed. There are footpaths wide enough to get goods in and
out, but too narrow for cars or trucks. This means that deliveries come to
the perimeter and are loaded onto hand trucks or trolleys to traverse the
cluster. By 2013, the Association had about 4,000 members, and the
population in the cluster is estimated to be about 5,000 artisans, business
owners, suppliers, brokers and service providers (Kamukunji Jua Kali
Association 2013).
Smaller clusters have emerged around Nairobi. These are often populated with “graduates” of Kamukunji; the workers are highly skilled and
the premises more established. Of note are the Racecourse cluster of
furniture- and art-makers, the Gikomba furniture-makers and the
Kariobangi cluster of machine-makers. Table 3.1 lists the types of businesses we studied and the specific representative organizations that took
part along with the markets served and the priorities of each market.
Demographic Profile of Survey Respondents
Our survey was administered to fifty-three Kamukunji cluster members,
selected by interviewers with the objective of including those occupying
different positions. Of those surveyed, 32.1 percent (seventeen) were
fundi workers (who were hired by others to produce goods), 20.8 percent
(eleven) were fundi owners (who hire others), 37.7 percent (twenty) were
non-fundi business people (who contract fundi) and 9.4 percent (five)
were fundi business owners (who did not hire others). Since not all of the
survey questions are applicable to all respondents, the number of respondents varies depending on the question.
The respondents include forty-three males and ten females. They
reported completing formal education from preprimary (1.9 percent),
primary (43.4 percent), secondary (34 percent), college (18.9 percent) to
university (1.9 percent). Once they join the cluster, members tend to stay:
58 percent have been members for more than ten years and 92 percent
have been members for five years or more.
Table 3.1 Producers taking part in this case study
Type
Represented by – in
this case study
Method of study
Market
Market’s first
priority
Market’s second
priority
Commodity cluster
Furniture cluster
Kamukunji
Gikomba, Racecourse
Low income
Middle income
Low cost
Visual appeal
Functionality
Functionality
Middle and
high income
Visual appeal
Quality
Housemark
Survey, interview
Interview in prior
work (Daniels
2010), revisit during
this study (Osanjo
2010)
Interview in prior
work (Daniels
2010), revisit during
this study
Interview
Artwork cluster
Racecourse
Non-cluster worker/
business 1
Non-cluster worker/
business 2
Visual appeal
Quality
Simply Logic
Interview
Middle and
high income
Lower middle
income
Functionality
Low cost
Figure 3.2 Metal boxes, ready for sale. They are used primarily for secure storage by students at boarding schools.
Photo: S. Daniels.
a st u d y of t he i n f o r mal met al working sec tor
107
Of the fundis hired for production, 77 percent stay with an enterprise
for a year or more, 3 percent for six months and 19 percent work on
a casual or as-needed basis. Most of the owners (twenty-four of thirtyone) pay piecework, and the amount for each piece depends on the
complexity or typical fabrication time. The rest of the owners pay day
wages. When owners hire, their first concern is the skill and experience of
the fundi, with preference given to those who demonstrate that they have
made a similar product before and that their work is of high quality.
Reputation, honesty, trustworthiness and willingness to learn are frequently mentioned as qualifications. It is rare that someone from outside
the cluster is hired for production, so most fundis are known to those
hiring.
Training usually happens in the cluster (as seventeen of twenty-four
report), with trainees paying fundis or business owners for their training.
The process generally takes three to six months, with two weeks being the
shortest and two years being the longest reported.
Products Manufactured in the Kamumkunji Cluster
The manufacturers in the cluster produce commodity goods bought by
those who cannot afford or choose not to buy similar imported items.
Figure 3.3 shows the distribution of goods.
Responses to "What types of products do you make?"
Boxes
Pot or Sufuria
Jiko
Wheelbarrow
Chip warmer
Chip cutter
Popcorn maker
Trolley
0%
5%
10%
15%
20%
25%
Frequency
30%
35%
40%
Figure 3.3 Products manufactured by interviewees in Kamukunji (n = 84; businesses
produce more than one product).
Source: Fieldwork of authors in 2013.
108
ch ri s top h er b ul l e t a l.
In the cluster, twenty of the fifty-three respondents produced metal
boxes (used by primary and secondary boarding school students for
secure storage). Figures 3.2 and 3.4 show typical products. The size and
shape is relatively uniform across producers; there is some variation in
design elements (color, stenciling) and in the quality of manufacture and
finish – in an earlier study, Hermsen provides a detailed description of
box production (Hermsen 2010).
The boxes have been produced in the Kamukunji cluster since its
beginning, and the origin of the product cannot be traced. The paint
scheme seems to indicate that the box is intended to replicate what might
be called footlockers. The silver paint on the hardware and corners
visually approximates the bright chrome or nickel plating found on the
frames of boxes from formal sector manufacturers. Formal sector box
panels are typically made from fiber board rather than steel. This brings
up a question that we will revisit several times: is there something
innovative about the boxes and is there some intellectual property that
might be appropriated? The creative act in producing boxes in the cluster
is that of adapting the essence of a box produced in the formal sector to
the tools and materials available. The boxes produced in the cluster are
not exact copies of those formally produced. It is a product that maintains
the shape and function of the original, but uses the design language of the
informal sector. With the technology available in the cluster, it would be
impossible to produce exact replicas at anything close to a profitable rate.
In her study of product design in Kenya, Donaldson reports that the vast
majority of manufacturers (formal, informal and NGO) make products
that are imitations of “foreign-designed products” (Donaldson 2006).
Traders from rural areas come to Nairobi to purchase these boxes for
retail sale in smaller markets. The traders rely on inter-urban buses to
transport their goods, so the proximity of the Kamukunji cluster to
Nairobi’s major inter-urban bus terminus gives the cluster an edge over
manufacturers further away.
The tied-for second most manufactured product was the charcoal
cookstove known as a jiko, with 13 percent of those surveyed producing
these. Products range from small single-family stoves, as shown in
Figure 3.5, to institutional versions about a meter in diameter. Jikos
come in two distinct types, one is all sheet metal; the other adds
a ceramic liner to the fuel box. This addition improves the efficiency so
that the user requires less charcoal. Jikos with the ceramic liner are also
known as “improved jikos” – further details are provided in the section
below on innovation.
Figure 3.4 Metal boxes close-up to show the variation in detail, finish and quality.
Photo: S. Daniels.
Figure 3.5 Typical cookstoves. The one on the right with black finish incorporates ceramic liners to improve the efficiency.
Photo: B. Hazeltine.
a st u d y o f t he i n f o r mal met al w orking sec tor
111
Eleven businesses (13 percent) manufactured “pots” that ranged from
chapati pans (slightly concave aluminum pans) to institutional-scale vats,
plus lids to go with them. This category includes many distinct products.
In the foreground of Figure 3.6 is a cooking basin that is similar to
a Chinese wok. The body is made of sheet steel and the handles are
made of steel wire. During production, disks are cut from a large sheet
and then are beaten (cold worked) to shape with a hammer and convex
anvil. Holes are punched for the handles, either with a hammer and
punch on an anvil or for those who can afford it, with a lever actuated
punch. The wire handle is threaded through the holes and then hammered to form a head that keeps the handle in place. Typically, there is
a division of labor, with one worker marking the sheets, another cutting
the disks, several forming the bowl and one cutting and installing the
handles. The sheet steel feedstock is scrap metal, so there is no telling how
hard it will be, but the Association maintains an “annealing oven” that
firms may use to soften steel that is too hard to be worked as received.
The third most manufactured product is the wheelbarrow, with ten
respondents (11.9 percent) reporting them as part of their product mix.
Figure 3.7 shows wheelbarrows ready for sale. The Secretary of the
Association mentioned that an imported wheelbarrow was brought to
one of the businesses in the cluster for repair, and the fundi quickly
copied the basic design and began producing their own version.
The wheelbarrow is a good example of how products are adapted so that
they can be made using the available tools and materials. Those produced
in the cluster can be identified by the square corners of their trays and the
variation of wheels and wheel mountings. Imported wheelbarrows typically have drawn steel trays. This process takes a flat sheet of ductile steel
and uses a large (expensive) press to deform the sheet into a tray with large
radii corners. To get the proper shape, the press is fitted with a die that has
the same shape as the box and a punch that has the inverse shape. The sheet
steel is sandwiched between the two and the press brings the punch and die
together. A press of this scale, and the punch and die for the tray, would be
fifteen to twenty times the highest annual value of goods sold by a firm in
the cluster; hence the need to adapt the product to fit the available
production machinery. The wheelbarrow trays produced in Kamukunji
are folded and welded and thus have much squarer corners.
The variation in wheels is a response to the wheel supply chain in the
informal sector. The wheels are typically removed from vehicles that have
reached the end of their useful life, so they could be from a car, motorbike, scooter or anything else that uses wheels with pneumatic tubes and
Figure 3.6 Pots, pans and cooking utensils manufactured in Kamukunji.
Photo: S. Daniels.
Figure 3.7 Wheelbarrows (and metal boxes) ready for sale.
Photo: S. Daniels.
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c hr i st op he r bul l e t al.
tires. In consequence, there is a wide variation in both the size of the
wheel and the mounting configuration. This is in contrast to the manufacturer of imported wheelbarrows, who would order as many identical
wheels as they needed for a production run.
The adaptation of the imported wheelbarrow design to informal sector
production using the available tools, techniques, materials and components exemplifies the intellectual capital of the sector. Broad knowledge
of the market to be served and of the available material and manufacturing process are used to design the informal version of the wheelbarrow.
The calculus is then to determine at what cost the goods can be sold while
maintaining or growing the business.
Typically, ideas for products do not originate in clusters.
The craftspeople in the cluster take ideas from products they see in the
markets, suggestions from customers, manufactured items that customers bring for them to repair or any other source. The innovation that
occurs is the development of techniques and processes that allow those in
the cluster to create products that, at least functionally, are very close to
the original. As we have seen, the product mix tends to be commodities
whose origins predate ideas about protecting one’s intellectual property;
things like wheelbarrows, metal boxes, cooking pots and rain gutters.
Chip cutters, which are devices to cut potatoes into chips for frying,
were brought into production after the Association purchased one at
a trade show. Figure 3.8 shows one manufactured by the formal sector
together with the informal sector copy. These products are sold to those
who cannot afford similar items (typically imported) sold in shops.
The imported model uses aluminum castings for the handle, base and
pusher plate assembly.
Producing a cast part requires the capacity to create a suitable mold
and the capacity to melt (an adequate source of heat is needed) and pour
aluminum. The informal version translates the castings to sheet metal
and stabilizes the guide pins by adding a steel bar welded across their top.
The pusher plate assembly incorporates the same serrated pusher as the
cast version, and the cutting assemblies look identical. This means that
the informal producer was able to find a manufacturer who could produce those parts.
Art Objects Manufactured at Racecourse
A segment of informal metalworkers located on the western edge of
Nairobi in an area called “Racecourse” produces art objects (The name
Figure 3.8 Chip cutters. Imported model on the right, informal adaptation on the left. The adaptation translates castings to sheet metal and
adds a return spring to the mechanism.
Photo: C. Bull.
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c hr i st op he r bul l e t al.
refers to the area’s proximity to the horse-racing track). The customers
for these goods are middle-class Kenyans, foreign tourists and interior
designers (one craftsperson was producing seventy-five elephants for
export to Europe, destined for hotel lobbies – see “Case: Moses
Metalwork” below for further details).
Racecourse is located along Ngong Road, a major artery between the
city center and the western suburbs, about 11 km west of the Kamukunji
cluster and the Machakos bus depot. As the number of shops has grown,
so has the infrastructure to support them, with suppliers of tools, hardware and materials interspersed with production shops. As of 2013, the
cluster did not have a formal association; however, anecdotal evidence
suggests resources are shared among shops when needed.
The social structure is similar to that of Kamukunji: there is a cluster of
businesses, they hire fundis and also train those without experience (usually
for a fee). Because the products are intended for middle- and high-income
consumers who can afford imported goods, the quality, visual appeal and
novelty of the products are more important than in Kamukunji. The value
that the maker adds to the raw materials is significantly higher. Since the
customer places a premium on novelty, there is a strong motivation to
develop products that are distinct from other producers. Makers tend to be
more secretive and their production areas are not as open as in Kamukunji.
The physical layout differs from Kamukunji, as each business has its
own shed. While this makes it easier to keep some things hidden from
competitors, in order to attract business, shops display their best wares
out front along the main thoroughfare. Figure 3.9 shows examples of
products from this area.
Innovation in Informal Metalworking Manufacture
Defining the Innovation System
The innovation system of informal producers comprises the firms themselves as well as staff, service providers, suppliers, brokers, customers, end
users, sources of creative inspiration (such as market trends, new technologies and cultural context) and the supporting infrastructure. These
features span the formal and informal sectors, as well as the private and
public sectors.
Figure 3.10 represents the innovation system in Kenya diagrammatically.
The short dashed lines represent formal paths and the long dashed lines,
informal paths. The dotted box encloses the value chain for manufacturing.
Figure 3.9 Animal sculptures at the Racecourse cluster.
Photo: S. Daniels.
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c h ri st op he r bul l e t al.
Global international market trends, standards, and technologies
Regulatory
Framework
Regional
and local
gov’t
Education Organizations
Public
(universities)
Private
(KNFJKA)
Kenya IP
Institute
Kenya
Attorney
General
Knowledge and Tech Transfer
Business
incubators
Tech
trans. orgs.
IPR Bodies
(CIPIT)
Representation associations
Formal
associations
Funding and
Support Orgs
Formal
Informal
associations
Service
Providers
Formal
suppliers
Formal
manuf.
Formal
retailers
Private
consultants
Consumers
and users
Informal
Informal
suppliers
Informal
manuf.
Informal
retailers
Standards
(KEBS)
Cultural, economic, and social context
Figure 3.10 The innovation system of manufacturers in Kenya includes cluster
businesses (suppliers and retailers), support and service organizations, education and
knowledge transfer institutions, associations and regulatory bodies, as well as
international trends and standards from above and cultural context from below.
Source: Authors.
Informal businesses are often referred to as “micro and small enterprises” (MSEs). The Kenya Micro and Small Enterprise Act of 2012
defined micro-enterprises as having fewer than ten employees and less
than KES 500,000 in annual turnover and small enterprises as having ten
to fifty employees and KES 500,000 to 5 million in annual turnover
(Republic of Kenya Parliament 2012; we will discuss this Act in more
detail later in this chapter). This is somewhat misleading in a Kenyan
context, where it is estimated that 70 percent of all non-agricultural MSEs
employ just one person. Business size tends to be slightly larger in
Kamukunji, where apprentices are common.
a st udy o f th e in f orma l me ta l wor kin g s ec to r
119
Kamukunji Income Range (Thousands of KES)
Reported annual value of goods sold
More than 3000
2000 to 3000
1000 to 2000
900 to 1000
800 to 900
700 to 800
600 to 700
500 to 600
400 to 500
300 to 400
200 to 300
100 to 200
50 to 100
50 or less
0
2
4
6
8
10
Frequency
Figure 3.11 Annual value of goods sold reported by 40 firm owners in the Kamukunji
cluster.
Source: Fieldwork 2013.
Of the forty Kamukunji business owners who gave an annual value of
goods sold, 32 percent (thirteen of forty) put the value at KES 100,000 or
less, and 50 percent put the value at KES 300,000 or less. Figure 3.11
shows the distribution.
We categorize the documented businesses by size and mode of production (mass versus custom) in a two-by-two matrix (Figure 3.12).
Businesses in Kamukunji generally fall into micro-scale and mass production. Enterprises in the Racecourse cluster are generally micro and
produce custom furniture and art (see “Case: Moses Metalwork”).
We also find examples of larger furniture and furnishings businesses
(see “Case: Housemark”). Enterprises in Kariobangi are also larger, with
some producing for mass consumption and others producing equipment
for commercial manufacturers.
We also found a category of businesses that were not geographically
clustered. These are small-scale, highly innovative start-ups, often
founded by more skilled or creative jua kali or formal entrepreneurs;
we call this the “small-scale innovation sector”.
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ch ri s top h e r b ul l e t a l.
Small
Housemark
Kariobangi
Small-Scale Innovation
Racecourse
Kamukunji
Size
Mass
Micro
Production
Custom
Figure 3.12 Enterprises based on size and mode of production. Examples referenced
in this section are mapped onto the 2 × 2 matrix.
Source: Authors.
Each type of business has a different innovation network. Highly
informal businesses like those in Kamukunji rely heavily on networks
within the cluster, and loosely link to formal institutions via the
Kamukunji Jua Kali Association, contractors and occasionally microfinance or training institutions. One grievance aired by jua kali in
Kamukunji was the recent emergence of brokers who sought out customers in the market, took high margins from the producers and engaged
in unethical sales practices. Brokers could provide a vehicle for better
access to market needs and drivers, which in turn could encourage
producers to innovate, but in practice their arrival has been a market
inefficiency that has forced producers to compete on price.
The formal businesses that have “graduated” from Kamukunji are
more likely to have access to formal training, financing and suppliers.
Those in the small-scale innovation sector are likely to have an active
network of support organizations. For instance, the founder of Simply
Logic (an organization developing biogas digesters and related products
a st u d y o f t h e i n f o r mal met al w orking sec tor
121
for small farmers) worked with the staff at the Kenya Industrial Property
Institute (KIPI) and the Center for Intellectual Property and Information
Technology (CIPIT) to pursue patents. Actors in this sector also have
more freedom to exercise their creativity, though they still struggle to find
suitable support and protection.
Case: Moses Metalwork – A Custom Micro-Enterprise
Moses Metalwork sits among the clanking of hammers and sizzles of arc
welders at Racecourse. Moses started his custom micro-workshop nine
years ago by fabricating typical furniture pieces but switched to largescale sculpture when he came across an interested European buyer. Now
he stands out from his neighbors by making high-end sculptures out of
scrap metal and is one of the most successful entrepreneurs in the cluster.
He started with just an arc welder and small premises but has since
reverse engineered the welding machine and fabricated ten more from
scratch. He has also expanded his premises significantly and takes on as
many as thirteen apprentices at a time depending on demand. At the time
of interview, he and his workers were filling a large order for giraffes,
warthogs and windmills to be shipped to the United Kingdom.
Others at Racecourse have already copied his designs. Despite the
contentious issues of competition and intellectual property, the area is
showing signs of an emerging cluster that may over time develop
a reputation and attract buyers. The businesses might benefit by coordinating operations, pooling resources and further specializing.
Case: Housemark – A Custom Small Enterprise
Lawi Muriuki started his furniture workshop in his backyard, and like
other jua kali he would produce custom furniture and furnishings out of
any catalog. But he is not a typical fundi, and Housemark is not a typical
shop.
Lawi was trained at a technical school, studied entrepreneurship and
worked for five years at an incubator program called Advancing Kenyan
Industry through Local Innovation (AKILI). At AKILI, he learned to
research market needs and identified opportunities for shoe racks, towel
racks and other products jua kali could make. Over the last twelve years,
he and his co-founder have grown Housemark, moving to increasingly
larger facilities and broadening product lines.
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c hr i st oph e r b ul l e t al.
His design skills have provided an important foundation for his business, and he trains his fundis both to design and to produce high-quality
products by hiding welds and adding details like notching. He organizes
his staff into project teams with diverse sets of skills.
Today, Housemark sits in a large, secure facility near Kamukunji.
The company sells over 2,000 products – too many, Lawi says, to patent
or copyright. He worries more about retaining talent than rights to his
designs. But he does have issues with his trademarked brand: competitors
like Housemart and Houseman have popped up nearby. Lawi’s response
is to call the competitor and threaten litigation and he says that this
approach has been successful.
Profile of Innovation in the Sector
In interviews and surveys across these sectors, we sought out cases of
innovation showing origination or improvement of products, adoption
of new manufacturing processes, or copyrightable stylistic changes made
to a product. This includes incremental innovations that are new to
a particular firm or cluster.
Overall, we found the most product innovation occurring in the
formal small-scale innovation sector, a moderate amount in semiformal mass and custom small enterprises, and the lowest amount in
highly informal mass and custom micro-enterprises (see Figure 3.13).
Kamukunji, which falls into the last category, is a particularly interesting
case because a free flow of ideas is central to the way the cluster operates,
but this also reduces the incentive to innovate in terms of designing new
products. Currently, the Kamukunji Jua Kali Association presents the
cluster as a “training center” and discourages entrepreneurs and inventors from protecting their ideas by requiring that sheds be open and the
work going on visible to passersby. As mentioned earlier, the innovation
happening in the cluster revolves around adapting existing designs to the
available methods of production. Entrepreneurs generally supported this
approach.
In our survey of business owners in Kamukunji, we asked about both
product and process innovations, as well as the sources of these improvements. About one-third of respondents had been making their product
for over a decade, while 20 percent had started making the product in the
last five years. Only 5 percent claimed the product was their original
design. Nearly 60 percent were confident about the market for the
product when they began producing it.
Simply Logic
Product Innovation
a st u d y o f t h e i n f o r mal met al working s ec tor
Kariobangi
123
Small-Scale
Innovation
Housemark
Formality
Racecourse
Export
Processing
Zones
Kamukunji
Figure 3.13 Product innovation levels of enterprises of varying levels of formality.
While the formal Small-scale innovation sector showed the most continuous
innovation, formality was not necessarily a predictor of the product innovation level.
Source: Authors.
The most common way to differentiate a product was quality; more
than half of respondents cited quality of materials and product as
a differentiator. More than a third focused on style and decoration,
while just 9 percent focused on modifications to the product itself. Since
they started producing, only 4 percent have changed their manufacturing
process, though 13 percent say they do research to make improvements.
An overwhelming majority – 97 percent – said they collaborate with
other businesses in the cluster producing the same product as them.
When asked about formal competitors outside the cluster, 55 percent
said they collaborate with them. Of the sources of aid to the production
process (Figure 3.14), the most common, reported by 50 percent of
business owners, was fellow business people, and 24 percent sought
help from fundis. While only 5 percent had received any assistance
from formal training institutions, 52 percent said they would feel comfortable working with one.
We asked a similar set of questions to the fundis of Kamukunji and
found slightly more innovation among the craftsmen than the business
owners. About 20 percent said they had originated a new product since
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ch ri sto ph e r b ul l e t a l .
Sources of advice for production process, n = 42
Percent of Respondents
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Other
Business
People
Fundis
No one
Employer
Association
Figure 3.14 Most business owners say they collaborate with other business people
and/or fundis to improve their production processes. Very few receive institutional
support or work in complete isolation.
Source: Fieldwork 2013.
they started working as fundis, while 8 percent had modified a production
process since working in Kamukunji.
Among those with original designs, over half said they received help
from their employer, trainer, or business owner. About a quarter said they
received assistance from a friend or fellow fundi. In general, training came
from a variety of sources (see Figure 3.15): other fundis in the cluster
(42 percent), friends or relatives (29 percent), employers (17 percent) and
trainers (13 percent).
Nearly 80 percent said they had trained other fundis, and over 90 percent
said they allow other fundis to copy their designs.
Our results indicate that innovation in the Kamukunji cluster occurs
mainly through adaptation of product designs and stylistic modifications
(see Figure 3.16). Those who had originated a product or design were
likely to have reverse engineered the product from an external source.
For example, the chip cutters entered the sector when a customer asked
a jua kali to repair one. He then reverse engineered it and began manufacturing his modified design at scale.
The Kamukunji Association leadership identified trade shows as
a source of inspiration; attendees would survey competitors’ products.
If there is a new product, they might buy it, bring it back and
a st u d y o f t h e i n f o r mal met al working s ec tor
125
Sources of fundi training, n = 24
45.00%
Percent of Respondents
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
Cluster Fundi
Employer
Relative
Friend
Trainer
Figure 3.15 Fundis most often received training from other fundis in the cluster.
Some received training from employers, relatives or friends. Very few received training
from professional instructors.
Source: Fieldwork 2013.
Formal
Designed
Informal
Adapted
Copied
Figure 3.16 This generalized model shows the typical flow of innovation between and
within the informal sector. Jua kali innovators most often adapt formal designs to
available materials, production methods, style trends and customer needs. Other jua
kali rapidly copy these adapted designs. Occasionally, a “reverse innovation” may occur
in which formal solutions are adapted from informal ones.
Source: Authors.
collaboratively reverse engineer it. The association actively encourages
information sharing by holding meetings and intervenes when an inventor tries to work in secrecy. If someone gets a head start, the association
estimates he or she has about two months before competition is
widespread.
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ch ri s top h e r b ul l e t a l.
New designs often undergo a modification process to adapt to available
materials and production methods. As we noted above, the chip cutter’s
original lever was cast aluminum, but the jua kali version is sheet metal.
The wheelbarrow’s rounded corner is now a welded seam, and its wheels
are derived from whatever used parts are available. The end products are
often not uniform in appearance or performance.
Discussions and related research revealed isolated cases of continuous
innovation in and around Kamukunji. It is also apparent from discussions with jua kali in other clusters such as Kibera’s Toi Market that some
stylistic modifications spread not only within the cluster but also between
clusters over time. For example, boxes in Toi Market used similar stencils
to those in Kamukunji but had unique clasps.
Obstacles to Innovation and Scale
From these results it is clear that while many jua kali in Kamukunji
differentiated their products based on quality and style, most did not
continuously make product or process innovations. We put forward
three hypotheses to explain this phenomenon: (1) there is a lack of source
material to inspire innovations with clear market demand; (2) there is
a lack of skills; and (3) there is a lack of incentive to innovate.
The results of the study confirm the limited scope of help offered to jua
kali metalwork manufacturers in generating innovations. Most sought
help from others within the sector and cited few external sources. Among
the external sources cited were customers and previous training.
Discussions with the Kamukunji Jua Kali Association revealed a few
more: trade shows and large supermarkets like Nakumatt. Very few jua
kali had received training since entering the cluster.
In relation to skills and training, while most of the business owners –
78 percent – said there are enough skilled fundis, one wrote that “it is not
easy [to differentiate products] as we all use the same fundis.” Nearly
three quarters of business owners do not train their fundis.
Anecdotally, a number of jua kali cited lack of protection as
a disincentive to innovate. It was agreed that any designs introduced to
the market would be copied, though some acknowledged a first-mover
advantage. For example, a fundi who reverse engineered a telephone
booth sold the product for KES 35,000 (USD 400) for a few months,
before having to drop the price to KES 8,000 (USD 90) due to
competition.
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Case: Kenyan Ceramic Jiko – Open-Source Design
In 1982, Dr. Maxwell Kinyanjui, working for Kenya’s Ministry of Energy,
set out to change how Kenyans cooked food. Traditional stoves used too
much wood and polluted indoor air. He could have incubated a stove
manufacturer, but public-sector spin-offs often fail. Instead, he recognized that designs and techniques spread more rapidly in the informal
sector.
His design was simple and suitable for manufacture by many artisans
across urban and rural Kenya. He changed the shape slightly from the
traditional jiko, or stove, and added a clay insert to the scrap steel housing to
insulate the jiko and use less firewood. The Kenyan Ceramic Jiko costs KES
350 (USD 4) and is 30–50 percent more efficient than the traditional stove.
The technology has circulated widely because it was an easy switch from
the traditional stove. Kinyanjui taught artisans how to produce the sheet
metal components and ceramic insert, explained the purpose of the ceramic insert to community groups, and educated consumers about the cost
savings from reduced fuel use. The United States Agency for International
Development (USAID) funded Kinyanjui to produce 5,000 units, but
250,000 were produced and sold by micro-enterprises within four years.
Today, artisans in virtually every village and trading center in Kenya
produce some variation of Kinyanjui’s design (Musaki Enterprise 2010).
Appropriation Mechanisms
In this section, we review the appropriation mechanisms available in
Kenya using the formal/semi-formal/informal framework discussed in
Chapter 2. We then report the attitudes of survey respondents and
interviewees toward these mechanisms.
Formal Mechanisms
Kenyan law recognizes seven formal appropriation mechanisms for
intellectual property: “(1) trademarks and service marks; (2) patents;
(3) utility models; (4) industrial designs; (5) rationalization models; (6)
copyrights; and (7) plant-breeders rights” (Economist Intelligence Unit
2012). Of these mechanisms, trademarks and service marks (Republic of
Kenya Attorney General 2001), patents, utility models, industrial designs
(Republic of Kenya Ministry of Trade 2001) and copyrights (Republic of
Kenya Attorney General 2001) are the most useful for actors in the
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Table 3.2 KIPI filing costs and duration from the Kenya Industrial
Property Journal (Kenya Industrial Property Institute 2013), copyright
cost and duration from the Copyright Board website (Kenya Copyright
Board 2013)
Mechanism
Granting body
Filing
cost (KES)
Enforcement
Duration
(years)
Copyright
Trademark
Utility model
Industrial
design
Patent
Kenya Copyright Board
KIPI
KIPI
KIPI
1,000
4,000
7,500
6,000
By owner
By owner
By owner
By owner
50**
10*
10
5*
KIPI
10,000
By owner
20
Note: * Renewable – trademarks are renewable indefinitely, utility models may be
renewed for five additional years.
** Duration of copyright depends on the type of work. Copyright in literary,
musical or artistic works other than photographs lasts for fifty years after the end of
the year in which the author dies. For audiovisual works and photographs, it lasts
for fifty years from the end of the year in which the work was either made, first
made available to the public or first published, whichever date is the latest.
Copyright in sound recordings lasts for fifty years after the end of the year in which
the recording was made, while the term for broadcasts is fifty years after the end of
the year in which the broadcast took place.
informal metalworking sector as ways of holding on to innovations they
have developed.
We can rank the mechanisms in terms of filing costs,1 duration and
enforcement process – see Table 3.2 – to gain a sense of how difficult
it might be for fundi to gain some level of ownership of their
innovations.
Semi-Formal Mechanisms
These generally refer to contracts between stakeholders to limit the
dissemination of ideas or innovations that one of the stakeholders
deems valuable. Examples include non-disclosure agreements, transfer
1
For this study, we used the filing costs published by the granting body and did not include
attorney’s fees and other costs.
a st u d y o f t he i n f o r mal met al w orking sec tor
129
of rights from employee to employing organization, trade secrets and
non-competition clauses.
Informal Mechanisms
Informal mechanisms tend to be indirect ways of appropriation and
include first-to-market advantage, hiding production processes, monopolizing production resources and dividing tasks to keep the knowledge
of a particular individual incomplete.
Survey and Interview Indications
Our survey and interviews asked about access to and use of formal
appropriation mechanisms, attitudes toward sharing ideas, ownership
of ideas and cultural norms around collaboration. Of the groups we
talked to, there were marked differences in awareness of formal mechanisms, interest in pursuing appropriation and desire to share advantages.
Those in the Kamukuji cluster favored collaboration and sharing,
which is the cultural norm. When asked “Do you collaborate with jua
kali making the product?,” thirty-eight out of thirty-nine respondents
(97.4 percent) said yes. The interest in collaboration decreased when
cluster workers were asked about working with those outside the cluster:
when asked “Do you collaborate with non-jua kali producing the same
product?,” twenty-two of forty respondents (55 percent) said yes.
The question is asked in an active sense – “do you?” rather than “would
you?” – so a portion of the reason for the decrease may be geographical
logistics.
When fundis were asked “Do you collaborate with fundis making
similar products?,” twenty of twenty-four respondents (83 percent) said
yes. The forms of collaboration included sharing job opportunities, raw
materials, tools and processes. In determining with whom to collaborate,
fundi considered trust and honesty to be as important as the skill and
experience of the potential collaborator.
Workers were not concerned about others copying products they
made. When asked “Do you allow fellow fundi to copy your ideas and
products?,” twenty-three of twenty-four (95 percent) said yes. When
asked “Do you feel you own the ideas for the products you make?,” six
out of twenty-four (25 percent) said yes.
Just one cluster worker out of thirty-seven considered securing intellectual property rights, and none of the fundi in the cluster had secured
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ch r i sto ph e r b ul l e t a l.
any intellectual property. Few fundi (two out of twenty-four) thought
that the association might help securing intellectual property rights.
However, they recognized the first-to-market advantage and did not
hesitate to use it when the opportunity arose. Secrecy was discouraged;
the cluster was seen as a training school for craftsmen and those trying to
hide their work were asked to leave (KJKA Secretary), and the layout of
the workplaces made it almost impossible (cheek-to-jowl with no solid
walls between).
From the survey and observations, a picture emerges of a community
willing to share ideas and production with little concern for protecting
ideas. This leads one to ask what economic and social calculi determine
fundis’ behavior regarding intellectual property. From an economic perspective, appropriation mechanisms cost time and money. For an individual fundi engaged in production (in contrast to a business owner), the
opportunity cost is lost production.
A recent study of urban poor in Nairobi found their mean household
monthly expenditure to be KES 13,957 (Amendah, Buigut and Mohamed
2014). Thus, the cost of appropriating intellectual property may be as
much as a month’s expenditure for an informal sector metalworker.
Workers at Racecourse were not part of the survey but were interviewed during fieldwork. They were more likely to take advantage of
informal appropriation mechanisms. The layout of their workplaces
(more isolated than Kamukunji) and the migration of workers between
workplaces (trainees tended to start their own enterprises rather than
moving to another employer) made processes and novel products less
visible.
Lawi Muriuki at Housemark relied on being better than any of his
competitors – better in the sense that he could develop new products
faster than they could copy his existing designs. When asked about others
copying his work, he laughed and said, “I don’t worry about copiers – it is
easy for me to just make a new design. I have a book of about 2,000
designs and continue to add to them.” He also worked at cultivating loyal
employees who saw value in being employed there. Muriuki’s enterprise
would be considered small rather than micro, and he had registered it
with the government. He also went to the trouble of trademarking his
business name and did not hesitate to call competitors who he felt were
infringing.
The owner of Simply Logic was the most interested in formal appropriation mechanisms and had on several occasions sought patents. His
experience (in his own words) was mixed. He had experience with KIPI
a s t u d y o f t h e i n f o r mal met al working sec tor
131
and expressed the opinion that “the system is not designed for informal
sector individuals to protect their ideas.” He said he had tried to patent
one of his ideas only to be told that KIPI could not help him. In another
instance, he stated, “a government-backed incubator attempted to appropriate his idea rather than helping him protect it.”2 In sum, the evidence
base is not sufficiently large to fully assess the government’s role in
helping to access IP. Yet, the field work yields that some innovators are
skeptical of the government’s intentions when it provides assistance.
Most of the producers we studied relied on what were called informal
appropriation mechanisms in the original conceptual study underlying
this work as in de Beer, Fu and Wunsch-Vincent 2013 and Chapter 6 in
this volume. In the clusters, this meant having a two-week first-mover
advantage. For those able to work in secrecy, it meant they had to use care
in exposing their products.
What we found in this study seems to bear out three hypotheses
suggested in Chapter 6 in this volume, reproduced with comments below.
• “Innovations in the informal economy do not meet the necessary
threshold to qualify for formal IP protection, as many are based on
imitation and adaptation of existing products” (ILO 1992). This was
the case for many of the products manufactured in the Kamukunji
cluster where the target market is the low-income population, but less
so for those produced at Racecourse where we found examples of
original work.
• “Actors in the informal economy have not heard about IP and lack the
necessary awareness, legal skills and access to the formal IP system.”
In general, we found that those we spoke with had heard of and were
aware of IP. However, there did not seem to be mechanisms in place to
help people in the informal sector gain the skills and access they would
need to use formal IP protection.
• “Actors in the informal economy are pessimistic about their ability to
register and enforce their IP. They therefore do not try to use the IP
system even though they realize that extensive copying among artisans
and the production of cheap copies abroad is threatening their
income” (Finger and Schuler 2004). This hypothesis was most strongly
validated by one entrepreneur who had made several attempts to gain
IP protection, with little success.
2
We would remind the reader that this is uncorroborated.
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c hr i st oph e r bul l e t al.
Alternative Strategies for Appropriation
We can envision a range of strategies in which informal sector metalworkers might appropriate their ideas. For any of these to be adopted
once an implementation program was in place, it would be critical for
there to be a trusted champion – someone from the cluster who was well
respected and could demonstrate the benefits accrued by protecting their
intellectual property. It would also be critical to make learning the
patenting process part of the training that apprentices receive; this
could best be done in the workplace and in parallel with learning to
manufacture.
The strategies are variations on several themes. One theme is group
ownership of rights, another reduces the time, cost and complexity for
filings, and a third develops branding and brand awareness through
trademarks. The themes are not mutually exclusive, so combining them
in creative ways may be a useful exercise.
Strategy 1: Association as Rights Owner
One strategy would apply to clusters, with cluster associations acting as
agents for members of the cluster and protecting ideas developed within
the cluster from copying by those outside it. The association is what we
have come to call “semi-formal” because it is recognized by and has direct
contact with the government while serving as a linkage between association members and the government. A cluster-wide appropriation
mechanism would distribute the cost over all the members and thus
not be an excessive burden on individuals. It would support and build
collaboration within the cluster and would not disrupt the social fabric.
Strategy 2: Streamlined IP Rights Process
The second strategy would require the government to develop a new
appropriation mechanism, with a low barrier to registration and
a streamlined process specifically designed for informal sector enterprises. Costs could be related to the projected sales price of an innovation
or the projected monthly gain for a process innovation. In this case, the
clients would be individual innovators rather than clusters. In addition to
the mechanism, a robust method for supporting and encouraging those
a st u d y of t he i n f o r mal met al w orking s ec to r
133
seeking protection of their ideas is required and could be addressed
through the employment of fundis as agents for the program.
Strategy 3: Industrial Designs and Multiple Copying
A third strategy could apply to the enterprises at Racecourse that are
producing sculptures. Typically multiple copies of the same item are
produced, making industrial-design protection applicable, rather than
one-of-kind art objects that could be copyrighted. If an industrialdesign protection assured producers that they could maintain exclusive rights to produce an item and that the profits would well exceed
the filing costs (and any enforcement actions), this could function as
intended.
In the clusters we studied, box makers tended to train more box
makers, which leads to many entities doing very similar work (horizontal
expansion) with very little opportunity to grow (vertical expansion).
An industrial-design patent that was easy to apply for, inexpensive and
quickly granted might limit the number of box-making enterprises and
enable more vertical expansion. The same idea applies to the makers at
Racecourse and Gikomba.
A licensing mechanism would allow non-patent holders such as former trainees who wanted to compete in the box market to pay a license
fee to produce boxes. This revenue stream would enable the patent holder
to acquire production equipment, hire more makers and fund product
development.
Strategy 4: Capital to Fund Filings
It is worth noting that all the strategies suggested have the drawback of
requiring up-front payment. For most of these businesses, once material
is bought and salaries paid, there is little left to pay filing fees.
Furthermore, with all the available appropriation mechanisms, the
owner of the intellectual property initiates action against those who
might be infringing, so an additional concern of business owners and
innovators is how these protections are actually enforced.
A fund that provided low- or no-interest loans to those from the
informal sector seeking IP protection would lower one of these barriers.
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c hr i st oph e r b ul l e t al.
This could be seeded by the government and made sustainable through
fees paid by those who file successfully.
Strategy 5: Branding
The makers of Kamukunji are for the most part anonymous to the final
consumer. Having a trademark system that, again, was easy to apply for,
inexpensive and quickly granted would give the makers an opportunity to
establish an identity with the consumers. This has the potential to provide
feedback to the producer on quality value – that is, the trademark would
allow consumers to distinguish a superior brand from inferior ones.
Branding through industrial design and trademarks is one of the ways
that businesses manifest themselves as entities separate from the individuals that make them up. Brand recognition can serve as a non-monetary
measure of growth.
Sidebar
From January through May of 2013, KIPI issued twenty-one patents to
foreign entities and no patents to Kenyan entities. Of the fifteen industrial
designs registered, four appeared to be manufacturable in the informal
sector. Of the four utility models registered, none appeared to be aligned
with informal sector production. (This information was gathered from
the Kenya Industrial Property Journal, published monthly by KIPI, and
reflects patents, designs and models that were granted, not the number
submitted; Kenya Industrial Property Institute 2013.)
This aligns with data from previous years. In 2011, there were fiftynine patents granted; four to Kenya residents and fifty-five to nonresidents. Interestingly, in the same year there were 135 resident patent
applications and 122 non-resident applications (WIPO 2013). The fact
that there are fairly few patents granted to residents may indicate that
there are not sufficient resources to produce successful applications.
Policy Considerations
In this section, we describe relevant policies and the programs that
implement those policies and discuss their effect on the informal metalworking sector in Nairobi. The primary aim of current policies is to
increase the informal sector’s access to markets and to support the
integration of the informal economy with the formal sector, with an
overall goal of improving the Kenyan economy through job creation
a st u d y of t he i n f o r mal met al w orking s ec to r
135
and market development. In most cases, supporting innovation is a
secondary element of these policies.
Typically, policies are enabled by acts of parliament and implemented through programs developed in one or more ministries. The parliamentary acts are usually vague as to which ministry will oversee
programs, and the implementing ministry may change from time to
time.
Table 3.3 identifies some of the relevant acts, ministries and programs.
For most policies, the informal sector is lumped with small and microenterprises, and we will take policy mentions of them to indicate inclusion of the informal sector. In the Micro and Small Enterprise Act of
2012, a micro-enterprise is defined as:
a firm, trade, service, industry or a business activity –
(a) whose annual turnover does not exceed five hundred thousand
shillings;
(b) which employs less than ten people; and
(c) whose total assets and financial investment shall be as determined
by the Cabinet Secretary from time to time, and includes –
(i) the manufacturing sector, where the investment in plant and
machinery or the registered capital of the enterprise does not
exceed ten million shillings;
(ii) the service sector and farming enterprises where the investment in
equipment or registered capital of the enterprise does not exceed
five million shillings . . . (Republic of Kenya Parliament 2012,
Section 2)
Therefore, all the businesses surveyed fall into the micro-category with
the exception of Housemark.
Similarly, a small enterprise is defined as:
a firm, trade, service, industry or a business activity –
(a) whose annual turnover ranges between five hundred and five million
shillings; and
(b) which employs between ten and fifty people; and
(c) whose total assets and financial investment shall be as determined
by the Cabinet Secretary from time to time, and includes –
(i) the manufacturing sector, where the investment in plant and
machinery as well as the registered capital of the enterprise is
between ten million and fifty million shillings; and
(ii) service and farming enterprises, where the equipment investment
as well as registered capital of the enterprise is between five million
and twenty million shillings . . . (Republic of Kenya Parliament
2012, Section 2)
Table 3.3 Acts, agents, programs and targets for policies relating to IP and the informal sector
Act
Ministry
Program
Target
sector
Micro and Small Enterprise
Act of 2012
None
Labor
Small and Micro Enterprise Authority
SMEs
Labor
Department of Micro and Small Enterprise
Development
KIPI
SMEs
All
Department of Small and Micro Industries
SMEs
Policy papers proposing innovation
programs
Assistance to Small and Micro Enterprises
Program
Procurement preferences for SMEs
All
Industrial Property Act of
2001; Industrial Property
Regulations of 2002
None
None
None
Public Procurement and
Disposal Act
Industrialization and Enterprise
Development
Industrialization and Enterprise
Development
Higher Education, Science,
Technology, and Information
Trade
Finance
SMEs
SMEs
a st udy o f th e in f orma l me ta l wor kin g s ec t or
137
The purpose of the Act is:
to provide a legal and institutional framework for the promotion, development and regulation of micro and small enterprises by –
(a) providing an enabling business environment;
(b) facilitating access to business development services by micro and
small enterprises;
(c) facilitating formalization and upgrading of informal micro and small
enterprises;
(d) promoting an entrepreneurial culture; and
(e) promote representative associations (Republic of Kenya Parliament
2012, Section 3)
As stated in Section 3(c) above, one of the purposes is to formalize
informal enterprises. There is a potential conflict here with those who
choose to maintain an informal enterprise. However, the Section 3(e)
above offers some flexibility by having representative associations (like
the Kamukunji Jua Kali Association) that would represent a group of
informal micro-enterprises in the policy sphere. This allows the microenterprises to maintain their informality if they so desire while also
giving them access to the programs that the policy will promulgate.
Under the Act, an association must have at least thirty-five-member
small or micro-enterprises to be eligible for registration.
This leaves informal enterprises with three options:
1. register directly and thus lose some degree of informality while gaining access to programs,
2. become a member of a representative association, which would maintain enterprise-level informality while giving access to programs or
3. do not register, which maintains informality and foregoes access to
programs.
Although this is not explicit, we can imagine that phrases like “enabling
business environment,” “business development services” and “entrepreneurial culture” include measures to aid the micro-enterprises in protecting their innovations.
In terms of innovation, the Act establishes the Small and Micro
Enterprise Authority (SME Authority) and charges it to “promote innovation and development of products by micro and small enterprises”
(Section 31(h)), “encourage innovation and transfer of technology in
order to increase competitiveness of micro and small enterprises products and services” (Section 50(b)), “provide incentives to encourage
138
c hr i st oph e r b ul l e t al.
invention and innovation by micro and small enterprises” (Section 50(d)
and “finance research, development, innovation and transfer of technology” (Section 51(2)(d)).
The only mention of intellectual property in the Act requires the
Authority to “facilitate the registration and protection of intellectual
property rights for micro and small enterprises” (Section 50(c)).
The Science, Technology and Innovation Act of 2012 establishes the
Kenya National Innovation Agency. One of the agency’s duties is to
“increase awareness of intellectual property rights among innovators”
(Republic of Kenya Ministry of Higher Education Science Technology
2012).
Since both these measures have only recently been passed by the
Parliament, they have not yet had an impact on the informal metalworking
sector. In terms of impact, the government office most mentioned by
workers in this sector is the Department of Micro and Small Enterprise
Development (DMSED) in the Ministry of Labor. It is this office that
provides transport to trade shows for goods produced in the informal sector
and that gives the metalworkers feedback on how to improve their products.
Current sentiment regarding programs for MSE development is
summed up on the DMSED website at the Ministry of Labor:
The department’s capacity to facilitate the MSE sector’s development has,
so far, been hampered by unfavorable policy environment, poor coordination as some of the activities are still scattered in other ministries/
departments, as well as a weak monitoring and evaluation framework.
Within the MSE Associations themselves low management and technical
skills as well as persistent leadership wrangles have frustrated the department’s efforts in promoting the sector. Consequently, and in spite of the
many programmes/projects worth billions of shillings that [have] been
availed to the sector over the years, there has been little impact in reducing
neither the mortality rates nor improving the structure within the MSE
sector. The department will have to address these constraints satisfactorily
for it to have the requisite capacity to attain the expected objectives.
(Directorate of Micro and Small Enterprise Development 2013)
While this seems to be a pessimistic perspective, it does highlight the
concerns raised by others working in the area.
As described in the section above, appropriation mechanisms, policies,
regulations and governing bodies are in place to protect the rights of
innovators. Recent policy declarations have been made which are
intended to improve access to IP protection for micro and small enterprises. For instance, in 2008 the Ministry of Science and Technology
published its “Science, Technology and Innovation Policy and Strategy.”
a st u d y o f t he i n f o r mal metal wo rking sec tor
139
One of the stated policy goals was to “[e]nsure that existing Intellectual
Property Rights (IPR) regimes are judiciously enforced to provide
impetus for the generation, protection and utilization of intellectual
property by all categories of inventors, in particular community, Micro,
Small and Medium Enterprises (MSMEs) to foster achievement of
Kenya’s national development objectives” (Government of Kenya
Ministry of Science and Technology 2008).
Some interviewees mentioned a program that transports selected
association members and some of their products to trade shows. At the
request of the association secretary:
Someone in the Department of Micro and Small Industries (Ministry of
Industrialization and Enterprise Development) sends a lorry to take some
of the products we make to trade shows. We select the products based on
quality. Some members go as well. At the trade shows we see what ‘the
opposition’ is doing and assess whether the association has the capacity to
compete. Is there a place in the market? Can we grow the market share?
People from the ministry give feedback to the members on quality and
how to improve products.3
The Public Procurement Act (Republic of Kenya Ministry of Finance
2010) provides incentives for formal enterprises that incorporate components from informal enterprises in their products. The goal is to
integrate informal suppliers into the supply chain for items purchased
by the government. While not directly tied to innovation, the Act at least
challenges both formal and informal enterprises to develop creative ways
to collaborate. Public procurement accounts for about 9 percent of
Kenya’s GDP (Njiraini and Moyi 2006), so the potential for informal
sector manufacturers is large.
The Kenyan government has recently developed more policies that, in
theory, will benefit workers in the informal manufacturing sector. These
include the Draft Business and Technology Incubation Policy 2014, Draft
Subcontracting Policy 2014, Draft National Intellectual Property Policy
and Strategy 2014, Draft Buy Kenya Build Kenya Policy (BK-BK) 2015
and Public Procurement & Disposal (PPD) Bill 2014.4 Each policy
includes at least a nod to the informal sector. Once programs implementing these policies are in place, we can assess how effective they are in
enhancing the contributions of the informal sector to the Kenyan economy and at improving the status of informal workers.
3
4
F. Dawa, personal communication, January 2013.
J. Kiplagat, personal communication, June 2015.
140
ch ris top h er b ul l et al .
Conclusion
The gulf between the majority of people in the informal metalworking
sector and those where formal or conventional IP appropriation is
accessible and aligned with norms is wide. There are both cultural and
economic reasons for this. From a cultural perspective, the norm in the
clusters is to share resources and to freely copy others’ work. From an
economic perspective, the cost of securing intellectual property rights far
exceeds the perceived benefit to the owner. While this is true for the
majority, there is a small segment of informal enterprises who seek to
formally appropriate their ideas. In the sub-section on strategies, we
presented a series of ideas that may be used to begin to bridge this gulf.
Copying is sometimes characterized as a disincentive to innovation,
but it also means that new technologies diffuse easily. This brings an
interesting dilemma to policy makers; it could be argued that the diffusion of new technologies encourages a vibrant system of producers and
the attendant creation of jobs. If copying is prohibited, the innovator may
maintain ownership of an invention, and the question becomes: does
patenting an invention lead to success in the market?
Trademarks can serve as a baseline for branding. Survey respondents
cited quality and style as important product differentiators. It certainly
would be possible to further enhance this by working with enterprises to
develop trademarks that add to the differentiation. Frequently, the threat
of litigation is used to dissuade others from copying trademarks so that
a phone call serves as a first round in enforcement.
On the whole, we consider that the small-scale innovation, sculpture
reproduction and commodity manufacturing enterprises we studied
would all benefit from better access to intellectual property rights.
The small-scale innovation area is most directly in line to use patents.
Obstacles include the high cost and the gap in institutional experience in
serving this group. Owners of sculpture reproduction enterprises would
benefit from registering industrial designs. Commodity manufacturing
would benefit from easy access to trademarking.
There are institutional gaps in experience serving all of these constituents, and there are gaps in the experience of those seeking property rights.
This suggests that a program that “fast tracked” some pilot cases could help
build the needed experience. The cost obstacle must also be addressed, and
here, small grants to producers would start a shift in the culture.
A fast-track pilot program does not address the problem that fees alone
have the potential to exceed any benefit the registrant may gain.
a st udy o f th e in f orma l me ta l wor kin g s ec to r
141
A program that collaborates with inventors to analyze the value proposition could benefit those planning to apply for IP rights.
There also appear to be structural problems in the informal metalworking sector. For the commodity producers to survive, they need to be
able to sell their goods for less than competing imports. Aiding the
development of higher production throughput along with higherquality output is a measure to deflect this threat, and having higherquality output would also open markets beyond those currently served.
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c o mmen t 3. 1 j o s ep h k. kiplagat
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COMMENT 3.1
joseph k. kiplagat
Ministry of Industrialization and Enterprise Development, Kenya
The story of Kenya’s economic and cultural development since independence fifty-two years ago cannot be complete without the contribution of
the jua kali sub-sector.
From the stories of Kenneth King in 1996 to the present stories of
Kamukunji metalworking and other informal industry across the length
and breadth of Kenya’s landscape, one comes across a rare phenomenon:
simple yet complex arrays of highly skilled and innovative fundis in
whose hands no metal, wood, stone or other material refuses to take
shape. These fundis have perfected their art over time, thanks to a large
extent to the changing demographics of the Kenyan market, better tools,
competition with similar products from emerging world economies and
better training and skills.
When informal sector products first started entering formal markets,
there was a misconception that led to the term jua kali becoming
associated with products of inferior quality. However, with time the
fundis redeemed the positive image of their products through improved
quality, adaptability, accessibility, durability, visual appeal and value for
money.
“In Nairobi, for your cook stoves, pots, pans, wheelbarrows and metal
boxes, all roads lead to Kamukunji,” would read a promotional advert.
Similarly, in Kisumu, at the lakeside of Lake Victoria, an advert would
read: “For all your environmentally friendly mats, beds, ropes, furniture
and house fittings and decorations, come to Kisumu.” There is a weed
that has gradually choked the shores of Lake Victoria, and the artisans
have found a way of using it for a wide array of products.
The authors of this chapter have managed to put into perspective the
hitherto hidden and unexplored contribution of the informal sector to
Kenya’s modern economy and its industrialization process.
Few people realize that many of the long-distance trucks and saloon
cars plying Kenyan roads are fitted with customized shock absorbers and
exhaust system parts made by the fundis of the jua kali sector.
In addition, furniture in high-end showrooms often includes parts originating from Kamukunji.
Informal manufacturers are relevant not only economically but also
culturally. In rural Kenya particularly, a fundi commanded respect and
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ch ri s top h e r b ul l e t a l.
was held in high esteem, surpassed only by the village elder – the chief.
My father, who was an accomplished fundi, was revered for his products
and services. The fundi played a central role in special cultural ceremonies, by supplying tailor-made products like the hornet crafted from
buffalo or gazelle horns. The cluster of metalworkers in Kamukunji
studied in this chapter would be ideal to examine the cultural activities
and potentially copyrighted outputs produced in the informal sector, an
area that deserves further attention.
The informal economy is a vital engine for job creation in Kenya.
Although metalworking employs a small portion of the informal workforce, its role is by no means small. In fact, the sector emerges as a true
hub of innovation, producing products whose markets transcend the
traditional low-income brackets to include enlightened high-income
customers who appreciate the high adaptation of product design and
durability of jua kali products.
The chapter provides a valuable service by presenting the various
clusters and capturing their diversity, highlighting each of their market
characteristics, structures and organization of productive activities.
There is good reason why metal boxes are the most commonly manufactured product in Kamukunji. Every pupil and student must carry a box
to school, and it needs to be well adapted to the tough realities of informal
transportation on Kenyan roads as well as the storage environment at
school. Locally made metal boxes are more suitable for these conditions
than imported plastic and cloth products.
The authors have also made a significant contribution in identifying
features of innovation and situating innovations within wider innovation
systems. These include cluster businesses, support and service organizations, education and knowledge transfer institutions, associations and
regulatory bodies. Using narrative case studies allows them to identify
not only innovation activities but also obstacles to innovation. If collected
on a large scale, this type of information would constitute an invaluable
evidence basis to design effective support mechanisms for jua kali innovators in Kenya. In this respect, the chapter also describes relevant
policies and programs and their effect on the informal metalworking
sector in Nairobi. These include recent developments related to intellectual property, incubation, local content and sub-contracting that are
expected to impact substantially the informal sector and its markets.
The jua kali sector has a bright future, despite serious challenges, most
notably problems of market access and sustainability in a liberalizing
global environment. Through appropriate policy interventions, the
c o mmen t 3. 1 j o s ep h k. kiplagat
145
Kenyan government can help the sector secure its legitimate place in the
country’s economic and cultural development.
Inappropriate policy frameworks in the 1990s impacted negatively not
only the jua kali sector but the entire manufacturing and service sectors.
Poor strategies have allowed entry into the local market of cheaper
products from other emerging economies without building the capacities
of local jua kali producers. Very low tax tariffs meant that the market was
flooded with the sort of products typically produced by jua kali sector
such as textiles, leather, furniture household goods and machinery, as
well as secondhand products. Local products could not compete, and
many textile and leather factories that were traditional customers for
inputs and material from the jua kali sector had to close down.
This chapter provides an important call to support local entrepreneurship and local producers in their innovation activities. Future studies
should include other jua kali sectors in both urban and rural areas of
Nairobi. These studies should be complemented with comparable observation of good practices in the East African region, which constitutes an
important market for Kenyan products.
4
Informal Manufacturing of Home and Personal
Care Products in South Africa
erika kraemer-mbula
Introduction
Although South Africa contributes substantially to Africa’s overall GDP,
the economic progress of the country is constrained by its inability to
reduce the legacies of apartheid and redress persistent inequalities.
The distribution of income in South Africa is currently one of the most
unequal in the world, and disparities between rich and poor have worsened in the last decades. Unemployment in the formal economy remains
endemic, with official estimates putting it at over 25 percent in 2012
(StatsSA 2013), particularly affecting the young.1 Meanwhile, the informal economy continues to provide employment opportunities to a large
and growing segment of the population.2
The two economic domains in South Africa are commonly referred to
as the “first” and “second” economies.3 The first economy is formal,
accounted for and subject to legally enforceable rights and duties.
The second economy is largely informal, regulated by informal institutions and community norms, and based on cash transactions. Moreover,
the future transformation of the country has been identified with its
ability to connect the relatively faster economic growth in the first
(formal) economy with the development of the second (largely informal)
economy. The results of this study indicate that formality and informality
are part of the same socio-economic fabric, often inseparable, where
1
2
3
South Africa has been judged to have the third highest unemployment rate in the world for
people between the ages of fifteen and twenty-four (World Economic Forum 2014).
Official estimates put informal sector employment (non-agricultural) at 12 percent of the
labor force (StatsSA 2013a); Charmes reckons informal economy employment in the fiveyear period 2005–2010 reached 32 percent as share of non-agricultural employment
(Charmes 2012); and the Adcorp Employment Index (AEI) estimates that the “unofficial
sector” represents about 33 percent of total employment (Adcorp 2013).
The term was coined by then President Thabo Mbeki in an address to the nation in 2003.
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i n f o r mal man uf act ur i n g i n sou th afric a
147
actors with various degrees of formality interact, compete and exchange
knowledge, skills, products and services.
This chapter draws on results from a larger study conducted in South
Africa on the informal manufacture of home and personal care products
(Kraemer-Mbula and Tau 2014). The range of manufactured products
studied falls within ISIC Code 2424: “Manufacture of soap and detergents, cleaning and polishing preparations, perfumes and toilet
preparations,”4 and includes products such as cosmetics, fragrances,
moisturizers, hair care, detergents and cleaning products. This subsector is part of the larger chemical sector. The South African government has identified the chemical sector as holding high growth potential
and opportunities for development, particularly for micro, small and
medium enterprises (MSMEs). Moreover, in 2011, the Industrial Policy
Action Plan (IPAP2) identified the manufacturing of chemicals as one of
the sectors with high employment multipliers and strong backward
linkages to suppliers, pulling inputs from the primary sectors and other
manufacturing and services sectors, thereby stimulating employment
along the entire value chain. Within the Industrial Policy Action Plan,
the cosmetics sub-sector has also been identified as a national priority.
The formal home and personal care industry is dominated by a few
large enterprises, both foreign multinationals and large domestic companies. However, the sector also accommodates hundreds of microenterprises. Although there are no statistics on the representation of
informal manufacturers, some reports (Ozone Business Consulting
2012) acknowledge the existence of many enterprises operating informally dedicated to the production of lotions, cosmetics, soaps, detergents
and the like. These informal businesses not only provide a form of
employment and livelihood for South Africa’s most disadvantaged population segments but also target a large existing customer base demanding
cheap and affordable consumer goods, a section of demand that is often
overlooked, misunderstood and underestimated in South Africa.
The study adopts a systemic approach to examine the informal economic activities generated around the manufacture of home and personal
care products, exploring these activities as part of a broader economic,
social and institutional system in which informal manufacturers operate.
By mapping the innovation system around informal manufacturers, the
study identifies the key actors that comprise the productive chain of
4
United Nations Statistics Division, explanatory note available at: https://unstats.un.org
/unsd/cr/registry/regcs.asp?Cl=17&Co=2424&Lg=1.
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er i k a kr aemer -mb u la
home and personal care products, including formal and informal suppliers, informal manufacturers and distributors or retailers. These actors
include an array of educational and training organizations, funding
organizations, government and regulatory bodies, knowledge and technology transfer organizations and industry representative bodies.
The collection of data is based on unstructured interviews with key
informants in these organizations. In addition, structured interviews
were conducted for a sample of twenty-five informal manufacturers
directly engaged in the production of home and personal care products
in two South African provinces, Gauteng and Eastern Cape.
The Informal Economy and Informal Manufacturers of Home
and Personal Care Products in South Africa
The Informal Economy in the Context of South Africa
It is important to understand the presence and continued growth of the
informal economy in South Africa in the context of the country’s peculiar
political history, which shaped the conditions leading to the informal
economy in present times. Apartheid policies based on social segregation
and economic discrimination have been central to the formation of South
Africa’s informal economy. The apartheid regime defined the political,
economic and social landscape throughout most of the twentieth century
until the country’s first democratic elections in 1994. The regime was
implemented through the systematic exclusion of the majority of the
population – black South Africans – by imposing constraints on public
participation, access to property rights, education, labor and mobility.
The effect of apartheid on labor–capital distributions and industrial
development in South Africa has been a source of considerable debate.5
In relation to industrial development, the operationalization of apartheid
resulted in the convergence of interests of business and political forces,
leading to the rise of industrial groups formed on the basis of the
preferential constitutional rights given to the white minority and the
simultaneous deprivation of rights from the rest of the population.
Regarding the emergence of entrepreneurship, apartheid restrictions
limited opportunities in the formal economy for black South Africans
(who constitute the vast majority of the population) and placed further
restrictions on the right of those entrepreneurs who were not white to
5
For a detailed review of interpretations, see Maharajh (2011) and Scerri (2009).
i n f o r m al man uf act ur i n g i n sou th afric a
149
establish and operate businesses. Curtailed access to capital, education
and property ownership rights for black people made it virtually impossible to acquire resources, skills or assets that could serve as collateral to
obtain finance loans (DTI 2003). Moreover, such legislation limited the
range of goods that could be produced and sold, and set up an array of
bureaucratic processes that discouraged the registration of any smallscale economic activity.
As Maharajh (2011) puts it, “[b]lack business emerged initially on the
margins of apartheid and in spite of it” (Maharajh 2011, p. 69). This
regulatory and legislative framework not only crippled the emergence of
formal small businesses but also prosecuted those created out of the
margins of the existing formal regulations. The informal economy in
South Africa can therefore be understood as an entrepreneurial response
to the legislative limitations experienced by the excluded majority of
society at the time. Moreover, the high level of inequality that was
generated during this period continues to be a central feature of South
Africa’s contemporary economic reality; it remains one of the most
unequal countries in the world (UNDP 2010). As South Africa transitions
beyond the apartheid era, it is important that the opportunities for
participation of historically excluded segments of the society, largely
represented today in the informal economy, are carefully considered.
Formal unemployment remains an endemic problem in South Africa,
at over 25 percent (StatsSA 2013). It is argued that without the informal
economy, the unemployment rate would rise to around 47.5 percent
(SALGA 2012). Moreover, the pace of employment creation in the
informal sector continues to rise (Adcorp 2013; StatsSA 2013).
The South African informal economy is very diverse and includes
a wide range of economic activities – street vendors, taxi drivers, waste
collectors, traditional doctors, manufacturers and home-based care
workers – making it practically as diverse as the formal economy.
The results of this study indicate that most informal manufacturers of
home and personal care products connect with the formal economy
along some point of the value chain, at the point of supply, retail or
distribution.
Manufacture of Home and Personal Care Products in South Africa
and Informal Enterprises
Home and personal care products play an essential role in the lives of
those segments of the population that have managed to cover their most
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basic needs of food and shelter. One striking feature of the industry is the
wide range of consumer needs and preferences involved. The demand for
these products changes considerably based on multiple factors such as
income, lifestyle, culture and so on. For instance, while certain products
and ranges may address very basic functions – keeping people and their
households healthy and clean: bar soaps, washing-up liquid or multipurpose cleaning products – others fulfill a much more aesthetic function, improving the physical appearance of persons and their households,
for example, cosmetics, fragrances, air fresheners and floor wax.
Moreover, within each category of product, we find a variety of ranges
fulfilling necessities such as oral care, skin care and detergents for different household income levels, demographic segments, tastes and preferences. Given such a broad and fragmented market, the home and
personal care product industry has space for small and micromanufacturers targeting very specific market niches.
Demand for home and personal care products in South Africa is highly
fragmented, reflecting the profound inequalities affecting the country.
However, overall it appears that demand is growing in both the formal
and informal sectors. The formal personal care industry in South Africa
was estimated at 25 billion South African rand (approximately USD
3.5 billion) in 20106 and growing at an annual rate of 10 percent in 2012
(Euromonitor International 2013). The demand for home care products is
also high and rising, along with rapid urbanization (and consequently
increasingly overcrowded and polluted urban spaces) and consumers
being increasingly aware of health and hygiene in their households.
Sub-sectoral definitions of home and personal care generally include
the following products:
(a) Personal care products: skin care (for example, lotion and moisturizers), hair care (for example, shampoos and conditioners), oral care,
bath and shower (for example, soaps, gels, salts and foams), cosmetics, deodorants, fragrances and sun care.
(b) Home care products: dishwashing, bleach, laundry care, air care (for
example, air fresheners), polishes, surface care, toilet care and
insecticides.
Formal manufacturing and distribution of home and personal care
products in South Africa is broadly dominated by a few large multinationals that concentrate between 30 percent and 90 percent of the
6
Using the average annual exchange rate for 2010: USD 1 = ZAR 7.3: www.x-rates.com.
i n f o r mal man uf act ur i n g i n s ou th afric a
151
market, depending on the sub-sector and product range7 – for the
beauty and personal care industry, six large formal companies concentrate 45 percent of the value sales (Ozone Business Consulting 2012).
However, the economic downturn and increase in the cost of living has
resulted in price-sensitive consumers seeking out low-price products
that cover a range of functions (for instance, multipurpose cleaners,
bleaches and bar soaps), allowing space in the market for informal
manufacturers catering for the low-price end of demand. Although
the existence of informal manufacturers is widely recognized, the
share of the small and informal sector in this industry has not yet been
estimated.8
South African low-income households spend approximately 4 percent
of their incomes on household consumables (Das Nair and Hawthorne
2006) and about 3 percent on personal care (HDA 2012). These are
significant proportions of income, and so the prices of these products
do matter for low-income households.
Profile of Informal Manufacturers of Home and Personal Care
Products in South Africa
Our study sample comprises 25 companies from Gauteng and the
Eastern Cape provinces, with 68 percent of companies being based in
Gauteng. The sample has a substantial representation of women entrepreneurs: 52 percent of the companies (thirteen) are owned by women
and 48 percent (twelve) by men. One quarter of the respondents stopped
their education at primary level; 44 percent have achieved at least
a matriculation level of education (in other words, primary and high
school); and 32 percent hold a diploma or had some kind of tertiary
education. None of the interviewees went on to postgraduate education.
The majority of companies are micro-enterprises, with eight companies
(32 percent) comprised solely of the owner and fourteen (56 percent) with
7
8
Euromonitor International (2013a) identified Unilever, Avon, Reckitt Benckiser, ColgatePalmolive, Revlon and SC Johnson as some of the leading global players. Private-label
brands are also growing in South Africa.
A report cited in Ozone Business Consulting (2012) suggested the existence of 60,000
informal businesses in the South African cosmetics sector, although the accuracy of the
figure could not be verified. Nevertheless, the Ozone Business Consulting report for the
Department of Trade and Industry (DTI) recognizes the existence of a substantial amount
of companies operating informally manufacturing from backyards, but without estimating
their number.
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Table 4.1 Profile of the informal manufacturers of home and personal
care products
Location
Sub-sector
Gender of owner
Time in the business
Level of education
Number of employees
Gauteng
Eastern Cape
Personal care products
Home care products
Female
Male
1–3 years
3–5 years
More than 5 years
No education
Primary
Secondary
Tertiary
Only owner
1–2 employees
2–10 employees
68%
32%
68%
32%
52%
48%
60%
12%
28%
0%
24%
44%
32%
32%
56%
12%
Source: Fieldwork 2013.
one to two employees.9 Most companies are young, with 60 percent (fifteen)
operative for one to three years; interestingly, there is a relatively low
percentage (12 percent) of informal companies operating for three to five
years in comparison with those operating for more than five years (28 percent). This suggests that while informality may be a temporary/pre-formal
stage for some companies during which they test their products and grow to
certain size, for others there may be an “informality trap” hindering their
chances of formalization after being operative for longer than five years.
Chapter 2 in this book describes informality as a continuum, where
transitions from informality to formality are gradual and boundaries are
blurred and inconsistent within organizations – for instance, within an
organization we may find that some activities are carried out formally
while at the same time others are carried out informally. In this respect,
9
The Integrated Small Business Development Strategy in South Africa 2004–2014 (p. 8)
defines micro-enterprises as very small businesses, often involving only the owner, some
family members or with one or two paid employees. They usually lack “formality” in terms
of business licenses, value-added tax (VAT) registration, permanent business premises,
operating permits and accounting procedures. Most of them have a limited capital base
and only rudimentary technical or business skills.
i n f o r m al man uf act ur i n g i n sou th afric a
153
Table 4.2 “Degree of informality” of respondents
1
2
3
4
5
Is your business registered?
Do you have formal contract with your employees?
Do you keep regular accounts of your business?
Have you obtained a loan from the bank?
Are your products registered?
Yes (%)
No (%)
52
8
32
4
0
48
92
68
96
100
Source: Fieldwork 2013.
there would be “degrees of informality” that vary from one firm to
another. The degree of informality in this study is identified by means
of five specific questions relating to (a) business registration, (b) contract
with employees, (c) regular bookkeeping, (d) use of formal financing
mechanisms (i.e. bank loans) and (e) product registration. Companies
that indicate informality in four out of five of these aspects are considered
in this study to be informal businesses.
While standards and guidelines are provided by the Cosmetic, Toiletry
and Fragrance Association of South Africa (CTFA) and the South
African Bureau of Standards (SABS), it is not compulsory to test or
register cosmetics or cleaning products in South Africa. None of the
respondents in our sample have their products formally tested or registered with SABS.
The varieties of products examined in this study include two subsectors: (a) personal care products including cosmetics, perfumes and
toiletries and (b) home care products including soaps and cleaning
chemicals. Within the sub-sector of personal care products – see
Figure 4.1 – fragrances and body lotions appear to be the products
most frequently targeted by informal manufacturers. Producing
fragrances seems relatively easy for many informal manufacturers of
cosmetics. Informal manufacturers of fragrances very often obtain essential oils from formal suppliers, who offer mixed combinations of perfume
oils that have a similar scent to mainstream perfumes. Once the informal
manufacturer buys the mixed scent, the process of mixing the oils with
alcohol and other ingredients to obtain the final perfume requires little
equipment. Entering the manufacture of perfumes and establishing a
customer base sometimes creates an incentive for the informal entrepreneur to diversify their product range, using the same fragrances and
scents to produce a range of lotions, roll-ons and bath salts. Many
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er i ka kr aemer -mb u la
Body lotion
Fragrances
Deodorants
Foam bath
Hand soap
Hair shampoo
Hair conditioner
Haircare treatments
Flavoured vaseline
Body butter
Bath salts
Bar soaps
Colour cosmetics
Body powder
40%
36%
16%
16%
16%
12%
12%
12%
12%
8%
4%
4%
4%
4%
Figure 4.1 Range of cosmetic products and frequency observed – percentage of
respondents manufacturing each product.
Source: Fieldwork 2013.
Sample size = 25 informal manufacturers.
Note: Respondents occasionally noted more than one product, so percentages do not
add up to 100 percent.
interviewees highlight bar soaps and color cosmetics as two of the
markets they are seeking to enter, having observed a sizeable gap in the
market for affordable products. However, we find fewer manufacturers
dedicated to this line of products due to the technology and equipment
requirements for production.
Manufacturing home care products usually requires a higher level of
technical knowledge than manufacturing personal care products, especially regarding the raw materials, health and safety in the manufacturing
process and the formulas needed to achieve the final product. Washingup liquid is the most frequently observed product in our sample, followed
by pine gel (general-purpose cleaner and disinfectant) and bleach.
Innovation by Informal Manufacturers of Home and Personal
Care Products
Innovation Profile of Informal Manufacturers
At the level of the firm or productive unit, innovation requires channeling resources to certain activities and not others. It implies a change in
the way things are done in an organization. In small informal businesses,
Figure 4.2 Examples of personal care products manufactured by in-house informal manufacturers.
Source: Fieldwork 2013. Photo: E. Kraemer-Mbula.
156
Pine gel
Dish washer
Bleach
Detergent
Toilet cleaner
Sani pine
All purpose cleaner
Air freshener
Fabric softener
Car wash
Floor polish
Oven cleaner
Drain cleaner
Carpet cleaner
er i ka kr aemer -m b u la
24%
24%
20%
16%
16%
16%
16%
8%
8%
4%
4%
4%
4%
4%
Figure 4.3 Range of home care products and frequency observed – percentage of
respondents manufacturing each product.
Source: Fieldwork 2013.
Sample size = 25 informal manufacturers.
Note: Respondents occasionally noted more than one product, so percentages do not
add up to 100 percent.
engagement in innovation very much depends on the will of one individual, usually the firm owner. This willingness may to some extent be
reflected in the owner’s perception of his or her own product, which may
indicate the areas to which innovative efforts may be directed. In this
study, informal manufacturers were asked, “what makes your product
successful?” A large proportion of respondents show substantial confidence in their products: 40 percent (ten) indicate “quality” as an important feature of their products, and 56 percent (fourteen) mention
customer support services as central to their sales.
Regarding the types of innovations, many respondents mention incremental innovations in products, often related to significant product
improvements (in formulations or packaging), rather than the generation of radically “new” products.10 Significant improvements in production processes are less frequent, with 76 percent of the respondents
(nineteen) reporting no changes or improvements in this regard.
Process innovations are related to the introduction of new quality control
mechanisms, the acquisition of new equipment or changes in the way
production processes are structured.
10
Note that the definition of innovation provided above considers both “significant
improvements” and “new” products as innovations.
i n f o r m al man uf act ur i n g i n sou th afric a
157
(a) By significant improvements in products, respondents mean both
internal changes to the product (for instance improved formulations) and external changes (such as improved packaging and
labeling).
• Improved formulations. Eight respondents (32 percent) claim to
have made significant modifications to the original formulation of
their products. Some of the most mentioned improvements relate
to improving the formula to make cosmetics stronger and more
durable (for instance, adding a larger proportion of oils to perfume
recipes), or adding healing properties to cosmetic products on the
basis of known natural remedies (for instance, adding vinegar to
foam bath or hair products to treat various types of bacterial
conditions). Improved formulations were often a response to
express requests from customers (for example, asking for longlasting fragrances), inputs from suppliers (for instance, newly
available raw materials or packaging), regulatory pressures to
increase the quality of their products (such as safety concerns) or
replacement of certain ingredients with more natural ingredients
to target a new market and increase the profit margin.
• Improved packaging and labeling. Packaging is often reported to be
a critical component of cosmetics, and 16 percent of respondents
say they have introduced significant improvements in their packaging and labeling. It is also noted that most interviewees started
their business using the most basic packaging, often plastic containers recycled from other products (e.g. soft-drink bottles) and
hand-written labels. As businesses become more established,
improvements in packaging are more frequent in order to reach
a broader customer base. These innovations often involve adding
decorative layers to the products or using wrapping paper with
specific tribal designs to attract specific customers. Improvements
in packaging and labeling are often a means of product differentiation and knowledge appropriation and a source of competitive
advantage.
(b) Significant improvements in processes can take the form of quality
control mechanisms, new or improved equipment or organizational
changes in the structure of the production.
• Introduction of quality control mechanisms in production. Since
home and personal care products depend heavily on chemical
substances, it is normal practice for formal manufacturers to
ensure that quality control mechanisms are an intrinsic part of
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er i k a kr aemer -mb u la
(a)
(b)
Figure 4.4 Examples of home care products manufactured by informal
manufacturers.
Source: Fieldwork 2013. Photo: E. Kraemer-Mbula.
Note: (a) Samples of products produced by manufacturers at the Technology Chemical
Station (TUT); (b) sample of products produced by informal in-house manufacturer.
the manufacturing process. However, quality control mechanisms
such as stability tests – to measure pH value, texture and viscosity –
microbiological tests and testing the impact of packing on the
product (packaging stability) usually have cost implications that
informal manufacturers are unable to face. Nevertheless, some of
these quality control mechanisms are more affordable than others
and easy to perform – for instance, measuring the pH using pH
stripes or ensuring the stability of fragrances through refrigeration
are relatively low cost. In this respect, 16 percent of the companies
informal manufacturing in south afri ca
159
Table 4.3 Perception of own product quality by informal
manufacturers of home and personal care products
What makes your products successful?
Percentage of firms*
Customer service
Quality compared with competitors
Lower price
Good-quality raw materials
Attractive packaging and branding
Good knowledge of product and market
Attractive brand
Not good products
56
40
32
16
16
8
8
12
Source: Fieldwork 2013.
Note (*): Respondents occasionally noted more than one factor, so
percentages do not add up to 100 percent.
Table 4.4 Significant improvements to products and processes, as reported
by respondents
Improvements in products
Percentage of firms*
None
Improved formulations
Packaging and branding improvements
Improvements in processes
None
Introduction of quality control mechanisms in
manufacturing
Acquisition or improvements in equipment
Organizational changes in the structure of the production
44
32
16
76
16
12
8
Source: Fieldwork 2013.
Note (*): Respondents occasionally noted more than one improvement, so percentages do not add up to 100 percent.
report having introduced quality control mechanisms in their
production process. In most cases, good practices are transferred
among manufacturers or between suppliers and manufacturers.
• Acquisition or improvement of equipment. We find cases of informal enterprises crafting affordable versions of expensive
160
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Figure 4.5 Examples of improvements in soap packaging.
Source: Fieldwork 2013; Photo: E. Kraemer-Mbula.
equipment by reassembling various pieces of equipment, for
instance, a company reproducing an electric mixer by using
a secondhand electrical drill and a metal piece found in a scrap
yard. In this example, making low-cost equipment involves an
investment of ZAR 500 (around USD 50) in crafting the machine,
i n f o r m al man uf act ur i n g i n sou th afric a
(a)
161
(b)
Figure 4.6 Example of process innovation – crafting low-cost equipment.
Source: Fieldwork 2013; Photo: R. Hendrikz. Note: (a) Example of electric mixer,
available at TUT Technology Station for Chemicals; (b) low-cost replica of electric
mixer.
instead of ZAR 30,000 (around USD 3,100) of investment in a new
machine.11 Having this piece of equipment allows the company to
mix lotions, soaps and bath foams in larger volumes and at a faster
rate than doing it by hand. With this machine the company can
produce larger quantities and change its business model, selling in
bulk to resellers rather than selling individual units to consumers.
• Organizational changes in the structure of the production.
Eight percent of respondents report significant changes in the
way the manufacturing process is organized. These improvements
appear to be strongly related to the shift from manual to mechanical processes, as most manufacturers still rely on manual techniques to generate their products.
11
Using the average annual exchange rate for 2013 USD 1 = ZAR 9.6: www.x-rates.com.
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Table 4.5 Key features of innovation by informal manufacturers of home
and personal care products
Features of
innovation
Description
Incremental
• The types of innovations observed are new to the company,
rather than new to industry, nationally or globally. They
mainly manifest in improvements in the formulation or the
aesthetic value of the product.
Reactive
• Reacting to customers. Modifications and improvements to
manufactured products are mostly made in response to
customer requests. Informal manufacturers seem to rarely
pay attention to emerging opportunities or trends in national
and international markets. Their strong dependency for
business survival on a small customer base makes them very
responsive to immediate demand.
• Reacting to suppliers. Since informal manufacturing of home
and personal care products is largely based on mixing raw
materials and packaging the obtained product, suppliers
(either formal or informal) play a big role in triggering
innovation by informal entrepreneurs. Given the strong
competition among suppliers, it is their interest that informal
entrepreneurs increase their range of products and that they
do well in their businesses, as that will ensure future business
with them as suppliers.
Proactive
• Packaging and labeling improvements are examples of
product innovations introduced by informal manufacturers
to reach out to a wider market.
Collaborative
• Informal entrepreneurs lack the resources to invest in
research and development, and often rely on collaboration
and exchange of ideas with other informal manufacturers that
materialize in product or process innovations.
Source: Author.
Table 4.5 summarizes the key characteristics of the innovation activities observed among our sample of informal manufacturers of home and
personal care products.
informal manufacturing i n south afri ca
163
Table 4.6 Obstacles to innovation, as reported by respondents
Percentage of respondents*
Insufficient education and knowledge
Lack of machinery and equipment
Inadequate premises
Lack of access to finance
Lack of access to raw materials
Lack of physical access to larger markets
Lack of testing facilities
Lacking R&D facilities
32
32
28
24
16
16
8
4
Source: Fieldwork 2013.
Note (*): Respondents occasionally noted more than one obstacle, so percentages
do not add up to 100 percent.
Obstacles to Innovation and Scalability
Informal entrepreneurs confront multiple challenges simply to survive in
a marketplace dominated by formal and often more competitive producers. The obstacles to innovation appear to be strongly linked to the
obstacles for their survival as micro-enterprises. In this study, the most
frequently mentioned by informal manufacturers include “insufficient
education and knowledge” and “lack of machinery and equipment,”
mentioned by one third of the respondents – see Table 4.6.
Interviewees often indicate that although they have ideas for the introduction of significant improvements, these two factors stand in the way
of their ability to innovate.
Informal manufacturers generally lack premises for production
and conduct their activities from their backyards, kitchens and garages – with the additional limitation in terms of access to infrastructure
characteristic of informal settlements as described in the first section of
this chapter. In this respect, seven respondents (28 percent) indicate that
inadequate premises poses a major constraint on their ability to come up
with new products. Insufficient access to finance is also identified as one
of the main obstacles to innovation by 24 percent of informal manufacturers (six respondents), who often operate their businesses purely
based on cash transactions and without a bank account.
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Knowledge and Technological Profile of the Sector
The equipment that most informal manufacturers in this sub-sector use
is rather basic and mainly consists of kitchen utensils (pots, pans, manual
blenders, microwaves, stoves, refrigerators, etc.). The manufacturing
process is mainly a “recipe-based” activity; in other words, it involves
mixing raw materials in specific proportions following a formula.
Measuring jars and scales are therefore indispensable pieces of equipment, to ensure that raw materials are combined in the right proportions.
Microwaves and ovens are used for sterilization of manufacturing equipment and raw materials.
More sophisticated equipment generally used for the production of
home and personal care manufacturing includes:
• Precision scales: to ensure that the mix of ingredient is exact and
results are consistent.
• Crimping machines: widely used in perfume manufacturing, to fix
pumps on to glass bottles. Using this equipment not only increases
the quality of products but also reduces the evaporation of perfume
once it is bottled.
• pH testing devices: the pH of chemical solutions can be tested manually using pH test strips that are available at low cost, or by using digital
pH meters that provide precise pH values.
• Electric and manual mixers: these are indispensable in the manufacturing of cosmetics and detergents to achieve a homogenous mix of
ingredients. This type of technology creates a significant competitive
advantage in relation to manual methods but requires significant
investment as prices range from ZAR 30,000 to ZAR 70,000, depending on quality and functionality (USD 3,100–7,200).12
• Bottle-filling equipment: this can be either manual or electrical and is
designed specifically for bottling cosmetic creams and lotions, liquid
and semi-liquid cosmetics (shampoo, detergents, foam bath, etc.). This
type of equipment significantly reduces waste and increases hygiene in
the packaging process.
Only 16 percent of the respondents report having acquired a motor/
electrical mixer, though the study identified companies that have elaborated their own equipment. More sophisticated technology such as
crimping machines and precision scales were found much less frequently,
12
Using the average annual exchange rate for 2013 USD 1 = ZAR 9.6: www.x-rates.com.
informal manufacturing i n south afri ca
165
in only 8 percent of the sample companies, while bottle-filling equipment
was used by only 4 percent of respondents.
Suppliers appear to be a critical source of knowledge for the informal
manufacturers interviewed. Suppliers include both formal and informal
companies supplying raw materials, packaging, equipment, labels and so
on. Informal manufacturers choose their suppliers on the basis of a variety
of reasons, including, among others, proximity, reliability, price and the
option of purchasing on credit. Price plays a particularly important role
and information about cheap suppliers was mentioned to be a valuable
asset for any informal manufacturer. Informal manufacturers usually rely
on smaller (and often informal) suppliers who operate in their vicinity and
can supply smaller volumes. Small suppliers catering for micromanufacturers must compete between themselves to attract low-income
micro-manufacturers and secure their clientele.13 As part of their marketing strategies, suppliers become a regular source of training and manufacturing advice as well as a source of support for product diversification by
micro-manufacturers. Such services are often provided free of charge, as
a way to establish closer and more durable relationships with their clients.
As a result, almost one-third of the informal manufacturers interviewed
report having obtained relevant knowledge in the form of training from
a supplier company – see Table 4.7.
Technology transfer organizations such as TUT Technology Station in
Chemicals, Chemin, Sasol Chemcity and EgoliBio are key sources of
knowledge, through the provision of formal training in manufacturing
processes. Each of these technology transfer organizations provides different services, but common services offered include:
•
•
•
•
•
training in product manufacturing and safety
technical demonstration
assistance in commercializing technology
intellectual property management
connection with suppliers, research organizations and funding
opportunities
• product testing.
The services provided by technology transfer organizations have cost
implications for the micro-enterprise, although informal micro13
Interviews with informal manufacturers were complemented by interviews with contract
manufacturers and suppliers of raw materials, who explained the heavy competition that
takes place at the level of small suppliers.
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Table 4.7 Main sources of knowledge reported
Where did you acquire the knowledge to manufacture
home and personal care products?
Training by suppliers
Formal training by technology transfer agency
Previous work experience
Learnt informally from other manufacturers
Self-training by experimentation (trial and error)
Books and manuals
Learnt informally from people with previous experience in
the industry (retired)
Internet
Relatives
Percentage of firms*
28
24
24
24
24
20
12
12
12
Source: Fieldwork 2013.
Note (*): Respondents indicated all sources of knowledge used, so percentages do
not add to 100 percent.
manufacturers tend to get subsidies and reduced prices. Six respondents
(24 percent) engage in some form of formal learning interaction with
a technology transfer agency,14 while an equivalent percentage report
obtaining some of their knowledge informally from other manufacturers/
producers in the industry. For this latter group of respondents, obtaining
knowledge from peer manufacturers usually requires developing
a relationship of trust in which the knowledge exchanged is equally
beneficial to both parties. Also, 24 percent of respondents report having
obtained relevant knowledge through prior experience working in the
sector, in many cases through being employed in manufacturing companies (often formal companies) and then losing their jobs. Learning
through experimentation (trial and error), also appears to constitute
a critical source of knowledge for informal manufacturers, as it is
reported by 24 percent of respondents as relevant.
Informal manufacturers were also questioned about their reliance on
traditional knowledge. Nineteen respondents (seventy-six percent) claim
that their products do not rely at all on traditional knowledge while four
14
But note that this high percentage may be a reflection of the process by which we
identified informal manufacturers, as this was facilitated in some instances by technology
transfer agencies.
i n f o r mal man uf act ur i n g i n sou th afric a
167
(16 percent) state that their products are partially based on traditional
knowledge; in these cases, the TK is described as widely available and
easily accessible as part of common knowledge. Only 12 percent of
respondents say they are largely reliant on TK, passed on to them by
their grandmothers. It must be noted that the concept of traditional
knowledge is wide and open to interpretation, which calls for closer
attention of its role in this manufacturing sector and possibly further
research.
Although family members do not feature as a relevant source of
knowledge, the evidence suggests that knowledge does get transferred
from individual to individual via informal training in the community.
In this regard, eleven respondents (44 percent of the informal manufacturers) report to have trained other people – in many cases to
members of the community that are in particular situations of need.
Passing on knowledge to others reveals a sense of responsibility and
duty toward the community in which informal entrepreneurs operate.
In those cases where informal training has been provided, each producer had passed on some of his or her knowledge to an average of 2.2
additional people.
More than half of the respondents report having had no interaction
with any formal or semi-formal organization (52 percent) – for the
definition of semi-formal organization, see de Beer, Kun and WunschVincent (2013). The remaining 48 percent report having obtained
knowledge from (1) technology transfer organizations such as TUT
Technology Station for Chemicals, Chemin or Sasol Chemcity, (2)
business incubators such as the Awethu Project, the Hope Factory
and Young Business SA, (3) representative associations such as the
CTFA and Proudly South African and (4) networking initiatives for
entrepreneurs such as the Hookup Dinner, Enablers and the Branson
Centre of Entrepreneurship. Manufacturers often connect with various
organizations at the same time, and establishing a connection with one
formal organization often opens further opportunities to connect with
other actors.
Informal manufacturers often exchange information and knowledge
about cheaper suppliers – important given their expressed difficulties in
accessing affordable raw materials in bulk. They also exchange ideas
relating to product innovation (20 percent of the respondents exchange
this type of information and knowledge with peer manufacturers), markets (12 percent), branding (8 percent) and customer service support
(8 percent) – see Table 4.9.
168
(a)
(c)
er i ka kr aemer -m b u la
(b)
(d)
Figure 4.7 Examples of sophisticated equipment made available to informal
manufacturers by technology transfer organizations.
Source: Fieldwork 2013; Photo: E. Kraemer-Mbula.
Note: Equipment available at the Technology Station in Chemicals (Tshwane
University of Technology): (a) a digital pH meter; (b) equipment to determine moisture
in samples; (c) a mixer and homogenizer; and (d) a temperature regulator.
Mapping the Innovation System of the Informal Manufacturing
of Home and Personal Care Products
Chapter 2 in this book emphasizes the systemic nature of innovation,
providing an interpretation of an innovation systems framework for the
informal economy. An important contribution of the systemic approach
is its recognition of the importance of the socio-economic and political
context in which productive and innovation activities are embedded.
i n f o r m al man uf act ur i n g i n s ou th afric a
169
Table 4.8 Reported knowledge flows
Have you trained other people?
If so, how many? (average)
Yes
No
44%
2.2
56%
–
Source: Fieldwork 2013.
0.6
52%
0.5
48%
0.4
0.3
24%
0.2
16%
16%
12%
0.1
0
No interaction
Interaction
Technology
transfer
organisations
Business
incubators
Representatitve Networking
associations initiatives for
enterpreneurs
Figure 4.8 Percentage of respondents engaging with formal organizations.
Source: Fieldwork 2013.
The system surrounding these activities influences the configuration of
capabilities and skills, as well as rate and direction of the dissemination
and use of innovations. Consequently, production and innovation reflect
the combination of prevailing institutions and socio-economic structures
forming the system (Lastres and Cassiolato 2005; Chapter 2 in this book).
The innovation system around the informal manufacture of home and
personal care products in South Africa is illustrated in Figure 4.9. Within
this system we identify actors comprising the productive value chain as
described earlier in this chapter (including formal and informal suppliers, manufacturers and distributors or retailers). This productive value
chain operates within the immediate boundaries of the community,
which plays an important role not only as a source of demand but also
in setting up the “informal institutions” guiding the behavior of informal
entrepreneurs. Formal organizations are represented by an array of
educational organizations (as the main generators of skills and training),
funding and support organizations, knowledge and technology transfer
organizations and representative bodies. Formal rules of engagement are
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er i ka kr aemer -m b u la
Table 4.9 Knowledge flows among producers/manufacturers
Do you interact with other producers?
Yes
72
If yes, what kind of knowledge do you exchange?
Cheaper suppliers
Product innovation/new and improved products
Joint orders for raw materials/packaging
Markets and general ideas about the industry
Branding and labels
Services and customer support
Business strategies
No
28
Percentage of firms*
36
20
12
12
8
8
4
Source: Fieldwork 2013.
Note (*): Respondents occasionally indicated more than one type of knowledge
exchanged, so percentages do not add up to 100 percent.
shaped by government agencies, the broader regulatory framework and
international standards.
Note that since the industry is dominated by a few large foreign and
national companies, the innovation system is largely biased toward the
needs of large formal companies. Only recently have targeted efforts been
made to develop micro, small and medium enterprises in the sector –
mainly through the recently established Cosmetics Desk at the
Department of Trade and Industry (DTI) and more recently the South
African Department of Small Business Development.
Table 4.10 summarizes the influence that each of the relevant actors
within the identified innovation system may have on the innovation
activities of informal manufacturers of home and personal care products.
Appropriation Mechanisms of Informal Manufacturers
The Intellectual Property Landscape in South Africa
Legislation on intellectual property rights in South Africa is generally
seen as quite advanced by international standards (WEF 2013).15 General
15
According to the Global Competitiveness Index published by the World Economic
Forum, South Africa does well on measures of the quality of its institutions, including
intellectual property protection, ranking 18th in the world.
GLOBAL INTERNATIONAL MARKET TRENDS, STANDARDS AND TECHNOLOGIES
Regulatory
framework
Regional/local
government
Education organizations
Public
(Universities)
Funding
& financial
support orgs
Formal
Private
COSCHEM
Medicines Control
Council (MCC)
Department of
Trade & Industry (DTI)
Knowledge & technology transfer
Business
incubators
Technology
transfer orgs.
IPR regulatory
bodies (CPIC)
Representation associations
Formal
associations
(CTFA, ACA)
Informal
traders
assoc.
Service
providers
Formal
suppliers
Formal
manufacturers
Formal
retailer
Informal
Informal
suppliers
Informal
manufacturers
Informal
retailer
Final
consumer/
user
Private
consultants
Testing
orgs
(SABS)
Community
CULTURAL, SOCIO-ECONOMIC AND HISTORICAL CONTEXT
Figure 4.9 The system of innovation and production in the informal manufacturing of home and personal care products in South Africa.
Source: Authors.
Note: Dotted arrows indicate closer connections to informal economic activities; regular arrows indicate closer connections to formal
economic activities.
Table 4.10 Functions of actors in the innovation system and assessed impact on informal manufacturers of home and
personal care products
Actor
Functions
Public universities and higher education
organizations
Representation organizations
Provide specialized skills in natural and social
sciences
Provide training, guidelines, manufacturing
standards and dissemination of good practice
Provide guidance and training on business
management and strategy to SMMEs
Provide subsidized technical training, testing
facilities and manufacturing support to SMMEs
Provides testing and certification of products,
establishes standards
Oversees the industry, provides technical and
financial support to SMMEs in the industry
Tests and approves or bans medical products
Provide raw materials, testing and training
Provide raw materials
Provide feedback about product improvements
Business incubators
Technology transfer agencies
South African Bureau of Standards
(SABS)
The Department of Trade and Industry
Medicines Control Council (MCC)
Formal suppliers of raw materials
Informal suppliers of raw materials
Customers
Source: Fieldwork data.
Assessed level of impact on innovation by informal manufacturers
Medium
Low
Medium
Medium–high
Low
Medium
Low
High
Low-medium
High
i n f o r m al man uf act ur i n g i n sou th afric a
173
protection is provided by the Consumer Affairs Act 2008 (No. 68 of 2008)
and specific protection for industrial property is provided by, inter alia,
the Merchandise Marks Act 1941, the Trade Marks Act 1993, the Patents
Act 1978, the Designs Act 1993, the Copyright Act 1978, the Counterfeit
Goods Act 1997, the Intellectual Property Rights from Publicly Financed
Research and Development Act (No. 51 of 2008) and their respective
amendments. The Indigenous Knowledge Systems (IKS) Policy was
adopted by Cabinet in 2004, with a first bill (IP Laws Amendment Bill
No. 8B of 2010, IPLAB) and a second Bill (draft Protection of Traditional
Knowledge Bill) recently published for public comment.
Under the South African Patent Act (No. 57 of 1978), the Companies
and Intellectual Property Commission (CIPC) is the custodian of all new
patent applications that are filed within the Republic of South Africa.
An individual can privately file a provisional patent application, but only
a patent attorney can file a non-provisional patent application and assist
in drafting the patent specification. South Africa is one of 142 countries
party to the Patent Cooperation Treaty (PCT). This Treaty allows an
individual to file an international application as well as a national application. Under the SA Patent Act, there is a requirement for absolute
novelty – in other words, the invention must be not known or used
anywhere in the world on or before the filing date/priority date.
For a South African national, the patenting procedure usually starts
with the filing of a provisional patent application in South Africa.
The cost for a patent attorney to prepare and file a provisional patent
application can be from ZAR 8,000 to ZAR 20,000 (USD 830–2,100)16 or
more if the invention is complex and a lot of time is required to prepare
the patent specification. After the provisional patent has been filed, the
applicant has one year to take the next step – the filing of a complete
patent application. The complete application can cost from ZAR 15,000
to ZAR 35,000 or more depending on the complexity of the invention.17
Essentially, intellectual property rights are private civil rights. It is
therefore the primary responsibility of the right holder to seek remedies
in order to protect those rights. They must monitor the activities of
competitors as well as developments in the marketplace and take action
to stop any infringement of rights or obtain recovery of losses. Such
16
17
Using the average annual exchange rate for 2013 USD 1 = ZAR 9.6: www.x-rates.com.
This would be the equivalent of employing a sales person for four to nine months at the
minimum wage stipulated for the retail sector (ZAR 3,866 per month for 2014, according
to www.labour.gov.za).
Table 4.11 Cost of appropriation
Type
Official fees
(a)
Attorney’s fees
Granting body
Enforcement
Duration
ZAR 8,000+
ZAR 8,000
ZAR 27,000
CIPC
By owner
20 years(b)
By owner/ assisted by
government
By owner/ assisted by
government
By owner/ assisted CIPC
By owner
10 years(c)
Patent:
Provisional application
Complete appl./ PCT National Phase appl.
PCT International Phase appl.
Trademark
ZAR 60
ZAR 590
ZAR 590
CIPC
Copyright
ZAR 0
CIPC
Cinematograph Films(e)
Designs
ZAR 510
ZAR 240
CIPC
CIPC
Life of the original creator
plus 50 years(d)
Aesthetic designs: 15 years
Functional designs: 10 years(f)
Source: Companies and Intellectual Property Commission (CIPC), South Africa.
(a) ZAR 60 only includes the cost for an individual to file a provisional patent without the assistance of a patent attorney. A provisional patent gives
the applicant twelve months to file either a complete patent in South Africa only at a cost of about ZAR 8,000 or an international patent
application (PCT) that costs ZAR 8,000 for individuals (eligible for reduction of 90 percent of the filing fee and 75 percent of the search fee by
the Austrian Patent Office) and ZAR 27,000 for all other applicants.
(b) Maximum of twenty years provided that it is renewed annually before the expiration of the third year.
(c) A trademark should be renewed every ten years and can last indefinitely.
(d) Specifications vary for literary works, computer programs, sound recordings and films. Most works eligible for copyright protection do not
require registration or other formalities except for cinematograph films.
(e) Registration of a film is one-off and protection lasts for the duration of normal copyright protection.
(f) Registered designs have to be renewed annually before the expiration of the third year.
i n f o r m al man uf act ur i n g i n sou th afric a
175
action may be taken under the Counterfeit Goods Act 1997 with the
assistance of inspectors acting in their capacity as government officials.
Appropriation Mechanisms Used by South African Informal
Manufacturers of Home and Personal Care Products
Appropriation mechanisms commonly utilized in the formal economy
are described in Chapter 6 in this book and range from legally codified
titles through to informal methods. The same chapter also indicates that
formal mechanisms of knowledge appropriation (such as patents and
trademarks) – used to protect innovators from imitation – may have
limited applicability and coverage for certain industries and companies.
As a result, other appropriation mechanisms, such as secrecy and division of duties, are likely to be more applicable in the context of microenterprises and informal enterprises.
The perception of a need to appropriate knowledge may be expected to
relate to the perception of “ownership” of knowledge itself. In this case
study, 76 percent of informal manufacturers of home and personal care
products in South Africa indicate that they do not consider that the ideas
of the products they make belong to them. This is an important premise
to bear in mind when analyzing suitable mechanisms of knowledge
appropriation for the informal sector.
However, the study also indicates that informal manufacturers are in
fact concerned about knowledge protection. These concerns relate mostly
to their perception of strong competition and their fear that they will lose
market share if new competitors get established in the same geographical
area in which they operate. In this respect, 56 percent of respondents
report using some type of mechanism, either formal or informal, to protect
their knowledge. This is an important finding as it indicates that there is an
territorial and geographical component to productive and innovation
systems for informal entrepreneurs.
Fully 80 percent of the interviewees have their own brand, in the sense
that they identify their product with a name and/or a logo, often displayed
on the product. Using a brand is not necessarily associated with having
a registered business – 75 percent of non-registered business and 85 percent
of companies that are registered say they are brand-owners. It must be
noted, however, that having an attractive brand is not identified by informal
manufacturers as one of the current strengths adding to product quality.
Table 4.12 indicates that formal mechanisms of knowledge protection
are the least used – 4 percent of interviewees report holding a trademark,
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er i k a kr aemer -mb u la
Table 4.12 Appropriation mechanisms used by informal manufacturers
Percentage of firms*
Formal mechanisms
Trademark
Contractual agreements with contract manufacturers
Semi-formal
Secrecy
Informal
Effective sharing of information
Division of duties
Customer relationship management
Packaging
4
4
48
72
64
56
20
Source: Fieldwork 2013.
Note: Sample size = 25 informal manufacturers; * Respondents occasionally noted
more than one mechanism, so percentages do not add up to 100 percent.
and 4 percent have a contractual agreement with a manufacturer to
whom they have outsourced the development of formulas. None of the
interviewees reports having filed a patent or used copyright. Secrecy is
widely used, with nearly half of the companies (47 percent) saying they
keep some of their innovative ideas secret. However, informal manufacturers often see secrecy as a barrier to growth in that they express
concerns about training new people whom they fear may then start
their own business and become competitors.
Other informal mechanisms of knowledge protection can be observed
through an analysis of business practices, but note that interviewees do
not regard these as explicit mechanisms of knowledge protection.
The interviews reveal that effective sharing of information is the most
common mechanism of knowledge protection. Through this practice,
companies share some of their knowledge with other micromanufacturers in exchange for other knowledge that may be useful for
their own business. This type of exchange does not involve monetary
transactions but appears to be guided by a code of honor and trust among
producers and a sense of responsibility to their community.
When my mother passed away, I had to look after my family. I had
nothing. I could not spend time studying and I needed to learn to make
something that would bring money to the house. An old lady in the
neighborhood knew how to make candles, and she taught me the basics,
i nf o r m a l m a n u f a c t u r i ng in so u t h a f r i c a
177
so with her I learnt how to mix wax and fragrances. [Then I learnt more
from different places and different people] . . . and now I am making
perfumes, lotions and hair masks. The knowledge I have, I have received it
from elsewhere. I don’t mind sharing it, but it must be in exchange of
other information I need, or it must be to somebody that is in a difficult
situation.
(Informal manufacturer of skin and hair care products, 23 years old)
Sixty-four percent of respondents have established some kind of
division of duties to ensure that knowledge is protected within the
company. Given the small size of the companies, division of duties
usually implies that the owner undertakes manufacturing while their
employees are responsible for tasks relating to packaging and sales.
Managing customer relationships is seen as essential by many interviewees, and 56 percent expressly mention the importance of customer
relationship management.
Awareness of and Attitudes toward IP
The information collected indicates that informal manufacturers are often
unaware of the technicalities of the intellectual property rights regime.
Thirty-six percent of respondents indicate that they are not aware of IP
issues and IP legislation in South Africa. Thirty-two percent refer to it as
unsuitable for or inaccessible to micro-manufacturers, essentially indicating that they see it as out of their reach. Twenty percent are not bothered
about IP policy or consider it inapplicable to their line of business, and
12 percent say it is applicable but too expensive.
Among respondents, intellectual property is almost exclusively understood as equivalent to formal mechanisms such as patents and trademarks. However, the vast majority of respondents – 23 respondents
(92 percent) – have never attempted to apply for a patent, trademark or
other formal mechanisms of knowledge appropriation. Where
a trademark application has been filed, it has been with the assistance
of a business incubator guiding the process. Eighteen interviewees
(72 percent) do not have any suggestions in terms of suitable mechanisms
of knowledge appropriation beyond those semi-formal and informal
mechanisms they already use. Twenty percent suggest trademarks as
a suitable means of knowledge appropriation, since trademarks allow
brand recognition to be established through the registration of the
brand name, a logo or even a bottle shape – see Figure 4.10. Micromanufactures of home and personal care products regard innovation in
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er i ka kr aemer -m b u la
Table 4.13 Respondents’ assessment of the IP policy landscape in South
Africa
Percentage of firms*
Do not know
Not suitable for/inaccessible to micro-manufacturers
Not bothered about it/inapplicable to this kind of business
Useful but too expensive
36
32
20
12
Source: Fieldwork 2013.
Trademarks
20%
Patents
8%
None/ not known
72%
Figure 4.10 Respondents’ suggestions of suitable mechanisms of knowledge
appropriation – frequency of suggested mechanisms.
Source: Fieldwork 2013.
Note: Sample size = 25 informal manufacturers.
these areas as more likely than patentable innovations (i.e. inventions
that are new to the whole world) and consider trademarks to be potentially useful in building an identity in the market place. However, they
also acknowledge that the cost of enforcement would prevent them from
pursuing formal action in case of infringement.
Alternative Strategies for Appropriation
On the basis of the information obtained in the study, this section
considers three possible alternative strategies to conjecture what an
increased use of IP would entail for informal manufacturers in terms of
innovation and income. Importantly, most respondents consider open
i n f o r mal man uf act ur i n g i n sou th afric a
179
Table 4.14 Opinions about knowledge appropriation
Would you like to make use of formal mechanisms to protect
your ideas?
Is open transfer of innovative ideas useful in this sector?
Yes
No
32%
68%
88%
12%
Source: Fieldwork 2013.
transfer of ideas to be a useful practice in the sector. However, 32 percent
indicate that they would like to use some kind of formal mechanisms to
protect their ideas – see Table 4.14.
The three strategies developed below are largely exploratory and present tentative pathways for an increased use of IP in the informal
economy. They do not present mutually exclusive alternatives, but rather
can be thought as coexisting and complementary options if they are
applied and tailored to specific territories or localities where informal
enterprises may have different needs.
Strategy 1: Creation of Semi-Formal Industry Associations or
Geographically Based Associations that Include Informal
Manufacturers
The results of the study indicate that existing associations for manufacturers of home and personal care products mainly represent large manufacturers and suppliers, which to some extent reflects the dominance of
such companies within the sector. Micro and small entrepreneurs in this
sector, whether formal or informal, lack a platform to voice their particular needs, interests and practices. Studies of other sectors and other
countries indicate that semi-formal associations can be very useful as
platforms for the exchange and collective protection of knowledge
among informal entrepreneurs (see Chapters 3 and 5 in this volume).
In the case of South Africa, the exchange of ideas between micromanufacturers (both formal and informal) appears to be a valuable
mechanism in promoting innovation. However, these exchanges are
mostly ad hoc and limited by the geographical areas in which informal
actors operate.
In this strategy, an association representing micro-manufacturers
would act as a knowledge broker or intermediary, responsible for
developing collective semi-formal protection mechanisms such as
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er i k a kr aemer -mb u la
documentation and creating a database of ideas for product and
process improvement to be made accessible to its members, with no
immediate requirement for businesses to be registered. As an intermediary, this type of representative organization would serve as
a bridge between informal manufacturers and the wider support
and innovation system, connecting informal actors to opportunities
emerging in formal organizations relating to technology transfer,
training and the like. Such arrangements would likely mean increased
access to technical and business management knowledge, leading to
innovation, higher income and business growth. As business revenues
increased, one would expect more micro-enterprises to be willing to
register their businesses and products (as suggested by FIAS 2007),
thereby also increasing the health, safety and quality standards of the
products. A sectoral or geographically based association that included
informal manufacturers could link up with existing South African
networks such as the South African National Informal Economy
Forum (SANIEF)18 and draw on their experience as well as other
relevant examples provided by Bull et al. in Chapter 3 on Kenya and
Essegbey et al. in Chapter 5 on Ghana.
Strategy 2: Accessibility – Raising Awareness and Reducing
Prices of Formal Knowledge Appropriation Instruments for
Informal Enterprises
The interviews indicate that lack of awareness and the costs involved in
IP protection are two of the main obstacles preventing individual informal manufacturers from accessing knowledge appropriation mechanisms. This strategy would require government bodies and local IP
agencies to engage in two simultaneous efforts. First, they would run
awareness campaigns targeting informal settlements and metropolitan
areas with a high concentration of informal activity. Campaigns would be
run in collaboration with technology transfer organizations, incubators
and higher education institutions, as these formal actors appear to have
closer connections to informal manufacturers. They would reach out and
18
SANIEF is an informal initiative of municipal local economic development (LED)
practitioners working in the informal economy, mainly street trading. The forum was
initiated out of a number of best practice studies between municipalities. The overall
objective of SANIEF was to establish, maintain and manage an informal trading network/
forum of metros and municipalities which would, among other outcomes, develop and
operationalize a national policy framework on street trading that would facilitate and
encourage micro-trading.
i n f o r mal man uf act ur i n g i n sou th afric a
181
specifically target micro and informal manufacturers to make them aware
of the possibilities offered by the country’s existing IP
framework. Second, government and agencies should develop appropriation mechanisms suitable for informal enterprises, offering lower costs
and easier access, possibly using cell phones for updates given the wide
use of mobile telephony across informal networks.
This strategy would potentially lead to broader use of formal mechanisms of knowledge appropriation by informal manufacturers. One might
expect those informal enterprises that managed to access information
and use formal knowledge appropriation mechanisms to gain economic
advantages such as reputation effect, access to finance and other benefits,
possibly leading to higher income and a higher propensity to formalize
the business. The broader economic and social impacts of this strategy
would need deeper analysis, as it might leave behind the most marginalized micro-entrepreneurs that remained unable to access information
and use formal IP mechanisms. In other words, while this strategy would
provide opportunities for some micro-enterprises, if it was not complemented by additional initiatives to reach out to the most marginalized
actors it could trigger wider inequalities among informal micromanufacturers, affecting the social fabric in which these entrepreneurs
live and survive on a daily basis.
Strategy 3: Wider Use of Informal Mechanisms of Knowledge
Appropriation
A third strategy would be to make informal mechanisms of knowledge
appropriation the norm and encourage wider use of them by informal
enterprises. The results of the study indicate that most respondents
currently use appropriation mechanisms that are informal in nature,
with effective sharing of information, division of duties, sales or service
efforts, customer loyalty and after-sales efforts being the most important
mechanisms. This strategy would imply that informal mechanisms of
knowledge appropriation should be strengthened and more widely used.
Some potential positive results would be that employment relationships
within informal enterprises would be carefully cultivated in order to
prevent knowledge leakages, while innovation would often manifest in
new modes of customer support and product differentiation (for instance
through packaging). As employment conditions and on-the-job learning
opportunities improved, this strategy could lead to larger informal
employment, broader diversification of home and personal care products
and improved social networks in informal settlements where informal
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er i k a kr aemer -m b u la
activities predominate. However, the overall potential impact of this
strategy would require careful analysis as it could restrict the scope for
business and market growth.
Implications for Policy
This section reviews the policy framework that affects the informal
economy in South Africa in general and the manufacturing of home
and personal care products in particular. It is worth noting that the broad
policy vision in South Africa recognizes the importance of informal
economic activity. However, implementation of that broad vision in
manageable programs remains limited and subject to debate. For
instance, the Gauteng Employment Growth and Development Strategy
(GEGDS) for 2009–2014 makes explicit mention of the importance of
innovation in the informal economy, understanding innovation as
including “science and technology innovation, socio-economic innovation, environmental innovation and even the innovating spirit of the
everyday entrepreneur in both formal and informal sectors of the economy” (GEGDS). However, there has been little progress in translating
this vision into dedicated and funded programs to enhance innovations
generated in informal settings by informal actors. Moreover, the interventions specified in the Gauteng Innovation Strategy (2012) do not
include programs explicitly targeting innovations generated in communities and/or by informal entrepreneurs. The present study shows that it
is important to address the specific needs of innovators in the informal
economy as South Africa seeks to promote “a developmental and equitable society.” In order to achieve this goal, national and regional policies
must be shaped, coordinated and implemented to enhance innovation
and its benefits in the informal economy.
In their strategic policy vision, the main metropolitan areas of South
Africa have embraced informal trading as part of their growth and
development strategies, considering it to be a positive development in
the micro-business sector, a key contributor to job creation and poverty
alleviation, and a potential way of expanding the economic base. In this
line, the City of Johannesburg adopted an Informal Trading Policy in
2012 with a vision “to create a well-managed informal trading sector,
which addresses the needs of its citizens and stakeholders who are
affected by informal trading in one way or another. It further wants to
ensure informal trading is effectively integrated into the economic,
spatial and social development goals of the city.” This policy is enforced
i n f o r m al man uf act ur i ng i n sou th afric a
183
by the City Informal Trading bylaws which recognize “the need to adopt
a developmental approach to enable access to job and entrepreneurial
opportunities within the Informal Trading sector, to harmonize the
relationship between the Informal Trading sector and the formal trading sector and to facilitate the migration of Informal Trading into the
formal trading sector.” But despite this explicit consideration of the
informal economy in development plans, implementation of this vision
remains largely contested19 and varies across regions within South
Africa.20
The DTI has made significant efforts to approach the informal economy through its Small Enterprise Development Agency (SEDA).
Moreover, SEDA was instrumental in facilitating the development of
the Informal/ Street Trading Policy Framework for metropolitan and
local municipalities in 2008. SEDA has a division focused on technology
business incubation, quality and standards, and technology transfer
services and support to small enterprises (called the SEDA Technology
Program, STP). As a program of the DTI, SEDA STP is responsible for
the provision of both financial and non-financial technology transfer,
business incubation and quality support services for small enterprise.
It provides a range of services to assist small enterprises, particularly
informal enterprises, to access and acquire technology, targeting registered or unregistered small enterprises that are marginalized through
limited access to funds, markets, business skills, technical know-how or
appropriate technology. SEDA STP has a technology transfer unit with
two main objectives:
• to provide technology transfer services to small enterprises and
• to provide specific technology support to women-owned enterprises.
Recent programs suggest a growing awareness of the social and economic
risks of sustained endemic unemployment in South Africa, and several
efforts seem to be geared toward promoting employment opportunities
by supporting micro and small businesses. In this regard, a government
initiative called the Jobs Fund was set up in 2011 to assist start-ups and
small businesses with a special focus on creating job opportunities for
19
20
Over 1,200 informal traders were forcibly removed from their trading sites as part of the
“Mayoral Clean Sweep Initiative” undertaken by the City of Johannesburg
during October 2013. In response, informal traders took the City of Johannesburg to
the Constitutional Court.
For instance, Durban appears to have been more progressive in its approach to the
informal sector than other metropolitan areas in the country (UN-Habitat 2006).
184
er i k a kr aemer -mb u la
young people. The Fund is managed by the Development Bank of
Southern Africa (DBSA) and has been allocated a budget of ZAR
9 billion for a three-year period. Among other projects, the Jobs Fund
has supported creative models of business incubation that search and
upscale ideas from innovative entrepreneurs in the informal economy
and under-resourced South African communities, for example, the
Awethu Project. In addition, an agency was formed in 2012 to address
the financial needs of micro, small and medium enterprises: the Small
Enterprise Finance Agency (SEFA). Unlike other initiatives that only
fund SMEs through banks and other intermediary institutions, SEFA
aims to provide cash directly to entrepreneurs wishing to start small
businesses or expand existing ones. The government has also created
development agencies at provincial level to assist in the development of
small businesses, and part of SEFA’s role is to establish a link between all
small business initiatives. The Youth Enterprise Development Strategy
2013–2023, launched in 2013, targets young and self-taught informal
entrepreneurs, aiming to promote youth self-employment and youthowned and managed enterprises.
While it is positive that these initiatives have emerged, the needs of
small businesses in townships need to be better understood. Effort is also
required to raise awareness about the existence of these initiatives.
The South African Local Government Association argues that government needs to recognize and direct policy development to multiple subsectors existing within the informal economy. However, translating
policy into action remains difficult as small businesses in townships are
often unaware of opportunities even when government does provide
them. Under the current policy framework, formalization through business registration is usually required in order to access government support in the form of funding, training and access to technology. The new
South African Department of Small Business Development, which was
established in 2014, aims to develop a robust and comprehensive
approach to advancing the development of SMMEs and cooperatives
for job creation, an approach that targets vulnerable groups and includes
informal enterprises.
Conclusions
Informal economic activities continue to provide income opportunities
to large segments of the population in South Africa, particularly unemployed youth. While a lot of informal economic activities remain
i n f o r m al man uf act ur i ng i n sou th afric a
185
survivalist and unskilled, the evidence presented in this chapter indicates
that some sub-sectors do involve substantial skills, entrepreneurship and
creativity that translate into innovation. This study focused on the
practices of informal manufacturers in the home and personal care sector
in South Africa. The evidence suggests that informal economic activity in
this sub-sector is not only considerable but appears to be growing as
knowledge becomes increasingly available and accessible, and opportunities for employment in the formal economy remain limited.
The results indicate that informal manufacturers in this sub-sector
are usually micro-enterprises run by young entrepreneurs who satisfy
specific demands from low-income consumers seeking lower-cost products and small unit sizes. These manufacturers engage in production
activities, acquiring knowledge (both technological and nontechnological) from a range of sources – informally from the community, from other micro-manufacturers, from suppliers and from formal
organizations. The knowledge acquired often translates into innovations – and we found a considerable number of innovations manifest in
significantly improved formulations, packaging and manufacturing
processes. These processes of knowledge dissemination and innovation
raise interesting questions relating to knowledge appropriation and IP
policy.
Knowledge passed from one individual to another can allow the
recipient to start a new business and generate an income, often providing
a chance to survive and sometimes prosper in an environment where
income opportunities are scarce. Passing knowledge to others in the
community also allows informal actors to return something to
a community that supports them during hard times (social safety net).
Knowledge passed through formal training (by technology transfer organizations, education and training organizations, business incubators and
the like) gives informal entrepreneurs a valuable opportunity to upgrade
their products, innovate, access new markets and refine their business
strategy. Networking initiatives offer them the opportunity to engage
with other entrepreneurs, often leading to fruitful connections and collaborations. However, informal manufacturers are also aware of the
potential negative consequences that could emerge if their innovative
ideas were copied without their consent. In this regard, increased competition in their immediate geographical area could have devastating
effects in their business.
It is important to note that while these actors often operate outside
formal regulatory frameworks, policies and government programs
186
er i ka kr aemer -m b u la
have an important influence on their activities, as the regulatory
framework shapes the broader reality within which informal entrepreneurs operate. Most of the more successful interviewees had
received some type of support and had interacted with the wider
innovation system. In this respect, technology transfer organizations,
business incubators, training organizations and other intermediaries
can play a critical role in materializing the aspirations of informal
entrepreneurs into larger markets, new products and more efficient
processes. Meanwhile, those informal entrepreneurs that remained
isolated from the wider innovation system somehow seem to get
stuck in survivalist economic activities despite their aspirations for
better and improved products.
It is also important to understand “informal institutions,” which
strongly influence the behavior and decisions of informal entrepreneurs.
The results of the study indicate that informal mechanisms of knowledge
appropriation predominate among informal manufacturers, who manage the processes of dissemination and appropriation of knowledge
largely guided by community rules of engagement.
Innovation policies and IP strategies must provide an enabling environment for informal entrepreneurs through explicit programs and initiatives that target their needs. These needs are better identified, managed
and addressed at the level of local government. Some initiatives have
recently emerged, but they remain scattered and shaped at the national
level, while the connection with the intellectual property framework
remains weak. Examples in other countries have shown that the identification of needs can be facilitated by creating local platforms where the
interests of informal actors are represented, for example, through associations and representative organizations, inclusive of informal actors,
able to communicate with local governments.
The informal economy is fueled by young entrepreneurship, and in
many cases is used as a test bed or platform for experimentation and
learning. A scenario where informal entrepreneurship is not acknowledged, supported and upgraded would result in yawning inequalities,
decreasing levels of entrepreneurship and innovation, growing youth
unemployment, increase in crime and ultimately underutilization of
creative potential to construct an inclusive and sustainable future.
In other words, the risks of not adopting an inclusive and systemic
approach to innovation and IP policies are too high. This requires
rethinking innovation policy and intellectual property beyond its
current focus on science and formal R&D, in such a way that it is
informal manufacturing i n south afri ca
187
mindful of the economic reality of South Africa, one where economic
agents with various degrees of formality interact, exchange ideas and
innovate.
References
Adcorp 2013. Adcorp Employment Index, June 2013. www.adcorp.co.za
/Documents/.
Charmes, J. 2012. “The informal economy worldwide: trends and
characteristics,” Margin: The Journal of Applied Economic Research 6(2):
103–32.
Das Nair, R. and Hawthorne, R. 2006. Trade and Poverty in South Africa:
The Relationship between Trade and Poverty for Household Consumables
Products. Cape Town, Trade and Poverty Project, Southern Africa Labour
and Development Research Unit, University of Cape Town.
De Beer, J., Kun, F. and Wunsch-Vincent, S. 2013. “The Informal Economy,
Innovation and Intellectual Property – Concepts, Metrics and Policy
Considerations,” WIPO Economic Research Working Papers No. 8.
Geneva, Economics and Statistics Division, World Intellectual Property
Organization.
Department of Trade and Industry (DTI) 2003. South Africa’s Economic
Transformation: A Strategy for Broad-Based Black Economic
Empowerment. Pretoria, South Africa, DTI.
Euromonitor International 2013. Beauty and Personal Care in South Africa
Country Report.
Facility for Investment Climate Advisory Services (FIAS) 2007. South Africa:
Tax Compliance Burden for Small Businesses: A Survey of Tax Practitioners.
Washington, DC, World Bank Group. www.wbginvestmentclimate.org
/uploads/FIAS_Tax_Practitioners_Report_-_FINAL_29+Aug.pdf.
HDA 2012. The Housing Development Agency: South Africa: Informal settlements status, Research series by the Housing Development Agency,
Johannesburg.
Kraemer-Mbula, E. and Tau, V. 2014. “Country study on innovation,
intellectual property and the informal economy: informal manufacturers of home and personal care products in South Africa,” prepared
for the Committee on Development and Intellectual Property (CDIP):
Thirteenth Session, CDIP/13/INF/4 ANNEX. Geneva, WIPO.
Lastres, H. and Cassiolato, J. 2005. “Innovation systems and local productive arrangements: new strategies to promote the generation, acquisition and diffusion of knowledge,” Innovation: Management, Policy &
Practice 7(2–3): 172–87.
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Maharajh, R. 2011. “Innovating beyond racial capitalism: a contribution
towards the analysis of the political economy of post-Apartheid South
Africa,” PhD thesis. Sweden, Lund University.
Ozone Business Consulting 2012. The Study of the Quantitative and Qualitative
Analysis of SMME’s in the Cosmetics Sector of South Africa. Unpublished
report. Pretoria, Department of Trade and Industry.
Scerri, M. 2009. The Evolution of the South African System of Innovation since
1916. Newcastle upon Tyne, Cambridge Scholars Publishing.
South African Local Government Association (SALGA) 2012. Making the
Informal Economy Visible: Municipal Guidelines for Informal Economy
Policy (version 2.0, June 2012). Pretoria, SALGA.
Statistics South Africa (StatsSA) 2013. Quarterly Labour Force Survey, Quarter
2, 2013, Statistical Release P0211. Pretoria, Stats SA.
United Nations Development Programme (UNDP) 2010. Human
Development Report: The Real Wealth of Nations. New York, Palgrave
Macmillan for the UNDP.
UN-Habitat 2006. Innovative policies for the Urban Informal Economy.
Nairobi, UN-Habitat.
World Economic Forum (WEF) 2013. The Global Competitiveness Report
2013–2014. Geneva, WEF.
World Economic Forum (WEF) 2014. Global Risks 2014. Geneva, WEF.
comment 4.1 n onhlanhla mkhize
189
COMMENT 4.1
nonhlanhla mkhize
Department of Science and Technology, South Africa
The pre-1994 era in South Africa was characterized by unequal distribution of assets; little or no access to socio-economic infrastructure and
services, public amenities and government services; unequal socioeconomic participation opportunities afforded to citizens; segregated
planning approaches; and scattered residential and farming settlements
without viable economic and social linkages to the more economically
active areas of the country (National Planning Commission 2012).
The 1994 transition from the apartheid era to a democratic state not
only introduced significant changes in the political landscape but also led
to a new constitutional order seeking to ensure equal rights for all South
Africans (Department of Justice and Constitutional Development 1996).
Since 1994, the South African government has developed and implemented policy frameworks, systems, programs and projects to give effect to
the values and principles enshrined in the Constitution (van der Waldt
2007). The transition from the unequal apartheid era to a democratic
state involved the review of a seemingly sophisticated system of science
and technology embedded within an extremely poor national innovation
system (Mhula, Jacobs and Hart 2013).
The White Paper on Science and Technology introduced in 1996 was
founded upon a vision of all South Africans enjoying an improved and
sustained quality of life, integration into the economy by means of
satisfactory employment and participation in democratic political culture. It is now commonly recognized that investments in Science,
Technology and Innovation (STI) have driven economic growth and
prosperity in many developing countries (OECD 2013) which have
graduated to a middle-income status by improving their competitiveness,
growth and wealth. South Africa is one of these countries, but still faces
severe challenges of poverty, inequality and unemployment, with
a considerable percentage of its population still excluded from enjoying
the benefits and advances of the twenty-year-old democratic state
(Mhula, Jacobs and Hart 2013).
Targeting innovation in the informal domain of the economy is
a strategic means of fully attaining the goals of the policies guiding STI
in South Africa (such as the 1996 White Paper and the 2002 National
190
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Research and Development Strategy) as well as applying STI to achieve
inclusive national development as elaborated in the National
Development Plan and its vision for 2030. A review of South Africa’s
National System of Innovation (NSI) in 2007 (OECD 2007) concluded
that it had failed to contribute adequately to poverty reduction or the
wider economic inclusion of the majority of South Africans. The same
review also indicated that there was poor understanding (particularly on
the demand side) of the notion of innovation in all its dimensions,
technical, economic and social. It emphasized that innovation that supports inclusive development should be more pronounced and visible,
particularly in light of South Africa’s history and national growth and
development aspirations (OECD 2007).
Similar findings resonate in the report of the Ministerial Review
Committee on the STI Landscape from 2010, which assesses the performance of the NSI, resource efficiency and readiness for future challenges
in a global context. This report highlights (i) poor understanding of the
role of social innovation and (ii) a bias of state investment in innovation
toward “big science” and an inadequate focus on meeting social priorities
(Department of Science and Technology 2010). These two findings are
clearly relevant to how the NSI engages with and supports innovations
emerging in the informal domain of the national economy. KraemerMbula’s study in this chapter presents valuable evidence to inform policy
strategies in this area. It sheds light on how innovation may be understood in the context of informality, exploring the awareness and appropriateness of important policy instruments by players in the informal
domain of the economy. That domain in South Africa remains significant
in terms of its size and estimated contribution to addressing the unemployment challenge.
This study confirms the existence of innovations originated by actors
in the informal domain of the economy, which enable the poor, in
particular, to access goods and services. More importantly, it emphasizes
the role that informal domain actors play in enhancing and modifying
existing knowledge to create and sustain economic participation. Such
activities are critical for South Africa to achieve an inclusive knowledge
economy. Improving the accessibility and affordability of goods and
services provides informal domain actors with customer bases that
might not be easily accessible otherwise.
The study also highlights the diversity of innovations generated in the
informal domain of the economy, which includes new products and
services, business processes and even designing cost-effective
c o mmen t 4. 1 n o n h l an h l a mkhize
191
machinery – allowing some respondents to enhance their businesses to
the point where they become bulk suppliers. Such findings highlight the
need for formal NSI institutions to be able to respond to the innovation
requirements of the informal economy in a timely and appropriate
manner so as to create sustainable income-generating opportunities.
An example is the compliance of products with relevant standards and
guidelines such as those of the Cosmetic, Toiletry and Fragrance
Association of South Africa and the South African Bureau of Standards
as well as the protection of intellectual property of informal innovators.
In the latter regard, the study raises important questions about the
appropriateness of existing instruments to support innovations by informal domain actors as well as the awareness they have of existing instruments. It questions whether South Africa has appropriate financial and
non-financial incentives and disincentives for the informal domain of the
economy and highlights that innovators in the informal domain of the
economy can actually contribute to the design of appropriate innovation
support instruments.
This study also provides evidence about existing linkages between the
formal and informal domains of the economy in the home and personal
care manufacturing sector. Such linkages are not limited to distribution,
but are multidimensional. Their existence shows that there is one
national economy with two domains: formal and informal. Informal
domain actors innovate in producing and diversifying some products,
and the level of innovation is affected by their access to a broader knowledge base as well as technology and equipment. The question then arises:
if appropriate technology and equipment were to be made available, how
would they contribute to the informal production of goods in such a way
that it was compliant with relevant standards and guidelines as well as
contributing to business growth and sustainability? The linkages between
formal and informal domains also highlight the need for a responsive
public research, development and innovation (RDI) system that recognizes the current “chasm” between RDI and the innovation needs of the
informal domain.
The study shows that some activities in the informal domain of the
economy align well with the national growth and development strategy,
including the Industrial Policy Action Plan the Ten-Year Innovation
Plan as well as the more recent Agricultural Policy Action Plan
(APAP). Similarly, they fit the emphasis in the 1996 White Paper on
Science and Technology on “support[ing] all types of innovations fundamental to sustainable economic growth, employment creation, equity
192
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through redress and social development” (Department of Arts, Culture,
Science and Technology 1996). Policy makers therefore need to better
appreciate grassroots innovation in South Africa, to develop appropriate
response mechanisms to support grassroots innovations so as to create
sustainable income generation opportunities for such innovators.
Support might also include developing a database of grassroots innovations and providing entrepreneurs with technical expertise to improve
and sell their innovative solutions.
Regarding implications for education and training, the study shows
that innovation does not necessarily require high-end skills. However, it
also suggests that insufficient education and knowledge continues to
limit the ability of informal actors to thrive. This finding may indicate
a need to innovate in skills development and rethink the role of higher
education in building and enhancing innovation capacity and capability
in the informal domain. Is the informal domain providing alternative
means to expand capacities and capabilities? And if so, how should the
NSI ensure that the policy and institutional environment best support
such innovation? An enabling environment is critical if South Africa is to
advance inclusively and better harness her innovative edge and contribute to the global STI agenda focused on inclusive solutions by and for
the informal domain of the economy. Important questions are raised in
this study as to how best to provide appropriate training, transfer technology and provide market access and market intelligence to actors in the
informal domain.
In sum, this study makes a valuable contribution to evidence-based
and informed decision and policy making by providing evidence of
different types of innovations generated in the informal domain of the
economy. It shows that innovation is not exclusive to formal economic
activity, so the informal domain should not be perceived only as
a beneficiary and recipient of innovations. In so doing, the study
encourages policy makers to enhance the innovation environment to
better enable innovation from and in the informal domain. It is
a meaningful contribution to the development of the South Africa’s
national strategic framework on Innovation for Inclusive Development
and its associated implementation roadmap, driven by the Department of
Science and Technology (DST). That strategic framework is partly based
on the recommendations of the 2010 Ministerial Review of the NSI
landscape as well as a commitment to attain the goals stated in the
1996 White Paper on Science and Technology.
c o m m en t 4 . 1 n o nh l a n h l a mk hi z e
193
References
Department of Arts, Culture, Science and Technology 1996. White Paper on
Science and Technology. Pretoria, Department of Arts, Culture, Science and
Technology.
Department of Justice and Constitutional Development 1996. The Constitution
of the Republic of South Africa, Act 108 of 1996. Pretoria, Department of
Justice and Constitutional Development.
Department of Science and Technology 2010. Ministerial Review of the
National Science Technology and Innovation Landscape. Pretoria,
Department of Science and Technology.
Mhula, A., Jacobs, P. and Hart, T. 2013. Innovation Methods – Indicator
Development (Rural Innovation Assessment Tool Concept Paper Series,
RIAT Concept Paper #6). Pretoria, Human Sciences Research Council.
National Planning Commission 2012. National Development Plan. Pretoria,
Presidency of the Republic of South Africa.
Organisation for Economic Cooperation and Development (OECD) 2007.
Review of South Africa’s Innovation Policy. Paris, OECD Publishing.
Organisation for Economic Cooperation and Development (OECD) 2013.
Innovation and Inclusive Development: Conference Discussion Report.
Paris, OECD Publishing.
van der Waldt, G. 2007. “Project management: a new service delivery
paradigm,” Koers – Bulletin for Christian Scholarship 72(2): 239–60.
5
Herbal Medicine in the Informal Sector of Ghana
george owusu essegbey and stephen awuni
Introduction
Good health is essential for wealth creation in every nation, and traditional herbal medicine is an important health care delivery system in
Ghana, as in most African countries. For people living in marginalized
areas of the country, accessing health care is a challenge in terms of both
cost and geographical distance. The estimated ratio of traditional medicine practitioners (TMPs) to other members of the population is 1:400 in
Ghana, compared to a ratio of 1:12,000 for orthodox doctors (STEPRI
2007). Traditional medicine (TM) is therefore an important component
of the country’s overall health care delivery system. It is, however, not
only a vehicle for improving the health conditions of people but also
a means of enhancing wealth creation in society.
This chapter examines the capacity of TM to meet the integrated goals
of providing good health care and the opportunity for sustainable livelihood and wealth creation.1 The practice of TM is essentially part of the
informal economy. The advantages and constraints facing economic
actors in the informal economy are complex and various. On the one
hand, there is flexibility in business operations and the opportunity to
start up on the smallest of scales. On the other hand, there are also
problems in terms of limited scope for market access and constraints in
upscaling. A fundamental challenge in TM is how to shape policies and
programs to seize the opportunities generated through informality and
ensure the advancement of TM through innovation with an appropriate
and facilitative intellectual property system.
This chapter situates herbal medicine in the context of the informal
economy of Ghana and discusses the role it plays in innovation and
economic development. Over the years, Ghana has elaborated
a number of policies and programs for the development of TM. From
1
The chapter builds on Essegbey et al. (2014).
194
h e r b a l m e di ci n e i n t h e i n f o r mal sec tor of ghana
195
the side of government and TMPs there have been initiatives that have
triggered new dynamics in TM. Innovation has been fundamental to
change. The chapter appraises innovation in traditional herbal medicine
and its drivers, the critical actors and the innovation system, knowledge
appropriation mechanisms and related issues such as obstacles to innovation and scalability. In light of this appraisal, we then discuss several
policy recommendations to enhance innovation in traditional herbal
medicine.
This chapter is based on primary data collected in Ghana, with a main
focus on TMPs. Interviews and focus group discussions were used to
collect data from a sample of 107 TMPs regarding their practice, innovations, challenges, policy impacts and intellectual property rights protection. A semi-structured questionnaire of closed and open-ended
questions was used in conducting the survey. The study also developed
a map of the innovation system around TMPs including key institutions
in Ghana’s health sector such as the Ministry of Health (MOH), the
Traditional and Alternative Medicine Directorate (TAMD) and the
Traditional Medicine Practice Council which are responsible for policy
formulation, planning and oversight of TM practice. Knowledge institutions such as the Centre for Scientific Research into Plant Medicine
(CSRPM) and Kwame Nkrumah University of Science and Technology
(KNUST) were also mapped along with regulatory and other institutions
such as the Food and Drugs Authority (FDA) and the Registrar General’s
Department (RGD). The mapping exercise involved analysis of the roles
these institutions played in the development of TM. An interview guide
was used to conduct key informant interviews in these institutions.
Ghana’s Health Sector and the Significance of Traditional
Medicine in Ghana
The health sector is central in Ghana’s development framework – the
Ghana Shared Growth and Development Agenda (GSGDA 2010–2013).2
For a country aiming to sustain its middle-income status, the health of its
population is critical as it underpins its capacity for wealth creation.
The health status of the country’s population has generally improved
over the years, as illustrated by some of the key health statistics in
Table 5.1.
2
A revised development framework was finalized after completion of this study – the Ghana
Shared Growth and Development Agenda II (2014–2017).
196
g e o r g e o wu s u es s e g b e y an d s t e p he n aw u n i
Table 5.1 Ghana health status indicators, 1988–2008
Indicator
1988
1993
1998
2003
2008
Infant mortality rate (per 1,000 live
births)
Under-5 mortality rate (per 1,000 live
births)
Neonatal mortality rate (per 1,000 live
births)
Post-neonatal mortality rate (per 1,000
live births)
Child mortality
Crude birth rate (per 1,000)
Crude death rate (per 1,000)
Life expectancy at birth (in years)
Total fertility rate
77
66
57
64
50
155
119
108
111
80
44
41
30
43
30
33
26
27
21
21
84
47
17
54
6.4
57
44
12.5
55.7
5.5
54
39
10
57
4.6
50
33
10
58
4.4
31
30.8
9.4
NA
4.0
Source: Ghana Health Service 2009.
The under-5 mortality rate fell by half between 1998 and 2008 and
child mortality also improved substantially from eighty-four in 1988 to
thirty-one in 2008. Currently, the World Health Organization (WHO)
estimates life expectancy in Ghana at roughly sixty-four years.3 Although
improvements in life expectancy have been more modest than in other
health-related areas, Ghana has a relatively good health profile when
compared with other African countries with the exception of the incidence of malaria, as shown in Table 5.2.
It may be argued that improvements in health are a result of the high
priority accorded to the health sector in Ghana. However, there is clear
room for further improvement – not only improving national health statistics but also, and fundamentally, addressing the burden of equitable healthcare delivery across geographical locations and demographic strata (Apoya
2012).
Ghana’s Health Policy aims to address the key constraints in the health
sector, namely large gaps in access to health care between urban and rural
areas as well as the rich and poor; gaps in access to healthcare due to
poverty, deprivation and ignorance; relatively high morbidity and mor-
3
See www.who.int/countries/gha/en.
h e r b a l m e di ci n e i n t h e i n f o r mal sec tor of ghana
197
Table 5.2 Comparative health statistics for Ghana and other selected
African countries
Indicator
Life expectancy (years)
Under-5 mortality rate (per
1,000 live births)
Maternal mortality (per
100,000 live births)
Prevalence of HIV/AIDS (per
100,000 population)
Incidence of malaria (per
100,000 population)
Ghana
Nigeria
Kenya
South
Africa
Regional
Indicator
64
78
53
124
60
73
58
47
56
107
350
630
360
300
480
907
2,095
3,880
11,087
2,725
26,763
31,913
8,526
35
20,913
Source: WHO (2013).
tality from communicable diseases such as HIV and tuberculosis;
increasing prevalence of non-communicable diseases with high disability
and mortality; threats of epidemic-prone diseases and diseases of pandemic potential such as influenza; and a low level of overall health
expenditure and inadequate social protection. Addressing the challenges
in the health sector demands innovative approaches, especially to facilitate more equitable access to healthcare. The formulation and implementation of Ghana’s TM policy is meant to serve as one of the
innovative approaches for more equitable health care delivery.
TM was historically perceived to be a type of health care practice that
could not be classified in the same category as modern medicine
(Patwardhan 2005). However, it is now evident that TM has a definite
relationship with orthodox medicine. According to the WHO, TM is “the
sum total of the knowledge, skills and practices based on the theories,
beliefs and experiences indigenous to different cultures, whether explicable or not, used in the maintenance of health as well as in the prevention,
diagnosis, improvement or treatment of physical and social imbalance,
and relying exclusively on practical experience and observation handed
down from generation to generation, whether verbally or in writing”
(WHO 2000, p. 1). It is worth noting the mention of “physical and social
imbalance” in the definition as it resonates with the general worldview of
the TMP and his or her patient. In the particular context of Ghana, and
for that matter Africa as a whole, health care goes beyond the physical,
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george owus u e ssegbey and stephen a wuni
reaching to the social and psychological dimensions. In this regard,
health care delivery must be understood to have effect within a specific
socio-cultural setting. However, in this study, we will not cover the nonphysical effects of medicine and its relationship to “social imbalances.”
The traditional medicinal preparations discussed in this study are in the
genre of allopathic medicine, in terms not only of production and
packaging but also of dispensing. Still, it is important to bear in mind
the holistic concept within which TM is practiced in Ghanaian and
African society.
More recently, WHO has defined TM and healers as “the sum total of
the knowledge, skills, and practices based on the theories, beliefs, and
experiences indigenous to different cultures, whether explicable or not,
used in the maintenance of health as well as in the prevention, diagnosis,
improvement or treatment of physical and mental illness” (WHO 2013,
p. 15). This definition makes more explicit the psychological attributes of
healthcare, which are also crucial in TM. This is important as it is a basic
feature of the underlying philosophy of the typical TMP
(Payyappallimana 2009) and is very relevant in Ghana’s TM.
In Africa, the percentage of the population that uses TM ranges from
90 percent in Burundi and Ethiopia to 80 percent in Burkina Faso, the
Democratic Republic of Congo and South Africa, 70 percent in Benin,
Cote d’Ivoire, Ghana, Mali, Rwanda and Sudan, and 60 percent in
Tanzania and Uganda (WHO 2000). According to Mander et al. (2007,
p. 190), among South Africa’s black population TM is apparently desirable and necessary for treating a range of health problems that Western
medicine cannot adequately treat. In accord with its socio-cultural and
psychological effects, traditional medical practice comes in forms that
can be confounding at times. For example, in Nigeria, arthropods are
reportedly used to cure thunderbolt (“magun”), child delivery (“igbebi”),
bedwetting (“atole”), yellow fever (“ibaapanju”) and a host of many other
ailments that cannot be treated using Western medicines and therapy
(Lawal and Banjo 2007). The link between arthropods and healthcare
may be far-fetched when assessed from the perspective of modern orthodox medicine, but when set within the belief system of a community and
supported by the TMP’s aura of authority, healthcare may be successfully
delivered culturally or psychologically.
This case study focuses on that component of TM that is based
primarily on the use of herbs and herbal products. Herbal medicine
forms part of TM. It includes herbs, herbal materials, herbal preparations
and finished herbal products that contain as active ingredients parts of
h e r b a l m edi ci n e i n t h e i n f o r mal sec tor of g hana
199
plants, or other plant materials, singly or in combination. Internationally,
studies have shown that even in advanced countries where orthodox
health systems prevail, an increasing number of people are using herbal
medicine to meet their health care requirements. For instance, a survey
conducted in the member states of the European Union in 1991 revealed
that 1,400 herbal drugs were used by patients in the European Economic
Community (WHO 1996). One-third of American adults have also used
alternative treatment and there is fast-growing interest in TM systems in
the developed world (WHO 1996). In China, traditional herbal preparations account for 30–50 percent of total medicine consumption while
in Ghana, Mali, Nigeria and Zambia, it is the first line of treatment
for 60 percent of children with high fever resulting from malaria
(WHO 2003).
In the specific case of Ghana, the general acceptance of TM has been
consolidated in national policies and legislative regimes. The Traditional
Medicine Practice Act 595 of Ghana of 2000 has clearly established the
bases and parameters of TM. It defines TM as “a practice based on beliefs
and ideas recognized by the community to provide health care by using
herbs and other naturally occurring substances” (Act 595, 2000:
Section 42). This is consonant with the definition of the WHO. Broadly
understood, the practice is based not only on herbs but also on other
substances including animal parts and earth substances. It allows for
a wide interpretation. Both the Act 595 and WHO definitions take
account of the socio-cultural aspects of the practice, including traditional
knowledge that is entrusted either communally or individually. While
acknowledging the importance of cultural and social aspects, this chapter
focuses on the production of herbal medicines, in other words, herbal
medical preparations.
The Role of the Informal Sector in Economic Development
The informal economy or sector is particularly important for TM practice. As a socio-cultural and economic practice, it is situated in the
informal economy but extends to the formal economy. More importantly, the graduation of the practice from the purely informal to the
formal is a good illustration of how the context affects the form and
content of practice. Traditional herbal medicine has an inherent informality which even ongoing efforts to modernize the sector are not able to
completely erase. Therefore, as stated in Chapter 2 of this volume, the
informal sector must be conceptualized as part of a formal–informal
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g e o rg e o wus u e s s egbey a n d stephen awu ni
Table 5.3 Level of formality of traditional herbal practitioners: registration,
contracting of bank loans and contribution to social security
Contracted
bank loan
Contributes to
social security
Is your enterprise registered?
Yes
No
Yes
No
Total
Yes
No
Total
17
1
18
55
34
89
33
0
33
39
35
74
72
35
107
Source: Field data 2013.
continuum, with different activities and actors located at different points
of the continuum. Small firms in the formal sector may share many
commonalities with informal enterprises with regard to innovation and
appropriating IP (de Beer, Kun and Wunsch-Vincent 2013). Our case
study illustrates the importance of this continuum and the need to allow
for “formal” production units that exhibit many informal characteristics
while maintaining the emphasis on the informal sector and the extent of
innovation within it. From this perspective alone, there are interesting
issues for analysis, including the complexity of informal–formal activities, the effect on innovation trends, the drivers and inhibitors, and the
policy implications.
The formation of cooperatives or associations of TMPs is
a characteristic of the informal–formal continuum. In the past, going as
far back as the 1960s, TMPs made efforts to form associations to serve the
welfare of their members and advance TM practice. Efforts to form
associations progressed to the point where the Ghana Federation of
Traditional Medicine Practitioners Associations (GHAFTRAM) was
founded in 1999.4 Belonging to an association is perhaps the first step
in formalizing practice. A further step is registration with the Traditional
Medicine Practice Council (TMPC) of the MOH, which can be seen as
the highest point of formalization. A significant percentage of the 107
TMPs we surveyed have registered with the Council, as shown in
Table 5.3.
4
See http://ghaftram.com. The history of the Federation can be traced to the involvement of
the first president of Ghana, Dr. Kwame Nkrumah, in 1961. It moved through various
phases to the present where the Federation brings together eight different associations of
members practicing traditional medicine.
h e r b a l m edi ci n e i n t h e i n f o r mal sec tor of g hana
201
Table 5.4 Grouping of TMPs and number of employees
Groups
Group 1
Group 2
Group 3
Group 4
Group 5
Group 6
Total
Number of
employees
Number of TMPs
in group
Percentage of
sample (%)
1–5
6–10
11–15
16–20
21–30
>=30
73
14
4
6
3
7
107
68.2
13.1
3.7
5.6
2.8
6.5
100
Average number
of employees in
group
2
7
13
18
25
66
Source: Field data 2013.
The level of formality among respondents is assessed according to
three main criteria: (1) registration of the enterprise, (2) transactions
with banks and specifically the contracting of loans and (3) contribution
to social security. While 67 percent have registered their enterprises,
about 83 percent have not contracted a loan from any bank and 69 percent pay no social security contributions for their employees. There is
a fairly high level of business registration among the TMPs simply
because it is a legal requirement for practicing. But going by the other
criteria, formalization of respondents’ business is limited and practice is
more informal than formal.
The National Board for Small Scale Industries (NBSSI) classifies enterprises in Ghana as follows: micro-enterprises – between one and five
employees; small – between six and twenty-nine; medium – between
thirty and ninety-nine; large – one hundred and above.5 Table 5.4 shows
this classification applied to our sample. A significantly high proportion,
68 percent, is made up of micro-enterprises. The micro-nature of the TM
practice again emphasizes its informal characteristics and suggests the
need for strategic policies to help sustain enterprises and stimulate
innovation.
5
The Association of Ghana Industries (AGI) also has a similar categorization of enterprises
except that there are additional categories: large medium enterprises (101–299), large
enterprises (300–499) and very large enterprises (over 500 employees).
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g e o rg e o wus u e s s egbey an d stephen awu ni
Innovation in the Informal Economy – the Innovation System
of Traditional Medicine
Over the years, innovation has come to be understood from a systemic
perspective, emphasizing the roles of critical actors whose connections
and interactions contribute to putting new knowledge into socioeconomic and productive use and addressing contextual needs
(Lundvall 1992; Mytelka 2000). This is very relevant to TM, where the
identifiable stakeholders or critical actors contribute actively to a wide
range of innovations in Ghana. TM thrives on traditional knowledge and
the indigenous heritage of the health care value of plants and their
derivatives. This source of knowledge for the practice makes the systemic
approach to defining innovation crucial. That perspective also connects
with the approach to innovation elsewhere. In the OECD countries,
innovation is now well understood as the “implementation of a new or
significantly improved product (good or service), or a [new] process,
a new marketing method (e.g. a novel product design), or a new organizational method in business practices, workplace organization or external relations” (OECD/Eurostat 2005).
Another recent definition, more relevant to the informal economy,
states that “inclusive innovation is any innovation that leads to affordable
access of quality goods and services creating livelihood opportunities for
the excluded population, primarily at the base of the pyramid and on
a long term sustainable basis with a significant outreach” (Mashelkar
2013). “Inclusive” is relevant to informal actors’ efforts to enhance
production processes and their products, with due reference to affordability, opportunity and sustainability. For TM, the medicinal nature of
innovation is as important as the market value. Understanding what
innovation is enables a better appreciation of innovation products and
processes.
In Ghana, the national innovation system (NIS) of TM comprises
critical actors such as traditional herbal medical practitioners, policy
makers, researchers, regulators, entrepreneurs and consumers and the
relevant institutions. Each category of critical actors performs roles and
functions that contribute to innovation in TM.
Figure 5.1 illustrates how the critical actors are connected in the NIS of
TM. This illustration is intended to capture the activities of informal,
semi-formal and formal TMPs. Activities of various actors in policy,
regulatory and knowledge institutions, which are affected by sociocultural and economic conditions, enable the TMPs and associated actors
h er b a l m e di ci n e i n t h e i n f o r mal s ec tor of ghana
203
EXTERNAL ENVIRONMENT–INTERNATIONAL CONVENTIONS, AGREEMENTS AND INSTITUTIONS
GOVERNING TRADE, SOCIO-ECONOMIC AND POLITICAL RELATIONS IN THE HEALTH SECTOR
External environment–international conventions, agreements and institutions governing trade,
socio-economic and political relations in the health sector
Ministry
of Health
GHS
TAMD
Education &
research
organizations
(e.g. KNUST,
CSRPM, UG)
Regulatory
bodies (e.g.
FDA, GSA)
Others (e.g.
NBBSI,
WAHO, RGD)
TMPC
TMP
associations
Informal
TMPs
Semiinformal
TMPs
Formal
TMPs
Chemical
shops
Consumers
NGOs
Internal (national) socio-cultural conditions and
traditional knowledge
Internal (national) social, political and economic environment
Policy framework
GLOBAL SCIENCE, TECHNOLOGY AND INNOVATION (STI) ADVANCEMENTS
Figure 5.1 Ghana’s national innovation system and traditional medicine.
Source: Essegbey et al. (2014).
(such as TMP associations and consumers) to produce TM innovations.
There are also external influences such as trade and economic arrangements and scientific and technological advancements which impact TM
innovations. Table 5.5 makes the functions and activities of these identifiable actors more explicit.
Our qualitative assessment of the impact on TM innovation in
Table 5.5 is intended to highlight differences in the extent of each actor’s
impact. Those with indispensable or very high impacts are those whose
functions have direct impact on the activities of TMPs. For example, the
MOH is the oversight establishment for health care service delivery in
Ghana. In overseeing the sector, it formulates policies, plans and
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g e o rge o wus u e s s egbey an d stephen awu ni
Table 5.5 Functions of actors in the traditional medicine innovation system
Actor
Functions
Traditional medicine
practitioners (TMPs)
Practice TM; produce and
market TM products;
innovate in process and
products
Serves as focal point for the
association of TMPs;
facilitates learning and
innovation; undertakes
policy advocacy
Implements national TM
policy
Ghana Federation of
Traditional Medicine
Practitioners Associations
(GHAFTRAM)
Traditional and Alternative
Medicine Directorate
(TAMD)
Traditional Medicine Practice
Council
Ministry of Health (MOH)
Ministry of Trade and
Industry (MOTI)
Centre for Scientific Research
into Plant Medicine
(CSRPM)
Kwame Nkrumah University
of Science and Technology
(KNUST)
Food and Drugs
Authority (FDA)
Ghana Standards
Authority (GSA)
Registrar General’s
Department (RGD or RGO)
Ghana Health Service
Traditional Medicine
Clinics
Registers TMPs; promotes
standards of practice
Oversees the health sector;
formulates relevant policies
and strategies
Oversees the industry sector
including micro- and smallscale entrepreneurs
Conducts research in plant
medicine; produces TM
innovations; tests products
Trains undergraduates in
Herbal Medicine; provides
short-term training to
TMPs
Tests and approves or bans
TM products
Tests and approves TM
products as per standards
Registers companies and IP
Promotes TM health care in
public hospitals for those
interested
Assessed level
of impact on
TM innovation
Indispensable
Very high
High
Very high
Indispensable
Limited
Very high
High
Very high
High
Limited
High
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205
Table 5.5 (cont.)
Actor
Functions
Local industries
Produce drugs and health care
products; produce other
relevant products, e.g.
drinks
Sell TM products
Chemical Shops/ Pharmacies
Assessed level
of impact on
TM innovation
High
High
Source: Field data 2013; authors’ assessment.
programs to direct the national effort in health care service delivery. This
is a crucial mandate which, when exercised decisively, drives innovative
outcomes. In the particular case of TM, the Ministry spearheaded the
formulation and passage of the Traditional Medicine Practice Act 595 in
the year 2000 and set up the TAMD to provide an institutional framework specifically for the development of TM. The following are some key
policies and programs spearheaded by the MOH:
• Strategic Plan Document for the Development of Traditional Medicine
(2002–2004)
• Policy on Traditional Medicine Development (2003)
• Training Manual for Traditional Medicine Practitioners (2003 and
2005)
• Strategic Plan Document for the Development of Traditional Medicine
(2005–2009)
• Code of Ethics and Standards of Practice Document (translated into
three local languages, 2006)
• Preparation of List of Recommended Herbal Medicines Essential for
Primary Healthcare Services (2008)
• Policy and Administrative Guidelines for Complementary Alternative
Medicine (2008)
• Guidelines for Intellectual Property Rights Protection Framework for
Indigenous Knowledge Related to Health and Medicinal Plant
Resources (2008).
These and other policies and programs have created conditions for the
growth of TM in Ghana and stimulated innovation in production and
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g e o r ge o wus u e s s egbey an d stephen awu ni
practice. The MOH’s policy initiatives have led to the establishment of
TM clinics in public hospitals under the auspices of the Ghana Health
Service. The Ministry has also included some herbal medicine in its
Essential Drug List (EDL), an important move to use state procurement
as a vehicle for expanding the market for local herbal drugs. The Ministry
is therefore an indispensable actor in fostering innovation in TM.
However, even as it spearheads these innovations, there are questions
as to whether its overall goal is simply to transform TM into allopathic
medicine. That kind of ambition does not appear to fit well with the
fundamental concept of TM, which allows for great flexibility in exploring holistic treatment, including socio-cultural and psychological
rehabilitation.
The TMPs themselves form a critical core group playing a crucial role
in advancing (or downgrading) the practice in Ghana. They have
improved their practice in a number of ways, adopting innovations and
creating increasing peer pressure to further enhance performance by
forming associations. They have produced a number of innovations in
products, packaging, production processes and health care delivery. It is
fairly common to walk into an orthodox pharmacy in Ghana and find
stocks of traditional herbal preparations on the shelves which the trained
allopathic pharmacists may recommend for purchase. Such products are
usually produced along the lines of allopathic medicine complete with
labels on dosage and manufacturer’s contact details, and very much in
conformity with drug regulations. Some TMPs have even established
health care delivery facilities that operate in a similar fashion to those
for allopathic medicine. While these are positive developments in traditional herbal medicine, there remain a large number of practitioners
showing no innovation or willingness to improve their practice. At the
extreme end of this spectrum, quacks still exist to the detriment of the
genuine practice, prompting efforts to professionalize and further
advance the practice of traditional herbal medicine.
As a regulatory institution for approval of dispensed or marketed TM
products, the FDA is highly relevant in the innovation system. Regulation
is a driver for innovation. Although some TMPs may not comply, those
entrepreneurs with the goal of upscaling will make every effort to comply.
In that effort, innovation is a sine qua non. Some forge linkages with the
knowledge institutions of research institutes and universities to enable
innovation in products and practice not only to pass the mandatory
regulatory tests but also to secure larger segments of the market.
h e r b a l m ed i ci n e i n t h e i n f o rmal sec tor o f ghana
207
Regarding knowledge institutions, in particular research institutions
and universities, researchers do play an important role in stimulating
innovations in TM and strengthening the scientific base of the TM
industry. The CSRPM was established in 1971 and has since developed
into a strong knowledge institution for herbal medicine. Beyond scientific research efforts, institutions also help to develop human resources
and orient the new generation of TMPs toward scientific methodologies.
For example, KNUST has introduced a four-year first degree program in
Herbal Medicine which aims to produce the scientific human resource
needed to enhance TM in line with MOH policy guidelines.
The university has already produced graduates, some posted to TM
clinics in public hospitals.
There are other critical actors whose roles may not be as prominent as
that of the TMPs, the FDA or the Ministry, but without which the system
would not be complete. They include enterprises in the marketing component of the value chain – pharmacies and chemical shops – which are
important promoters or inhibitors of innovation. The RGD also plays
a role and will be discussed later in this chapter.
Figure 5.1 also illustrates linkages in the NIS leading to innovations in
TM and influences from the external environment such as global market
and economic conditions and technological advances. Locally, policy
conditions and the legislative and regulatory framework create the climate for innovation.
Drivers of Innovation in Traditional Medicine
This case study shows how TM is being transformed in Ghana through
diverse innovations. Ghanaian herbalists produce a variety of TM products, including pills, tablets, capsules, creams in tubes and mixtures
bottled for longer shelf life – all product innovations. In addition, there
are also process innovations –new ways of producing TM and of getting
products to market. TMPs have adopted a variety of modern equipment
to increase production and improve quality, especially those operating on
a relatively enhanced scale. Indeed, the production of TMs in Ghana has
experienced many technological innovations along the value chain, from
processing to packaging. TMPs in manufacturing use tube-filling
machines to package creams, machines for bottling liquid preparations
complete with seals, semi-automated capsule-filling machines for capsules, and labeling machines. Some old modes of production such as
drying herbs and pounding in simple wooden mortars or grinding on
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g e o rg e o wus u e s s eg bey an d stephen awu ni
stones have given way to modern machinery. To ensure a stable supply of
utilities, TMPs have installed equipment such as water storage containers, electric pumps and generators. They also use modern dryers to treat
herbs, and the traditional clay pots used for boiling have now been
replaced by stainless steel boilers to meet FDA regulations.
The finishing of the manufacturing process is important in assuring
quality, so TMPs have adopted quality assurance measures and use
quality packaging materials with adequate labeling indicating dosages,
batch numbers, expiry dates and other relevant information. Jackets,
bottles, tubes and other packaging materials increase the marketing
value of products.
The main drivers of innovation can be broadly categorized from two
perspectives in value chain analysis: the push effect and the pull effect.
Figure 5.2 summarizes the types of innovation observed in TM practice from a value chain perspective. In the identifiable components of the
value chain, there are key innovations that have upgraded TMPs’ practice
or operations. These are accessible and valued by even some micro- and
small-scale practitioners. Focus group discussions with GHAFTRAM
members suggest that a central processing facility with all the essential
machines installed would contribute a great deal to enhance their
practice.
The push effect driving innovations comes from policy, regulation,
competition, entrepreneurship and new knowledge. Policy initiatives
over the years have made TM a viable option for public health care
delivery. Through agencies such as TAMD, the TMPC and the Ghana
Health Service, the MOH has formulated and implemented policies and
programs that have enhanced the practice of TM and promoted innovations within the sector. Policy formulation and implementation have also
moved in tandem with regulations, some of which are generic but affect
TM. For example, the Food and Drugs Act 199, P.N.D.C.L. 3058, Act
1992, sub-section 18(I) states: “A person shall not manufacture, prepare,
sell, supply, export or import a drug, cosmetic, device or chemical substance unless the article has been registered with the Board.” Even the
advertisement of drugs is subject to regulation, as stated in sub-section
15. So this regulation has also pushed innovation in other related areas
such as labeling, advertising and marketing.
As shown in Figure 5.3, there has been a general increase in applications for FDA approvals since 2000, when TMPs began seriously complying with FDA regulations. There is usually a lag between the number
of applications received in a year and the number of approvals given.
Inputs
water,
harvested
herbs
Inputs
herbs,
chemicals,
energy
Preproduction
phase
Production
phase
Innovations
* Water supply
systems, e.g.
tanks, water
pumps, filters
* Generators
Innovations
* Boilers
* Grinders
* Mixers
* Dryers
Inputs
packaging
materials
The Pull Effect
Market demand,
Consumers/ patients
Marketing/
dispensing
phase
Finishing
phase
Innovations
* Encapsulators
* Bottling machines
* Sealing machines
* Wrappers
Innovations
* Diagnostic
equipment
* Pharmacies/
* Chemical Shops
* Radio/ TV adverts
The Push Effect
Policy, Regulation, Competition, Entrepreneurship, New Knowledge
Figure 5.2 Innovations in the value chain.
Source: Essegbey et al. (2014).
400
376
350
308
300
254
250
234
215
171
166
164
103
63
41
2000
105
75
72
2001
177
151
105
103
207
201
179
141
100
0
186
166
150
50
198
193
200
2002
2003
2004
2005
2006
2007
2008
2009
Number of applications received
Number of approvals
Figure 5.3 FDA herbal medicine applications and approvals, 2000–2012.
Source: FDA authority, Ghana.
2010
2011
2012
h e r b a l m edi ci n e i n t h e i n f o rmal sec tor o f ghana
211
The lag was most pronounced in 2001, when a total of 171 applications
were received and 71 were approved. Then, in 2011, 376 applications
were received and 177 approved. A number of factors account for the
delay in approval, including the need for thorough scientific analysis,
inadequacy of information in applications and lack of prompt response
to queries. Nevertheless, some TMPs complain about bureaucracy in
processing applications. Generally, effective compliance does lead to an
improvement in the quality of herbal medicinal products and enhance
their acceptability and efficacy for consumers.
Competition is another driver of innovation in TM practice. For one
thing, competition is found within TMPs’ community of practice,
through their observation of each other – what have others done to
come out with more marketable products? – and deciding to either
match innovative practice or further improve on it. Moreover, there is
competition between TM, allopathic drugs and imported traditional
medicinal products, especially from China, India and Korea. Some natural health products also come in from the United States and South
Africa.
Entrepreneurship drives innovation too. The conventional herbalist
usually operates figuratively in a hut in the village and expects patients to
visit with their ailments, but the modern herbalist proactively seeks
customers. He or she will take risks to invest and innovate to secure
a place in the market, using available channels of communication to
reach out to clients – flyers, radio and even television. Acquisition of
new knowledge is crucial in this process, whether that knowledge already
exists within TM practice or comes from another context.
The pull effect also drives innovation along the value chain.
Consumers can choose from a wide range of medicinal products in the
local market, and consumers are becoming more sophisticated as the
country becomes urbanized. Over 50 percent of Ghana’s population now
lives in urban areas, compared to around 30 percent in the 1960s (Ghana
Statistical Service 2012).6 In this respect, the market determines whether
an innovation is relevant and worth applying – exerting a pull effect.
TMPs continue to innovate to create demand for TM products and
services. Thus, they have sustained a stream of customers coming with
all kinds of ailments, as enumerated in Table 5.6.
6
In Ghana, urban areas are localities with a population of more than 5,000 (Ghana
Statistical Service 2012).
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g e o r ge owus u e s s eg bey a nd stephen a wu ni
Table 5.6 TMP specialities
Disease
Frequency
%
Heart disease/hypertension/high BP/stroke/blood circulatory
Infertility in men/sexual weakness/erectile dysfunction
Fever-related disease/malaria/headache/migraine
Diabetes
Typhoid/jaundice/hepatitis B
Skin ulcers/chronic sores/surgical wounds/keloids
Women’s infertility/fibroids/miscarriage/ANC/PNC
Piles/hemorrhoids
General bodily pains/joint/waist/arthritis/rheumatism
ARI/asthma/coughing/chest pains
STI/HIV/AIDS
Stomach problems/constipation
Hernia
All other diseases
47
38
37
33
31
31
30
27
20
17
15
14
10
43
43.9
35.5
34.6
30.8
29.0
29.0
28.0
25.2
18.7
15.9
14.0
13.1
9.3
40.3
Source: Field data 2013.
The diseases most commonly treated by TMPs in our study sample are
heart diseases, hypertension and blood pressure (43.9 percent), followed
by fever-related diseases, especially malaria (34.6 percent), infertility or
sexual weakness in men (35.5 percent), diabetes (30.8 percent) and
infertility in women and fibroids (28 percent), among others.
The indication of health care for strokes and heart-related diseases
deserves particular attention. These are expensive diseases to address in
the allopathic system, so TMPs provide a valuable alternative for the poor
or those on low incomes. Fertility challenges are important socio-cultural
challenges. The diversity and type of specialities indicate their orientation
toward solutions needed by ordinary people and underscore the importance of TM in Ghana’s health care delivery system. Indeed some government hospitals and clinics also provide outlets for the TMPs to market
their products, and 16 percent of the sample said they have their products
on the Essential Drugs List (EDL) of the MOH. Interviews with patients
showed consistent appreciation of the potency of herbal medicine and
a preference for herbal medicine over orthodox medicine, often based on
their personal experiences.
For example, one sixty-eight-year old man praised the herbal doctors
for the good work they were doing: “[T]he medication has no side effect
h e r b a l m edi ci n e i n t h e i n f o r mal sec tor of ghana
213
like the orthodox one I used to take. I used to have severe headaches when
I take the orthodox anti-hypertensive. But thank God now it is a thing of
the past since I switched over to herbal medicine.”
Another male, forty-eight, said: “I tried orthodox but I was not
responding to the treatment given to me. I therefore decided to try the
herbal treatment. The result has been positive.”
A thirty-nine-year-old hypertensive mother said: “[M]y doctor recommended herbal treatment to help give me relief. I was diagnosed hypertensive during my second pregnancy and it has been with me ever since.
I was assured that it may be gone after delivery but it has been with me for
over ten years. I am now taking herbal medicine and think I am responding to treatment. I constantly come to the herbal clinic as soon as my
prescriptions get finished.”
Consumers’ preference for herbal medicine, which are administered in
various types of preparations as in Figure 5.4, often comes from personal
experience. Some have tried treatments with orthodox medicine without
success. Often, those who benefit from herbal treatment recommend it to
others, thereby increasing demand.
The study suggests that the policy of institutionalizing and promoting
the use of traditional herbal medicine has benefited some segments of the
Ghanaian population.
Obstacles to Innovation and Scalability
Despite the observed trend toward innovation, there are obvious obstacles
that have to be addressed to facilitate the growth of TM and stimulate
greater innovation. First, the relatively small-scale nature of operations
does not allow for greater innovation, which requires investment and
acquisition of new skills and expansion of markets. It is almost a chickenand-egg situation. Should practitioners scale operations up and then be
able to invest and innovate, or should they invest and innovate and then
upscale? The case study shows that the TM enterprises that innovate most
are the relatively large ones that qualify as small or medium enterprises.
Table 5.7 illustrates that whether their business is micro, small or
medium, TMPs can get their drugs accepted on the EDL. Two of the
six micro-TMPs in our sample have drugs on the list, as does one of the
four small TMPs. But three of the four medium TMP enterprises have
their drugs listed, suggesting that the bigger the enterprise, the more
likely its drugs will achieve listing – the ultimate aim of almost all TMPs.
The challenge of upscaling lies in keeping products affordable: as TMPs
(a)
Figure 5.4 Examples of liquid and dry herbal medical preparations on sale in Ghana.
Source: Authors.
(b)
h e r b a l m edi ci n e i n t h e i n f o r mal sec tor of ghana
215
Table 5.7 Selected enterprises and drugs on EDL
Enterprise
No. of
employees
Scale of
enterprise
Drugs on Essential
Drug List?
Medi Moses Medical Centre
Nana Boakye Herbal Clinic
Crown Pharmacy
Adam Nana Herbal Centre
Semenhyia Herbal Clinic
Kascala Herbal Centre
Angel Herbal Centre
Frelena Health Centre
Nyame Ye Odo Enterprise
NyameAma Health Clinic
Osei Herbal Clinic
Tawheed Naturopathic clinic
Insaanyia Drug Centre
Adutwumwaa Herbal Centre
20
8
4
5
2
61
16
63
6
3
24
43
24
35
Small
Micro
Micro
Micro
Micro
Medium
Small
Medium
Micro
Micro
Small
Medium
Small
Medium
Yes
No
Yes
No
No
No
No
Yes
Yes
No
No
Yes
No
Yes
Source: Field data 2013.
upscale and add value to their products through innovation, their prices
may rise above the reach of some customers, who mostly have low
incomes. This is where it is necessary to begin formulating policies that
facilitate scalability and yet ensure that affordability is addressed.
The issues were highlighted in an interview with a doctor in one of the
herbal medicine clinics.7 This is what he said about his experience in
practice since 2010:
I was the first to begin this herbal medicine clinic in this hospital.
Attendance was very slow when we started. The daily attendance was
between two and three. Even some days we don’t see any patient.
Attendance improved over time, though not as fast as expected. So we
conducted a small research among our clients. Their responses were that
because National Health Insurance Scheme (NHIS) did not cover their
drugs, they could not afford to come all the time, even though the
medicine given them here was good.
7
The doctor in question (who shall remain anonymous) graduated from KNUST in 2007
and did national service in one of the private clinics from September 2007 to June 2008.
Thereafter, he undertook an internship in the CSRPM at Mampong-Akwapim for about
a year before going back to take the TMPC professional licensure exams. After that, he was
posted to one of the pilot herbal medicine clinics.
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george owus u e ssegbey and stephen a wuni
So a major obstacle in promoting traditional herbal medicine is the
exclusion of even approved TM drugs from the list of those paid for by
the NHIS. In the process, allopathic treatments often become more
affordable because the NHIS picks the bills for conventional treatments
but not for herbal treatment in the trial herbal clinics. It seems that
implementation of TM policy needs to go further than the establishment
of trial clinics. Action must be taken, either by the TMPs themselves or
relevant actors such as the MOH. In all this, there is need for a holistic or
systemic approach to guide such action.
Second, knowledge and technology support systems – training,
research and development, manufacturing plants, herbarium and medicinal herb plantations – are needed to consolidate the advancement of
TM. Training and knowledge transfer are important in the innovation
and advancement of TM. Respondents in our study report having
received brief training with emphasis on some scientific knowledge.
They benefit from learning about basic science in herbalism, proper
documentation, herbal medicine production and administration, quality
assurance and good manufacturing practices. At training workshops,
TMPs are introduced to new production or processing techniques such
as to help preserve products and extend their shelf-life. These courses
have triggered interactions between TMPs and local knowledge institutions, notably the CSRPM at Mampong-Akwapim, KNUST, the
University of Ghana and the Noguchi Memorial Institute of Medical
Research. In general, the infusion of knowledge into TM practice from
diverse sources has stimulated innovation.
Appropriation Mechanisms in Traditional Herbal Medicine
The results of this study clearly show that producers of traditional herbal
medicines revert to social norms to protect innovations or intellectual
property. Chapters 3 and 4 in this volume (case studies from Kenya and
South Africa) also find similar trends in knowledge appropriation.
Ghana has established an elaborate institutional framework for intellectual property catering for both copyright and industrial property.
There are specific public offices with assigned responsibilities for administration of the two main types of intellectual property. The Copyright
Office administers copyright in line with the Copyright Act 2005 (Act
690) and the Copyright Regulations of 2010 (L.I. 1962). The Registrar
General’s Department (RGD) is responsible for the administration of the
industrial property with due regard to the Trade Marks Act 2004 (Act
h e r b a l m e di ci n e i n t h e i n f o r mal sec tor of ghana
217
664), the Industrial Designs Act 2003 (Act 660), the Patents Act 2003 (Act
657) and Legislative Instrument 1616. The RGD receives applications for
registration of various categories of industrial property, processes them,
and grants registration where appropriate.
In principle, intellectual property laws are designed to reward and
benefit all actors involved in any kind of creativity, inventiveness or
entrepreneurship, but in practice they appear to be much more relevant
to enterprises and businesses in the formal sector than the informal
sector. As of 2012, there were 118 registered local enterprises in the
RGD’s database whose objects included TM. That number encompassed
both local and foreign companies registered with the RGD, with almost
all of them operating in the formal domain of the economy.8
The only type of intellectual property registered with RGD in relation
to TM is trademarks. Under the international classification established by
the Nice Agreement of 1957, trademarks cover forty-five classes of
products. Class Five includes pharmaceuticals and herbal medicines.
The total number of trademarks registered under Class Five is 3,396 for
the period 1994–2012.9 This is a significant number for a developing
country like Ghana, but again the number covers primarily operators in
the formal sector and, more importantly, comprises mostly foreign
applications.
The total number of patent applications is 337 for the period
1996–2014, mainly comprising PCT and local applications,10 and excluding applications submitted directly to the Africa Regional Intellectual
Property Organisation (ARIPO) in Harare, Zimbabwe. Those 337 applications cover all sectors of the economy in Ghana, and for all years up to
2014, indicating that the country’s innovative capacity is rather low.
The picture is even worse when one learns how few applications were
actually successful: during that entire period only thirteen were granted.
In 2012 alone, a total of 2.35 million patent applications were filed all over
the world, with 652,777 in China and 542,815 in the United States. India
and Brazil had 43,955 and 30,435 patent applications, respectively
(WIPO 2013, p. 11). To some extent, these statistics reflect the innovative
8
9
10
But note that the 118 enterprises in the database are those specifying traditional medicine
as an object of their business. There could be more businesses within the database that are
involved in TM without having declared it as an object.
Owing to the structure of the database, it is impossible to confirm whether goods for
which marks are registered under Class 5 of the Nice Classification include traditional
medicine specifically.
Source: data collected at the RGD.
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george owusu e ssegbey a nd stephen a wuni
Table 5.8 Number of registered trademarks
in Ghana, 2000–2014
Year
Number of trademarks registered
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
933
775
769
1,000
1,116
1,621
3,523
1,940
2,235
1,872
2,586
2,378
2,559
2,867
3,040
Source: Registrar General’s Department,
April 2015.
capacities of each country. Comparing the numbers of trademarks and
patents applied for over the years, it appears that patenting is the least
exploited option for appropriating IP in Ghana generally. This may be
due to the more stringent requirements for patent – one has to prove
novelty and inventive step, among other things. More importantly, the
low patent filing points to the need to enhance innovative capacity in the
country as a whole.
Nevertheless, the increasing use of trademarks in Ghana implies
a growing appreciation of the usefulness of IP for business.
Registration of trademarks in Ghana increased from 775 in 2001 to
1,621 in 2005, as shown in Table 5.8. It increased again, to 2,586 in 2010
and then to 3,040 in 2014. While the number of trademarks registered
specifically for TM products has not been computed, it is encouraging
that registration of trademarks as a form of appropriation is becoming
a norm. This is all the more noteworthy given that the total cost of
acquiring a trademark is the equivalent of USD 250 – the application
fee is USD 150 and the certification fee USD 100. The minimum daily
h e r b a l m e di ci n e i n t h e i n f o r mal sec tor of ghana
219
wage11 in Ghana is seven cedi (GHS), meaning that the total cost equates
to 136 working days for a minimum wage earner.
The cost of appropriating intellectual property should generally be of
concern and should be factored into policy initiatives to enhance the use
of IP by entrepreneurs, especially in the informal sector. For patenting,
according to the Patent Registration, 1996 legislation 1616, there is a wide
range of different costs relating to among others, request for grant of
patents, amendment of application or correction of filing, grant of patent
and annual fee for maintaining a patent from the first to the nineteenth
anniversary. The number of designated countries for patent application
may substantially increase the cost of appropriation through patenting.
In a country where income levels are less than USD 2 for a whole day’s
work, strategies to enhance the use of these forms of IP need to address
cost factors.
Measures to improve the IP system for TM would include:
•
•
•
•
•
•
public education;
reduction of bureaucratic processes;
enforcement of laws;
training and workshops for TMPs and industry workers;
government financial assistance; and
improving the legal framework.
The process of improvement begins with the nature of the appropriation
mechanisms instituted for TMPs. Many types of appropriation or protection mechanism may be useful for herbal medicinal products in
Ghana, and each has strengths and weaknesses. For example, industrial
design protection may not be appropriate since it primarily applies to the
aesthetic aspects of industrial products or handicrafts. Trademarks could
be more suitable, but only distinguish the goods of one business from
another. Patents have some attractive features, notably the limited period
of protection, but TMPs are rarely able to meet the stringent requirements. Under the Ghana Patent Act of 2003 (Act 657), the product to be
patented should be novel and not exist in the prior art. It should be
industrially applicable and all information about it must be disclosed
according to Ghana’s applicable law on patenting.
11
The minimum wage is determined by the National Tripartite Committee comprising
representatives of government, labor and the Ghana Employers Association. The stated
minimum daily wage of GHS 7.00 is effective as of January 2015.
220
g e o rg e o wus u e s s egbey an d stephen awu ni
Indigenous or traditional knowledge plays a key role in TM. Over time,
certain communities or herbalists have accumulated knowledge about
the efficacy and potency of various herbs and natural substances. Some of
this knowledge has been documented. International conventions such as
the Convention on Biological Diversity (CBD), and specifically in respect
to access and benefit sharing, protect the rights of local communities to
their natural resources and the traditional knowledge that comes with
them (Secretariat of the Convention on Biological Diversity 2011).
The CBD also enshrines the rights of communities to shares in the
gains from the exploitation of these resources. Ghana has signed the
Swakopmund Protocol, which enforces the rights of the individuals to
gains from the exploitation of their traditional knowledge. The country
thus recognizes the importance of a sui generis system for granting rights
to owners of traditional knowledge. Whether the Swakopmund Protocol
adequately meets the needs for IP rights in TM requires further consideration. In any case, the procedures and advantages may need to be
well explained to the TMPs through their associations if the Protocol is to
be successfully implemented. TMPs operating at the micro-level and in
the informal sector will need to be engaged so that the system evolves
with them.
Policy Options for Enhancing Innovation
in Traditional Medicine
Overall, Ghana has experienced substantial progress in formulating and
implementing policy relating to TM. Policy has enhanced the recognition
of TM, and over the years the MOH has gained weight as a lead agency in
institutionally innovating for the TM sector to advance. There is, however, a seeming contradiction between the philosophy driving policy
makers and the fundamental conviction of practitioners regarding the
mainstreaming of TM in Ghana’s health care delivery system. Policy
makers aim to modernize practice along the lines of allopathic medicine.
The goal is to establish a “herbal medicine service delivery system and
Industry that is self-motivated for excellence and responds positively to
the health needs of the population with unique products, services and
approaches that are accessible, safe, efficacious, affordable and compatible with modern science, technology and healthcare practices” (MOH
2012, p. 4). Implementation of this policy has gone so far as a collaboration with KNUST to offer a four-year B.Sc. in Herbal Medicine.
Programme graduates are then posted to the Herbal Medicine Centers
h e r b a l m e di ci n e i n t h e i n f o r mal sec tor of ghana
221
set up as pilot clinics in government hospitals and to interested private
clinics or industries. There is an apparent interest in modernizing the TM
sector to fit the framework of allopathic medicine. However, this is not
acceptable to many informal TMPs who see traditional medicine as
patently distinct from allopathic medicine.12 TMPs point to their many
years of learning and practice and argue that incorporating TM into the
public health care delivery system should not mean merging it with
orthodox medicine. Many argue that TM should be seen as parallel to
orthodox medicine. In their view, policy should aim not at converting
traditional medical practice to orthodox medical practice but at reinforcing traditional medical practice as an alternative to the orthodox. So far,
this tension between policy makers’ and TMPs’ perspectives has not
degenerated into open conflict. On the contrary, they have cooperated
well to raise TM practice to a higher level over the past two decades.
The idea that TM should advance parallel to allopathic medicine
exposes a fundamental dilemma. Developing TM along the lines of
allopathic medicine enables it to attract customers who want to see the
same efficacy and quality standards observed in TM as pertain to allopathic medicine. The scientific approach to diagnosis through tests and
the application of diagnostic kits is important in winning their trust. But
progression along the path of allopathic medicine could eventually transform the TMP into a medium or even large-scale formal operator,
a development that few TMPs can contemplate.
Public policy implementation appears to be fairly strong with regard to
regulation. There are good reasons why TM should be subject to strong
regulation. In the public interest, there is a need to assure efficacy of
treatment and high-quality products. In a practice that is more easily
open to quacks than orthodox medicine, regulation is essential to safeguard integrity. Simply put, it is in the interest of TM to strengthen
regulation so as to enhance the image of the practice. Yet regulation
should at the same time stimulate the growth of the practice and its
sustainability, and not stifle individual or collective entrepreneurship.13
12
13
This is a point that came out strongly in our focus group discussion and interviews with
TMPs. Many of the participants were at pains to stress the originality of their practice,
rejecting the notion that they have to practice in the mode of allopathic medicine to gain
legitimacy.
In the focus group discussion, practitioners expressed frustration with the services of
some of the regulatory institutions. They were seen as too bureaucratic in the way they
handle samples for testing and approval, and their officers were thought to lack an
understanding of business.
222
g e o r g e o wus u es s egbey an d stephe n awu ni
Our study raises questions as to whether policy approaches to the
informal economy in the past have aimed to foster innovation, and
whether conventional innovation policies play a role in the informal
economy or new approaches are needed. As noted in Chapter 2 of this
volume, existing policy approaches to the informal economy are not
generally designed with a view to fostering innovation and/or IP in the
informal economy. In fact, in many countries innovation policies do not
consider the informal economy as a potential source of innovation.
National innovation policies continue to be dominated by science and
technology perspectives or institutionalized and formalized research and
development (R&D). Innovation activity generated in the informal
domain of the economy remains largely overlooked. In the development
of TM in Ghana, some efforts have gone into creating bridges between
the modern science and technology system and the TM system.
The collaboration between TMPs and knowledge institutions provides
an important example. There have been some positive results, such as
traditional herbal preparations being prescribed in public health care
institutions. But informal TMPs remain marginalized, restricting the
capacity for innovation in the informal economy. The situation calls for
inclusive strategies to ensure cogent connections between modern
science and technology and TM.
The study shows the extent and diversity of innovation in TM. TMPs
have innovated with regard to products, production processes and business
practices. Promoting further innovation will require further policy work.
To some extent, this is a matter of strengthening the implementation of
prevailing policies on TM. An example is the incorporation of TM practice
in public hospitals through the establishment of Herbal Medicine Centers
in these hospitals. Extending coverage of the NHIS to patients at these
centers is likely to increase patronage and encourage greater innovation.
There is also a need to strengthen existing institutions to deliver on
their mandates. For example, the CSRPM will need to continue its
support for TM practice through R&D. This is at the heart of improving
TMPs’ products and enabling them to meet the safety and quality
requirements for approval by the FDA or use in the new Herbal
Medicine Centers. Training through TMP associations and with the
support of knowledge institutions such as KNUST will also promote
innovation. All these efforts could be articulated in a national program
focusing on innovation in TM in Ghana.
Current initiatives in the health care sector to promote the advancement of TM appear to aim at scaling practice up beyond the informal and
h e r b a l m edi ci n e i n t h e i n f o r mal sec tor of g hana
223
micro-level to the formal and medium or large scale. It is as if there is
a view that informal TMPs cannot innovate sufficiently and so must be
made to upscale. Arguably, some upscaling is indeed to be expected.
Many of the innovations adopted by TMPs in this study are likely to lead
to higher production levels in order to achieve the economies of scales
necessary to realize commensurate economic gains. However, in reality
informal TMPs can still operate at the micro-level and be assisted to
innovate through their associations.
There is a strong tradition of networking in associations in TM to build
on. Together with related structures such as the TMPC, GHAFTRAM
can be used to reach out to regional centers and provide central facilities
to enable them to produce in more innovative ways. This would require
serious investment in informal TM, which might in turn entail innovative approaches such as the use of public–private partnerships.
The TM sector offers good opportunities for employment and job
creation. Our study confirms that TM enterprises cover a spectrum,
from informal to informal. The sector can be seen as a pyramid, with
micro-TMPs at the base and a few medium and large TMPs at the top.
These different TMPs offer opportunities for all kinds of workers –
herbalists, plant collectors, factory hands, drivers, artists, secretaries
and a host of workers finding their niches in the value chain. The TM
sector should be seen as a priority sector for industrialization, and policy
developed to help infuse greater value and efficiency across the value
chain.
Ministerial review of policy is important to ensure that measures are
targeted and effective. In 2013, the Minister of Health established
a Committee on Herbal Medicine Research and Intellectual Property
Rights Protection following a review of operations of the pilot centers
for herbal medicine services at selected government hospitals.
The Committee comprises ten experts and its terms of reference include
facilitating the achievement of the highest possible scientific, safety,
efficacy and quality requirements for herbal medicines selected for primary health care so that they pass clinical trials and secure FDA registration. The Committee’s work and the subsequent implementation of its
report and recommendations should widen the scope of impacts of
national policies on TM and the resultant benefits to the general
population.
Enhancing policy impacts is especially important and challenging
with regard to employment. A focused national strategy is required to
realize the many opportunities for job creation in the TM sector.
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george owusu e ss eg bey and stephen awuni
Broadly, such a strategy would identify the specific steps needed to
expand employment in particular components of the value chain. For
example, the establishment of large plantations of medicinal herbs
would engage labor in rural communities and various ecological
zones. Upscaling of manufacturing in herbal industries, especially
those producing approved herbal products for use in public hospitals,
would absorb some skilled graduates. Manufacturing is particularly
important because it is the largest sub-sector within the industrial
sector. In 2010, it accounted for around 70 percent of workers in
industry. Manufacturing therefore holds potential for employment
and poverty reduction (ISSER 2013). But beyond local consumption
of herbal products, the national strategy should aim to take advantage
of global consumption.
Countries such as China and India have evolved national export
strategies for traditional herbal products. Ghana could have a strategy
designed to make traditional herbal products a key component of nontraditional exports. Export orientation would demand more stringent
quality assurance measures and IP. The use of trademarks, for example,
would facilitate marketing and the development of niche global markets
for Ghanaian TM products. It is therefore vital that the overall policy
regime for the development and promotion of TM incorporates strategies for IP.
Conclusion
Our case study of traditional medical practitioners in Ghana confirms
that TMPs normally operate in the informal sector and are predominantly micro-entrepreneurs. There are some small-, medium- and largescale TM enterprises, but few compared with the large numbers of microTMPs. Importantly, micro, small, medium and large enterprises are
located on a continuum of informal–formal practice, in line with the
conceptualization proposed by Chapter 2. Our study suggests that there
is scope for broad policy measures to enhance competitiveness among
TMP entrepreneurs, but measures must be tailored to suit different scales
of operation.
Overall, the study reveals significant innovation in processes and
products among TMPs. Production systems have been improved
through innovations to address contextual manufacturing challenges
such as the unstable supply of water and electricity and to enhance quality
assurance and packaging. Even organizational systems and marketing
h e r b a l m edi ci n e i n t h e i n f o r mal sec tor of g hana
225
strategies show evidence of innovation. These constitute opportunities
for policy interventions to enhance the innovations for the further
advancement of TM.
An important finding relates to the strong linkages among TMPs
through the formation of associations, reinforced by the umbrella association GHAFTRAM. These associations facilitate knowledge flows and
learning. There are also important connections with knowledge institutions that provide resource and expertise for training sessions and assistance in developing products.
The relationship between TMPs and current intellectual property
appropriation mechanisms is more challenging. A lot more has to be
done to create awareness about the IP system and promote its use if it is to
replace the traditional protection strategy of secrecy. Even then, conventional IP appropriation mechanisms may be of limited use, as TM
innovations may not meet the technical criteria for patenting and trademarks provide limited protection. A sui generis system for appropriation
therefore needs to be developed for TM.
The key drivers of innovation include both push and pull factors.
There is a push effect from policy, legislation and regulation. Ghana
has shown how policy initiatives can impact positively on TM by making
it an integral component of the health care delivery system, and regulation has stimulated innovation to improve the quality of products and
make them more acceptable to consumers. There is also a pull effect from
market forces. In sum, innovation has contributed to the competitiveness
of TM products. It may now be time to raise the sector to a higher
industrial level.
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Strategy: 2014–2023. Geneva, WHO.
World Intellectual Property Organization (WIPO) 2013. WIPO IP Facts and
Figures Economics and Statistics Series. Geneva: WIPO.
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g e o r g e o wus u es s egbey an d stephe n awu ni
COMMENT 5.1
peter arhin
Ministry of Health, Ghana
This chapter provides an accurate and useful picture of the development
of the TM sub-sector in Ghana. In the last two decades, several policy
initiatives have been undertaken within that sub-sector, including baseline studies, a census of practitioners, ethno-botanical and floristic studies and pharmacopoeia and formulary development in an attempt to
formalize and standardize the rational use of traditional or herbal medicines. This study is an important addition to that work, identifying the
drivers for innovation in TM and in the broad context of the informal
economy. My comment here aims to highlight some of the key points and
to consider briefly some of the recommendations on the way forward.
The authors identify various reforms and innovations that have taken
place within the TM industry, particularly since 2005, such as the use of
stainless steel automated equipment in manufacturing TM products,
structured training of practitioners through extension services and technology transfer programs, improvements in packaging, harmonized
standard guidelines on pre-registration evaluation of herbal medicinal
products, the introduction of the sale of approved herbal products into
general pharmaceutical practice and, very importantly, piloting of limited TM services in fifteen hospitals. The key resource used to integrate
TM into hospital practice is a new cadre of Physician Assistant with
a Bachelor in Clinical Science and Herbal Medicine who can diagnose
simple ailments at the primary health care level and prescribe treatment
using recommended and accredited herbal medicine products and creating access to available scientific information.
Unquestionably, innovations in TM have served to increase its acceptance within Ghana’s health care delivery system. An unpublished MOH
survey of senior health workers including pharmacists in some regional
hospitals identified that their receptivity toward TM had grown from
25 percent to 96.4 percent between 2007 and 2012 due to improved
quality assurance.
However, some important challenges facing the TM industry and
services are also enumerated in the chapter. These were reviewed at
various Innovation Convergence Meetings on Traditional Medicine
Development between 2005 and 2014 which were organized to bring
stakeholders together to deliberate on the development of TM in the
co mmen t 5. 1 pet er arhin
229
health sector. Key challenges include the small size of many TM businesses, limited their administrative capacity to access capital funding and
available grants; limited technical capacity to build on rudimentary
knowledge. For example, deriving new molecules and developing modern solid dosage forms; low capacity to implement current good manufacturing practices; and a lack of management support to obtain patents
and other suitable IPR protection for innovations.
To overcome these challenges, the industry should obtain financial
support to enter into modern pharmaceutical production and patent
systems and update the evidence base for TM by filling the gaps in
preclinical and clinical studies and trials. There is a high demand for
documented evidence of the efficacy of TM, substantiation of cure
through laboratory and radiological investigation rather than the clinical observation of practitioner or the testimony of the patient.
The medicinal substances responsible for biological effects have to be
adequately known, even if those substances remain crude. As the enduser and direct beneficiary of innovations, the patient must be properly
considered to ensure products and services are safe, cost-effective, of
adequate quality, portable and convenient. Currently, many TM products are liquid extracts and raw herbs. The scope has to be widened to
include modern convenient solid dosage forms. The MOH should
encourage health technologies and health R&D innovations that meet
all the requirements for patentability – those that are novel and do not
exist as prior art or in the public domain, industrially applicable, and
demonstrate an inventive step that would not be obvious to someone
reasonably skilled in the prior art.
Applying additional criteria for approval of TM products by the Food
and Drugs Authority of Ghana would impose new pressures on indigenous TMPs. They would have to forge partnerships with government, the
private sector and researchers based on benefit-sharing arrangements in
order to be able to develop the capacity to meet the updated quality
assurance standards for production. Partnerships with investors would
ensure that access to funding is not limited to personal resources, which
are often very limited.
Regarding the implications for an IPR protection policy for Health
Innovations, the MOH has proposed as a policy that Intellectual Property
and Innovations Desks be opened in the ministry or its agencies and in
other institutions related to health research and trade. The MOH is to
develop an annual Monitoring and Evaluation Plan for Innovations and
a clear policy on investing in patent registrations for and on behalf of the
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g e o rge o wus u e s s egbey an d stephe n awu ni
originators of TM Innovations. The Ministry would then have to enter
into benefit-sharing partnerships with the selected TMPs. The Ministry’s
investment could be offloaded when a suitable private developer became
available.
In general, the implications for the government can be summarized as
follows. Government policy promoting local manufacturing should
influence the NHIS to adapt its approach to TM, as recommended in
the original study on which this chapter is based (Essegbey et al. 2014).
This would be very much in line with Legislative Instrument 1809, which
has the primary goal of protecting the rights of patients and clients to
access approved health care options under the minimum benefit package,
including provisions to reimburse the cost of approved herbal medicines
and associated laboratory and radiological diagnostic services. This
approach would offer an opportunity to gather clinical data on the official
use of herbal medicines, strengthening the evidence base for future policy
and practice reviews.
I would add some further recommendations to ensure that the development of the TM industry is sustainable:
• Postgraduate clinical orientation in the use of herbal medicine should
become a specialist position, recognized for onward professional progression in the health sector.
• Relevant postgraduate specialization programs should be identified for
doctors and medical herbalists (that is, the new category of Physician
Assistants (Herbal)). Pharmaceutical postgraduate training could
focus on herbal drug development, production technology and management. Training in world trade and IPR issues would continue to be
important. Financing for training should be incorporated into fellowship awards.
• Capacity must be built up within the MOH and its agencies to ensure
a hierarchy of TM supervision from headquarters to hospital level.
• A dedicated fund should be set up to assist the development of herbal
medicine products of high interest for public health.
• At least one state-of-the-art facility in manufacture, clinical testing and
training center should be established. It should offer a one-stop service,
undertaking contract manufacturing of a range of products following
the best good manufacturing practices and also conducting clinical
observational studies and trials.
• There should be an ambitious scheme to develop seedlings, grow and
conserve (in situ and ex situ) medicinal plant resources.
com men t 5. 1 p et e r a rh in
231
The TM sector would benefit from the establishment of a platform
stimulating convergence and business links with overseas enterprise
champions in TM and Big Pharma. Such a development would allow
the sector to develop and contribute more optimally to the national
economy. Aspects of TM should be incorporated into the National
Development Agenda, the National Science and Technology
Innovations Strategy and the National Cultural Policy, and should be
operationalized along the lines suggested in this chapter. International
partnerships, grants and intermediation will be required to overcome
bottlenecks in the development and the official adoption of innovations
and IPR protection schemes in the resource-scarce environment of
Ghana until collaborative R&D, patent revenues and the development
of the TM industry begin to yield results.
In summary, this study is an important and timely work that offers
valuable ideas to enhance the substantive review of the policy environment for TM development. Although it focuses on Ghana, the results are
relevant to many other African countries given the context of TM
practice. I hope that international and national stakeholder organizations
will invest systematically in similar studies to help refine their strategies
for supporting innovation in such traditional sub-sectors of the economy
which have been identified to hold enormous economic potential but has
been slow growing in making significant contributions to GDP due to
insufficient investments into application of research innovations, modern technology and IPR protection schemes.
Reference
Essegbey, G.O., Awuni, S., Essegbey, I.T., Akuffobea, M. and Micah, B. 2014.
“Country study on innovation, intellectual property and the informal
economy: traditional herbal medicine in Ghana,” report prepared for the
Committee on Development and Intellectual Property (CDIP): Thirteenth
Session, CDIP/13/INF/2 ANNEX. Geneva, WIPO.
6
Appropriation and Intellectual Property
in the Informal Economy
jeremy de beer and sacha wunsch-vincent
This chapter explores how innovation is appropriated in the informal
sector. It contributes new knowledge to this field in three ways. First, it
solidifies a new interdisciplinary conceptual framework for looking at
intellectual property (IP) and other appropriation strategies in the informal sector which bridges law, economics, management, development
studies and related fields. Second, it synthesizes empirical findings
based on original qualitative data from fieldwork conducted for this
book and a parallel project by the Open African Innovation Research
network (Open AIR). Third, it summarizes the practical challenges that
actors in the informal economy face in using IP, also preparing the
ground for policy suggestions outlined in Chapter 7. The chapter’s key
conclusion is that the crucial policy question is not whether appropriation methods are relevant in the informal economy, but rather which
mechanisms, formal and/or informal, may be most suitable or promising
in the specific case and sector under consideration.
Mechanisms for Appropriating the Fruit of Innovation Activities
Appropriation Mechanisms: Definitions and Spectrum
How do individual entrepreneurs and small enterprises manage knowledge in the informal economy? Do they conceive of IP in the same way as
managers in the formal sector? Do they adopt similar strategies for
appropriating value and competitive advantage from knowledge? What
obstacles do they face in protecting their innovations? The point of
departure for this chapter in answering such questions is that innovative
entrepreneurs do employ certain mechanisms to “appropriate” the fruit
of innovation activities.
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a p p r o p r i a t i o n an d i n t el l e c tu a l pr o p er ty
233
The term “appropriation” is subject to different interpretations by
various academic disciplines. In its ordinary grammatical sense,
appropriation can be a pejorative term, perhaps implying taking without an owner’s permission. Political scientists, sociologists or anthropologists might easily conflate appropriation with misappropriation,
as applied, for example, to the traditional knowledge (TK) or cultural
heritage of indigenous communities. To legal scholars, appropriation
may suggest the inevitable existence of property – a bundle of privately enforceable but state-backed rights of exclusive control over
a valuable resource. In a strictly legal sense, the line between appropriation and formal IP ownership is thin and blurred. As understood
by managers and economists, appropriation includes a wide spectrum
of formal and informal mechanisms by which individuals or firms can
somehow capture returns from an initial investment in innovation.
The interdisciplinary framework established in this chapter defines
appropriation as a way of realizing pecuniary or non-pecuniary benefits from an innovation, often but not always by excluding third
parties from copying or by taking ownership of the original innovation via legal means.
Those who invest in innovation commonly aim to reap a return on
that investment by maintaining some form of exclusivity over their
knowledge related to innovative processes or products. Teece (1986)
argues that the most important determinants of an innovator’s ability
to capture profits generated by an innovation are the nature of
the technology and the efficacy of legal mechanisms of protection.
Hall et al. (2014, p. 3) explain that “[a]ppropriability is a concern for
inventors since one of the outputs of inventive and innovative activity
is often knowledge, an intangible asset, hence it is difficult to exclude
others from using this knowledge at a fraction of the initial cost of the
invention development.” Firms will use different means to exclude
competitors from copying or from producing the same product.
Appropriation is thus a solution to a fundamental problem governing
the production of knowledge; by helping to ensure that the firm gets
a return on its investment in innovation, it provides an incentive for
such investment.
Importantly, formal IP rights such as patents or trademarks are not the
only way to incentivize the production of knowledge and innovation by
affording the original inventor some advantage over his or her competitors. Specifically, appropriation as defined here is broader than formal IP
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rights alone. One can distinguish formal, semi-formal and informal
means of protecting innovation:1
• Formal means of appropriation take the form of proprietary legal
rights to intangible resources enforceable against the public; for example, IP rights such as patents, utility models, trademarks, industrial
designs, copyright and moral rights.
• Semi-formal means of appropriation take the form of formal contractual or informal arrangements primarily among private actors, such as
secrecy, publishing, non-competition clauses, non-disclosure agreements, contracts and others.
• Informal means of appropriation are design, production, or service
delivery features that provide a competitive advantage. They may take
various forms such as lead time and first-mover advantage, high capital
intensity, complexity of design and/or technology and division of
duties, after-sales and other services maintaining quality, reputation,
trust and customer loyalty as well as family/community mechanisms in
tandem with community sanctions and ostracism for copying or
imitation.
Figure 6.1 presents these different appropriation mechanisms in
a continuum of increasing legal formality.
Some but not all of these appropriation methods are mutually
exclusive. Patents and secrets cannot be pursued simultaneously,
because patents by definition require public disclosure of an invention’s technical details. Other formal and informal protection schemes
can complement each other during the commercial life span of an
innovation. Patents may protect technical aspects of a product or
process while trademarks are used to brand and market the patented
invention. Formal trademark protection also often overlaps with
informal strategies to manage customer relationships and cultivate
loyalty. Logos and packaging may also be copyright-protected as
artistic works; written documentation is also protected automatically
by copyright in most countries.
Some formal appropriation mechanisms rely on public disclosure of
the invention. Patent applicants, for instance, must disclose to the public
the problem-solving information underlying an invention in return for
exclusive rights from the state (WIPO 2011, p. 78). The idea is that
1
For a fuller review of appropriation mechanisms and their use, see WIPO (2011), de Beer,
Kun and Wunsch-Vincent (2013), and Hall et al. (2014).
Increasing legal
formality
Intellectual property rights (IPRs)
Industrial property rights:
– Patent
– Utility model
– Design right
– Trademark
– Right to business name
– etc.
– Secrecy
– Publishing
– Restricted access to information
– Database and network protection
– Documentation
– Technical protection
– Trade organization membership
Decreasing legal
formality
Copyright
“Semi-formal” protection
– Division of duties
– Circulation of staff between tasks
– Cultivating commitment and loyalty
– Customer relationship management
– Effective sharing of information
– Fast innovation cycle
– Complex product design
– Productized service packages
– etc.
Informal protection methods
Figure 6.1 Typology of formal and informal appropriation mechanisms.
Source: Authors in de Beer, Kun and Wunsch-Vincent (2013) based on Päällysaho and Kuusisto (2008, 2011).
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j e r e my de beer an d sach a wu nsc h- vinc ent
follow-on inventors can build on that knowledge after the patent period
of exclusivity has expired. Semi-formal or informal appropriation methods vary in the degree of information disclosure that they involve. Often
they differ from formal IP rights in that information and technical knowhow is kept secret rather than disclosed.
Indeed, these choices as to the form of appropriation used will affect
the circulation of knowledge. In studying the role of appropriation for
innovation, ideally one should analyze not only the “incentives to innovate” but also the diffusion of knowledge and information resulting from
the chosen form of appropriation.
Appropriation in the Formal Sector: Empirical Findings
A growing body of empirical literature provides evidence regarding
appropriation mechanisms in the formal sector in high-income countries
(WIPO 2011; Hall et al. 2012).
Different firms deploy diverse strategies to appropriate returns from
innovation (Päällysaho and Kuusisto 2008, 2011).
Formal appropriation methods can
–
–
–
–
–
–
–
–
protect against unauthorized usage of protected IP by competitors;
help commercialize IP-protected products and services;
help license inventions and create corresponding technology markets;
increase brand-based enterprise recognition;
signal to potential venture capital to obtain business finance;
limit the right of employees to enter employment with competitors;
ensure that information is kept confidential;
ensure the transfer of rights related to inventions from employees to
companies; and
– facilitate sharing of rights in the results of cooperative projects in
a manner that satisfies all contracting parties.
Semi-formal IP protection can
– limit the right of employees to enter employment with competitors;
– ensure that information is kept confidential;
– ensure the transfer of rights related to inventions from employees to
companies;
– facilitate the sharing of rights in the results of cooperative projects in
a manner that satisfies all contracting parties; and
– prevent patents by rival parties.
a p p r o p r i a ti o n an d i n t el l e c tu a l pr o p e r t y
237
Informal appropriation methods can
– work as a powerful appropriation mechanism often based on trust,
personal relationships or social beliefs, values and norms, with no need
for written agreements or formal tools;
– decrease dependency on individual members of staff;
– decrease the risk of knowledge leakage through employment relationships, partnerships and customer interactions;
– prevent patents by rival parties; and
– make copying and imitation difficult and time-consuming.
Importantly, even in the formal sector of high-income countries, the use
of formal appropriation mechanisms such as patents is the exception
rather than the norm. Larger firms with a high R&D intensity and that
collaborate with other firms or public research institutions and universities may rely on patents. Firms in certain industries – pharmaceuticals
and chemicals, information and communication technologies and some
others – may use patents more intensively than other firms.
Yet, the above cases aside, firms in the formal sector typically use the
full spectrum of appropriation, often giving preference to semi-formal or
informal means as defined earlier. Lead time over competitors, customer
sales and service activities are the most prominently used means of
appropriation. And when it comes to formal IP rights, trademarks are
far more popular than patents, which are used only by a minority of
firms.
According to data collected through innovation surveys in the United
States in 2009, for instance, only a small fraction of all firms in all sectors
consider formal IP rights such as patents to be important (Jankowski
2012). Among firms that regard IP as important, trademarks are considered most important, on average, followed by trade secrets, copyright,
industrial designs and patents.
Low awareness of IP or difficulty in accessing IP protection mechanisms provide part of the explanation for the low uptake of formal IP.
The ability of firms to use the formal IP system can be constrained by
various factors, including financial and other resources, and enforcement
challenges on a global level (Leiponen and Byma 2009; Kotala, Päällysaho
and Kuusisto 2010). These are not the only explanations, however.
Plainly, for many firms it does not make business sense to apply for
and enforce formal IP rights and, in particular, patents. Either other
appropriation means are more appropriate or firms have no intention
of protecting their innovation through formal IP rights in the first place.
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For instance, firms that face shorter product life cycles tend to make less
use of formal IP rights such as patents or industrial designs. Data also
reveal that process innovators with modest R&D investment or few
cooperative R&D activities rely to a lesser extent on patents and more
on secrecy than product innovators do (Leiponen 2006; Leiponen and
Byma 2009). Accordingly, firms in the service industry use less formal IP;
and when they do use IP, trademarks are particularly important. Firms
that collaborate with horizontal partners to innovate, or that significantly
depend on vertical partners, tend to prefer speed and the ensuing advantage of lead time.
The propensity to patent also decreases with decreasing firm size.
As an exception to this rule, research-intensive small- and mediumsized enterprises (SMEs) that harbor specialized knowledge do rely
heavily on the patent system (Helmers 2011; WIPO 2011). This formal
IP provides them with a reputation effect, access to finance and other
benefits (WIPO 2004; OECD 2011).
Yet when the broad majority of small firms are considered, aside from
the registration of trademarks, small firms rarely rely on formal IP rights.
Again, it is often suggested that SMEs face a number of difficulties in
using the IP system, such as limited legal skills, limited knowledge about
the IP system’s potential relevance to their business strategy, and the
system’s complexity.
Often, however, business strategy and practicality lead smaller firms to
use other appropriation schemes. In particular, secrecy, lead time or
confidentiality agreements can be used by smaller firms to achieve
desired outcomes (Arundel 2001; Leiponen 2006; Kotala, Päällysaho
and Kuusisto 2010; OECD 2011).
Small firms in the formal sector and firms in the informal sector thus
have a number of commonalities as regards the spectrum of means of
appropriation they employ and the obstacles they may face.
Appropriation Mechanisms in the Informal Economy
The different appropriation systems – or the lack thereof – in the
informal economy have not been studied sufficiently. Information on
the use of IP in the informal economy tends to be scarce. The analysis of
Consideration of appropriation mechanisms in the informal economy is
therefore an explicit objective of the studies presented in this book.
Many questions have to be considered regarding appropriation
mechanisms in the informal economy: are the incentives for innovation,
a p p r o pr i at i o n an d i n t el l ect ua l p roperty
239
diffusion and impact different in the formal economy and the informal
economy? Does the informal economy rely on different and potentially
unique appropriation mechanisms as compared to the formal sector? Are
innovation outputs and technical know-how communicated and disclosed differently in the informal economy than in the formal economy?
Table 6.1 and the following sections summarize what the existing
literature on the informal economy and the fieldwork for this book
imply with respect to the use of formal and less formal appropriation
mechanisms in the informal economy.
This review suggests, perhaps not surprisingly, that most mechanisms
for appropriating innovation in the informal economy are informal in
nature, with the most important being lead time, sales or service efforts,
the constant supply of new products and varieties, customer loyalty and
after-sales efforts. Selected studies suggest that informal economy actors
use few semi-formal appropriation mechanisms, with the exception of
secrecy, which is prevalent. As noted by Sheikh (2014, p.209), “[t]hrough
these informal appropriation mechanisms, many communities . . . draw
sufficient incentives/motivations for innovations. The informal appropriation tool used by . . . the informal sector does not necessarily include
modern intellectual property rights for exclusivity but locally developed
intellectual property systems can be discerned.” In the same vein,
restricted access to information and the division of duties also help to
preserve the confidentiality of the whole production process, so helping
to protect innovation.
In sum, the available evidence shows that actors in the informal
economy (i) give little consideration to appropriating their returns
from innovation, and/or (ii) rely on semi-formal or informal rather
than formal appropriation mechanisms.
The first impression is suggested by accounts that stress that innovation in the informal economy frequently takes place in clusters that
facilitate the flow of knowledge and technology via complex and organic
exchanges of ideas through social networks. Within these clusters, entrepreneurs are said to imitate each other’s products, those coming from the
formal sector, or imported goods.
This approach may also be related to the fact that appropriation often
goes against the social rules that guide the communities in which informal
businesses operate. Operators in the informal sector have to find the right
balance between operating as individual entrepreneurs and as part of
a close-knit community. In such circumstances, “sharing” can be a more
successful strategy for survival in the large sense than strict “appropriation.”
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The second idea – that informal economy actors are concerned about
appropriation but use semi-formal or informal mechanisms – requires
further explanation.
Use of Formal Mechanisms in the Informal Economy
To our knowledge, almost no available study shows the systematic use of
formal IP in the context of the informal economy. It is plausible to
assume that the current use and enforcement of formal registered IP
forms, be they patents, trademarks, industrial designs or others, is close
to non-existent among informal sector innovators who do not have the
aid of intermediary organizations.
The only example relates to the activities of the Honey Bee Network,
which started in India (see Box 6.1). This initiative to secure formal IP
rights at home and abroad for inventions created in the informal sector is
unique, which perhaps suggests that there is untapped potential to use
formal IP rights in other countries’ informal sectors. It is also noteworthy
that our studies highlight that formal IP becomes more important as
interaction between the informal and formal sectors for joint collaborative innovation increases.
Otherwise, use and enforcement of formal registered IP forms is close
to non-existent among informal sector innovators who do not have
access to support from networks, intermediary organizations or active
policy interventions. While certain activities would qualify for copyright
protection, this right seems to be rarely sought or enforced.
The few field studies that introduce the topic of formal IP use in the
informal economy yield the following hypotheses as possible explanations for the quasi-absence of formal IP rights. Social and cultural norms
aside, one of the most frequently suggested explanations is that innovations in the informal economy do not meet the necessary threshold to
qualify for formal IP protection, as many are based on imitation and
adaptation of existing products (Maldonado and Sethuraman 1992; see
also Chapter 2 in this volume). Another is that actors in the informal
economy have not heard about IP and lack the necessary awareness, legal
skills and access to the formal IP system.
Yet another hypothesis is that actors in the informal economy are
pessimistic about their ability to register and enforce their IP. They
therefore do not try to use the IP system even though they realize that
extensive copying among artisans and the production of cheap copies
abroad are threatening their income (Finger and Schuler 2004).
a p p r o p r i at i o n an d i n t el l e c tu a l pr o p er ty
241
box 6.1 the honey bee network and the encouragement of
formal ip in the informal sector
The Honey Bee Network initiative grew from the aspiration to encourage grassroots innovation in India by identifying and valorizing such innovations. By its
own account, more than 200,000 ideas, innovations and traditional knowledge
practices have been documented, mainly from 550 districts of India but also from
some other parts of the world (Gupta 2012; www.nifindia.org). The network has
also built a platform in the last five years, techpedia.in, which has pooled more
than 200,000 project summaries and titles of engineering and technological
projects pursued by more than 600,000 students from India.
An explicit aim of the network is to help innovators secure formal IP rights.
Specifically, the National Innovation Foundation (NIF), the Society for Research
and Initiatives for Sustainable Technologies and Institutions (SRISTI) and the
Grassroots Innovation Augmentation Network (GIAN) are assisting with market
and prior art search, filing patents on behalf of the innovators and licensing
technology in and out.
NIF has filed about 696 patents in India for innovators operating in the
informal sector and has obtained 37 patents so far. Eight of these patents were
filed in the United States, and five were granted; among the inventions covered
are a four-wheeled cart and pulley mechanism for spreading manure,
a motorcycle-based tractor, a device for climbing coconut trees and a cotton
stripper (Gupta 2006). In terms of other forms of IP, the Indian IP office has
received fourteen industrial design and ten trademark filings from the informal
sector. NIF has also been actively involved in helping farmers protect new plant
varieties by applying for twenty-seven registrations in India.
The organization also operates the Grassroots Technological Innovation
Acquisition Fund (GTIAF), whereby rights to grassroots technologies with low
commercial potential are obtained and later licensed at low or no cost to small
entrepreneurs. About seventy-eight technologies have been acquired from fiftyeight innovators under this program to date (see http://nif.org.in/initiatives). NIF
also created a Micro Venture and Innovation Fund that has so far supported close
to 200 projects at low interest rates; about eighty technologies have been successfully transferred for commercialization.
The Honey Bee Network’s activities are currently being broadened to a large
number of countries, in particular China and a number of African countries.
Sources: Gupta (2006, 2010, 2012) and http://nif.org.in/ipm_projects.php?
category=1&stext=&year.
Alternatively, or additionally, it may be that the sort of exclusive rights
provided by formal IP protection are inadequate or inappropriate to
provide the necessary protection and appropriation to protect these
forms of local innovation (Posey and Dutfield 1996).
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Finally, as is also the case in the formal sector, intrinsic motivation may
suffice to spur innovative behavior. In other words, innovation occurs
without the need for formal IP mechanisms – and the prospects of
exclusivity and financial rewards – to act as an incentive (Bhaduri and
Kumar 2011).
The validity of these hypotheses remains to be verified, and they are
explored through the case studies summarized in the later part of this
chapter. They raise key questions. Should some firms in the informal
economy consider seeking formal IP protection for their innovations?
Would such protection be meaningful in the informal sector context?
Use of Semi-Formal and Informal Mechanisms
in the Informal Economy
Many appropriation mechanisms are informal in nature, with lead time,
sales or service efforts, customer loyalty and after-sales efforts being the
most important examples. Informal economy actors may also try to
appropriate their innovations via secrecy or other means of hiding their
specialized knowledge, techniques or processes.
What needs to be established in this regard is whether informal
economy actors appropriate more of their innovative efforts than is
portrayed in the literature, and whether they use different appropriation
mechanisms from those in the formal sector.
Findings could be biased by the fact that many studies of the informal
economy relate to the manufacturing sector, and in particular metal manufacturing. Process innovators and service industries might be more prone
to resort to secrecy, in line with what is observed in small formal firms.
Furthermore, the relationship between master and apprentice involves
significant bilateral knowledge exchange to the exclusion of third parties
(see Chapter 2). If this is regarded as “secrecy,” the incidence of this
appropriation mechanism might be larger than is currently acknowledged.
The fact that appropriation has not been studied systematically, that
“concealing information” and secrecy might not be socially acceptable
interview answers, and that this behavior is less easily quantified might
also bias research results.
Studies underline the importance of trade or other intermediary organizations for the more formal appropriation of innovation. These might
include groupings to facilitate the development of micro-firms or support innovations in the informal sector, or institutions (see Chapters 3–5
a p p r o pr i at i o n an d i n t el l ect ua l p roperty
243
in this volume). The National Innovation Foundation in India actively
finances innovation and supports the registration of formal IP rights.
Another example from South Africa is the “stokvels” or informal savings
groups which allow the poor to mobilize financial resources that can be
used for several things, including setting up a business (Verhoef 2001;
Arko-Achemfuor 2012).
Another issue that merits additional thought relates to how innovation
is communicated, disclosed and diffused in the informal economy. Based
on the available evidence, simple diffusion methods such as word of
mouth play an important role in the diffusion of knowledge, along with
popular literature, radio, television and other communications media.
This also reflects the large variance in educational levels of informal
economy operators. Many have only a basic education, but others are
university graduates, including graduates with technical degrees in fields
such as engineering.
Appropriation Means Specific to Indigenous and Local Communities
A separate literature has developed which analyses innovation and
appropriation of indigenous peoples and local communities (Finger
and Schuler 2004; Drahos and Frankel 2012). This literature is quite
separate from studies of the informal economy, but the line between
what is considered the informal sector here and more local innovation
communities is blurred, and the findings of this research are relevant.
A core finding of these studies is that indigenous people and local
communities have always innovated and have always employed ways of
protecting their knowledge and skills via alternative IP protection
mechanisms. Another finding is that indigenous peoples and local communities also resort to distinct approaches to passing on and keeping
knowledge confidential, most often relying on secrecy, particular codes to
transmit knowledge or oral transmission of techniques and skills, often
without formal codification. Family and community sharing mechanisms in conjunction with community sanctions and ostracism for copying and imitation are common. Customary laws and practices are often
used to define custodial rights and obligations over traditional knowledge
and its disclosure.
These laws define how knowledge is shared and developed, and
how traditional knowledge systems are appropriately sustained and
managed within a community. In this context, personal relationships
are an important form of disseminating and enforcing acceptable
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standards of behavior. Knowledge is transferable through inheritance,
for instance, or between a master and an apprentice. Confidentiality
plays a large role, and concepts such as reputation, apprenticeship
and trust matter greatly.
Secrecy, particularly codes to reveal knowledge and selective oral
transmission of skills, is a particularly prominent means of appropriation. A detailed field study of innovative communities in the Indian
shawl-making process, for instance, reveals that its actors seldom share
innovation-related information with other communities: processes are
kept complex with various experts skilled only in parts of the tasks, and
often codes are used to keep information secret.
As Sheikh (2014, p. 209) notes, “communities engaged in the informal
sector have developed strong appropriation mechanisms and [IP] systems. But, these locally formed appropriation systems are quite different
from modern day IPR. For instance . . . communities like weavers and
designers . . . have developed talim (a kind of ‘hieroglyphics’) an arcane
system of [IP] long before the modern IPR system was developed . . .
The designs and the color combinations used by weavers from talim are
hard to imitate. Only a person with sufficient experience in pashmina
shawl weaving will be able to understand the codes.”
On other occasions, more tacit protection of knowledge without codification but operating through the select attribution of tasks and the
selective sharing of information – even within one family – is employed.
Sheik (2014, p. 210) writes that “many communities . . . restrict the flow
of knowledge to chosen descendants and to those who are in the same
trade. For example, the community of dyers, weavers, designers and talim
writers do not engage women in the important assignments of shawl
making, presumably to prevent the transfer of knowledge from one
community to the other through marriage systems . . . Therefore, the
argument that all innovative communities in the informal sector freely
reveal what they generate in terms of new knowledge seems erroneous.”
To our knowledge, however, no systematic effort by innovation or IP
experts to establish a comprehensive taxonomy of these different forms
of appropriation exists. Also, as with the studies of the informal sector
more generally, little or no statistical or quantitative survey work documents the various appropriation mechanisms in local communities. Yet
it must be recognized that these practices may constitute an alternative to
formal IP for such communities.
Furthermore, despite these semi-formal and informal means of appropriation, the knowledge of local and indigenous peoples is often
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245
misappropriated, as private firms worldwide decipher traditional knowledge and formally protect it, for instance, by means of patents, often
without consultation or equitable benefit-sharing with local communities
(Godbole-Chaudhuri, Srikantaiah and van Fleet 2008). In recent years,
indigenous peoples, local communities and governments, mainly in
developing countries, have demanded equivalent protection for traditional knowledge systems (WIPO 2012b).2
As noted by WIPO, “innovations based on TK may benefit from
patent, trademark, and geographical indication protection, or be protected as a trade secret or confidential information. However, traditional
knowledge as such – knowledge that has ancient roots and is often oral –
is not protected by conventional [IP] systems.”3
Often, traditional knowledge is regarded as collectively originated and
held, so that any rights and interests are vested in communities rather
than individuals. As such, it is not easily protected by the current IP
system, which grants protection to inventions by named individuals or
companies, unless particular persons such as healers are regarded as the
holders of the knowledge (WIPO 2012b). In some countries, however, sui
generis legislation has been developed specifically to address the protection of TK.4
Appropriation of Innovation in Practice – Country Study
Observations
The studies in Kenya, Ghana and South Africa presented in Chapters 3–5
cover a range of sectors from metal manufacturing to medicinal practices, to personal care products. Meanwhile, between 2011 and 2013 the
Open AIR network also funded case studies relevant to informal sectors
of African economies. These studies are analyzed for their contributions
to the topic of appropriation in the informal economy below. Table 6.1
summarizes the main findings.
2
3
4
Negotiations are currently underway in WIPO toward the development of an international
legal instrument or instruments for the effective protection of traditional cultural expressions and traditional knowledge, and to address the IP aspects of access to and benefitsharing in genetic resources. See WIPO (2012b) and www.wipo.int/tk/en.
www.wipo.int/tk/en/tk.
Access to treaties and regulations on the protection of traditional knowledge can be found
at www.wipo.int/tk/en/databases/tklaws. See also WIPO (2012a, 2012b, 2013).
Table 6.1 Appropriation in the country case studies
Kenyan metal
manufacturers
Ugandan automotive artisans
Main forms of
appropriation
in use
Informal metalworkers
use first-to-market
advantage, process
secrecy and
occasionally
trademarks.
Main forms of
disclosure
Apprenticeships and
other training schemes.
Relationships are based on
trust, and products are
freely copied.
Awareness and
attitudes toward
formal IP
Awareness and interest in
formal IP is low.
Customer loyalty, design
complexities, competitive
pricing, secrecy and nondisclosure agreements,
customer care and
intermediation.
Formal IP forms are pursued by
formal sector researchers.
Work in open spaces;
apprenticeships; internships.
Patent documentation;
scholarly and non-scholarly
publications; media outlets
and events pursued by the
formal sector (i.e. Makerere
University) but not by
informal sector partners.
Awareness and interest in formal
IP is low.
Challenges in using
formal IP
Not part of the culture.
For most, the cost in terms
of time and money
outweighs the
perceived benefit of
formal appropriation
mechanisms.
Challenges in IP
enforcement.
Lack of awareness; poor or
inadequate institutional
capacity; low investment in
R&D, which is a prerequisite
to formal IP; lack of technical
expertise/personnel; high cost
of filing and challenging
enforcement; inadequate
administrative infrastructure.
Source: Authors based on Chapters 3–6 in this volume and Kawooya (2014).
South African personal
care product producers
South African and
Ghanaian traditional
medicinal practitioners
Effective sharing of
information, division of
duties, customer
relationship
management and
secrecy.
Secrecy is main form.
Trademarks registered
for higher-end products
in pharmacies and
shops.
Informal peer-to-peer
training and knowledge
exchange;
apprenticeships;
training by suppliers;
training by technology
transfer organizations;
books and manuals;
Internet.
Awareness and interest in
formal IP is low. It is
perceived as not
suitable for small
informal enterprises.
Lack of suitability for
informal microenterprises; high cost of
filing and challenging
enforcement; limited
awareness of the full
range of options.
Apprenticeships and
interactions in
associations; some
organized workshops
and seminars;
publications.
Awareness and interest in
formal IP is low.
Patenting is perceived
as costly and complex.
Need for greater
awareness of the IP
system; high costs of
appropriation and
challenging
enforcement.
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Kenyan Metal Manufacturers
King (1996) traces the story of Kenya’s jua kali over a quarter century
between 1970 and 1995. Although King’s account of activities in this
informal sector is extraordinarily rich, the appropriation of innovation or
the use of formal IP rights was not the center of attention.
Other in-depth studies of the jua kali have, however, started to raise
the issue of formal IP or other appropriation strategies. Specifically, Juma
and Ojwang (1989) have explored appropriation issues in this Kenyan
context, proposing sui generis systems tailored to the needs of informal
sector actors. Analyzing innovation in the area of Kenyan informal metal
manufacturing clusters, Daniels (2010) touches on the potential relevance of more formal appropriation systems and in particular formal
IP rights to the informal sector context. But he does not explore this topic
any further.
Chapter 3 of this volume, on the Kenyan informal metal manufacturing clusters, takes a step forward in more explicitly studying the role of
appropriation and formal IP in the Kenyan informal metalworking
sector. Among other questions, the authors sought to determine the
implications of applying conventional IP appropriation mechanisms to
innovation, and the diffusion of ideas in the informal metalworking
sector. A few important findings emerge.
First, consistent with earlier findings, they observed that informal
sector metalworkers mostly use appropriation mechanisms such as
secrecy, first-mover advantage and scattered component production, if
they use any appropriation mechanisms at all.
Second, attitudes regarding formal IP protection vary depending on
the market for an enterprise’s products. Those working in clusters producing commodity goods for low-income consumers put high value on
trust-based relationships and sharing ideas to adapt to changing demand.
In fact, trust and honesty are considered to be as important as the skill
and experience of the collaborator. Metalworkers in clusters making
products for the markets of middle- and high-income economies also
seemed more likely to use informal appropriation mechanisms to maintain competitive advantage. Bull et al. (2014, p. 32) note that “[t]hose at
the Racecourse . . . were more likely to take advantage of informal
appropriation mechanisms. The layout of their workplaces (more isolated than Kamukunji) and the migration of workers between workplaces
(trainees tended to start their own enterprises rather than moving to
another employer) made processes and novel products less visible.”
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249
Interestingly, intermediary associations tended to intervene to discourage appropriation through secrecy, on the ground that secrecy impedes
the circulation of knowledge, training and thus the growth of the sector.
As noted by Bull and his co-authors on p. 122 in Chapter 3, “[c]urrently,
the Kamukunji Jua Kali Association presents the cluster as a ‘training
center,’ and discourages entrepreneurs and inventors from protecting
their ideas by requiring that sheds be open and the work going on visible
to passersby”; and on p. 125: “[t]he association actively encourages
information sharing by holding meetings, and intervenes when an inventor tries to work in secrecy.”
Informal metal manufacturing entities in isolated conditions showed
the most interest in formal IP protection through trademarks or utility
patents. These informal firms and workers operating outside of clusters
served different markets; they tended to be early adopters of new technologies. However, they also expressed frustrations with the inefficiencies
of the formal IP system.
For instance, in Bull et al. (2014), the owner of a small firm producing
home furnishings such as coat and shoe racks, mirror stands, chairs and
similar items states that he made the effort to register the trademark of his
firm and call on those who he felt were infringing and to ask them to
desist. When asked about whether he would consider patenting specific
objects, he responds that he could “come up with new designs faster than
his competitors could copy them.” To his mind, no patenting or any
other formal IP protection is obviously required to grant him
a competitive advantage.
In another case, a serial inventor sought a patent for some of his work,
but out of frustration abandoned the process before it was complete.
In both of these cases, the originators were not working in a cluster.
The serial inventor set up his operation well outside Nairobi, partly
because some of his work was on agricultural tools, and partly to be
able to control who had access to his developments.
Both these firms had more sophisticated operations with catalogs and
websites that significantly distinguished them from the jua kali working
in the clusters.
Ugandan Automotive Artisans
Kawooya (2014) conducted fieldwork research among informal automotive artisans interacting with Makerere University staff and students in
the Ugandan capital city of Kampala. Makerere’s “Gatsby Garage” is
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a workshop set up by the College of Engineering, Design, Art, and
Technology (CEDAT) using funds from a UK non-governmental organization. The garage is a hub where university faculty and internship
students cooperate with informal sector workers paid to perform various
tasks. Kawooya sought to understand the extent to which formal and
informal sectors in Uganda exchange ideas and innovations, and the role
of IP – if any – in that exchange.
First, the research revealed that formal and informal sector actors were
exchanging ideas and innovations, often via the hub intermediary organizations such as the Gatsby Garage (see also Chapter 3). These
exchanges were often based on mutual trust and respect.
Second, IP protection was not an issue informal sector workers
thought about unless formal sector entities raised it during discussions
about outsourcing work.
Kawooya (2014) found a great deal of willingness to share innovation
between formal and informal sector actors. Informal workers value
relationships with formal sector actors as a matter of pride, and as
a way of validating themselves and their ideas. Formal sector actors
recognize their own limitations and the practical skills informal workers
possess.
During these collaborations, informal artisans have felt obliged to
disclose their ideas, products, or methods to paying clients, rather than
keeping these secrets for competitive advantage. Similar sentiments were
expressed regarding the obligation to provide skills training from senior
to junior artisans. Pragmatism also played a role, as the physical spaces in
which the artisans work make secrecy difficult. Formal sector actors,
however, were aware of IP issues and the possibility that ideas might be
“misappropriated.”
Kawooya offers a compelling example involving the creation of East or
Central Africa’s first electric vehicle, called “Kiira.” While the project was
led by Makerere’s Centre for Research in Transportation Technologies at
CEDAT, informal sector artisans were engaged for their expertise in
sourcing suitable parts, fabricating components and helping to translate
theoretical designs into practical solutions. Informal sector artisans who
worked on the project were required to sign non-disclosure agreements
which would help to protect Makerere’s trade secrets. Thus, formal IP
mattered as the interaction between the formal and the informal sector in
terms of innovation increased.
Third, and as regards the above dynamics, the study points to an
imbalance when actors from the informal and formal sector collaborate.
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251
Formal sector actors were usually not worried about informal sector
artisans “stealing” or “commercializing” these secrets, because doing so
required heavy capital investment. That itself is an appropriation
mechanism, albeit a semi-informal one. Conversely, the contributions
of informal sectors workers were not acknowledged at all when the
university pursued its own formal IP protections. To some extent, informal artisans do not feel cheated because they are paid for their services in
exchange for finished products they are contracted to make. They also
take pride in being approached by highly educated researchers seeking
their services. The resulting inequities of the situation seem attributable
less to an information or power imbalance than contrasting norms and
expectations among formal and informal sector actors.
South African Personal Care Product Producers
To understand the role of IP rights or other appropriation strategies in
such a transformation, in Chapter 4 Kraemer-Mbula and Tau studied
innovation systems around the “manufacture of soap, detergent, cleaning
and polishing preparations, perfumes and toilet preparations.”
First, the authors found that most innovations in this informal sector
were incremental but that significant improvement in formulations and
packaging for product differentiation took place. In particular, the use of
tribal designs in packaging and other forms of branding were found to be
important appropriation mechanisms. They are not considered sacred
and are commonly found in decorations of walls and shops. As noted in
Chapter 4 (p. 157), “[t]hese innovations often involved adding decorative
layers to the products or using wrapping paper with specific tribal designs
to attract specific customers. Improvements in packaging and labeling
are often a means of product differentiation and knowledge appropriation and a source of competitive advantage.”
Second, and despite the existing potential, these authors also found
that the use of formal IP rights was limited or non-existent. Survey
respondents said that their use of formal means of appropriation such
as patents or trademarks was marginal. Ninety-two percent of respondents had never attempted to obtain a patent, trademark, or other formal
IP rights, although 32 percent said they would like to use formal
protections.
Rather, ideas were protected in some other way, usually through
selective sharing of secrets, division of duties, and management of customer relationships. Fifty-six percent of respondents said they protect
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ideas through some formal or informal means. There seems to be some
misunderstanding, however, about what it means to protect ideas, since
80 percent of interviewees reported to have their own brand, in other
words, that appropriation was secured through reputational value. This
happened regardless of the fact that only 4 percent of interviewees
reported to hold a formal trademark.
Third, attitudes toward the formal IP system and the sources of knowledge also matter in this sector. More than three quarters (76 percent) of
informal manufacturers of home and personal care products surveyed in
South Africa did not believe they “own” the ideas of the products they
make, and 88 percent said, “open transfer of innovative ideas” was useful
in the sector. Similar to the findings from Kawooya (2014) and from Bull
and his co-authors in Chapter 3, the sharing of information – what one
interviewee recognized as “free revealing” – was often seen to be a form of
knowledge protection, with exchanges governed not by monetary transactions but by a sense of honor, trust and responsibility toward the
community in which they live.
It must be recalled, however, that the “‘personal care’ sub-sector
cannot be taken to represent the view of all pharmaceutical or medicinal
informal sectors. The case of herbal medicines traced to indigenous
peoples” history and culture, as shown below, reveals different insights.
South African and Ghanaian Traditional Medicinal Practitioners
Two recent South African studies have assessed innovation and appropriation in traditional medicine practiced by indigenous and local communities (ILCs). One was conducted as part of the WIPO project leading
to this book (Chapter 4), the other was part of the same Open AIR project
that supported Kawooya’s work discussed above.
Studying traditional healers in Mpumalanga and Limpopo provinces
in northeastern South Africa, Cocchiaro et al. (2014) examined the role
various formal and informal appropriation strategies might play in
protecting a “traditional knowledge commons” for these healers.
First, it was found that while existing forms of governing TK are very
different from written Western IP laws, they are nonetheless formal.
Traditional medicinal knowledge is governed by customary rules around
access, exploitation, stewardship and control. The commons of the
Kukula Healers, for instance, is based on a system of pooling and sharing
elements of their bio-cultural knowledge and customary laws. It attempts
to balance competing interests: disclosure versus secrecy, individual
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253
knowledge versus common knowledge. Formal knowledge-sharing
arrangements are relatively new to the healers, but are nevertheless
grounded in traditional practices. Despite their agreements based on
traditional values, the Kukula Healers’ knowledge commons does not
rely upon formal appropriation mechanisms via IP rights.
In particular, the significance of customary laws distinguishes these
formal systems of appropriation from the much more informal norms of
trust and honor that guide knowledge exchanges among the metalworkers, automotive artisans and personal care product manufacturers
described in the case studies above. Unlike those other contexts, the
“rules” that govern the stewardship of and access to knowledge are
formalized, albeit by local social and cultural norms instead of Western
legal concepts. At the same time, like the other cases mentioned above,
“trust” is also seen as an effective means of achieving the communities’
collective objective to facilitate sharing among group insiders, but
excluding outsiders. Similar findings were made in a recent study of
a “traditional knowledge commons” among Maasai and Kiji Kenda
communities in Kenya (Ouma 2014), which suggests that patterns may
exist within “informal” innovation practices across various geographically dispersed and ethnically distinct communities.
Second, one distinguishing feature of the Kukula’s appropriation strategies is that they are deployed not merely for purposes of commercialization but also as a defensive mechanism against misappropriation,
especially “biopiracy,” that violates community norms.
The study by Essegbey and his fellow researchers covered in Chapter 6
highlights the role of innovation when studying traditional medicinal
practitioners in Ghana to analyze how IP rights might impact medicinal
innovation.
First, and consistent with other studies of the informal sector, secrecy
was identified as the most common appropriation mechanism used by
Ghanaian traditional medicinal practitioners. This point requires explanation, however. The norms that govern the protection and/or sharing
of “secrets” regarding TK may be different from the norms that apply
in other circumstances of informal sector innovation, because the kind
of knowledge and innovation at issue is fundamentally distinct.
In determining precisely how the benefits of innovation are appropriated,
the nature of the innovation matters greatly. The way in which informal
sector actors may appropriate metalworking techniques or cosmetics
recipes is much different from the way that traditional medicinal knowledge of special cultural or spiritual significance is appropriated.
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Still, like other informal sector innovations, local informal businesses
dealing with traditional medicines are not making use of formal IP
mechanisms; awareness of options for protection is low. For instance,
while interviewees from the informal sector identified trademarks as the
kind of protection likely to be most relevant, little or next to no trademark
registration is actually taking place. The cost of obtaining such protection
in Ghana, including not only filing charges but also legal fees, was cited as
an obstacle to the uptake of formal IP. Some trademarks were filed by
those whose products end up in pharmacies and shops; brands are created
and sustained at larger scale while traditional medical practitioners
(TMPs) register their business and establish marketing networks.
Second, the study questioned how far exclusive rights as embodied in
IP are suitable to the existing innovation ecosystem. Innovators and
operators in the informal sector expressed an interest in “gains accruing
to the larger collective” rather than the individual alone. The community
should “have access to the knowledge embodied in the innovation,” in
the view of some of the survey respondents.
Summary of the Case Studies and Arguments
Despite the theoretical work and review of the limited literature above,
one can only speculate about the empirical impacts of current approaches
to appropriation in the informal economy. In this regard, two questions
are crucial: (i) to what extent do these appropriation schemes foster or
impede innovation and the diffusion of knowledge? (ii) to what extent
does the absence of appropriation help or harm the scalability, diffusion
and impact of innovation?
On the one hand, it could be argued that the absence of formal
appropriation and working in clusters constitute strengths of the informal economy’s innovation system. On this view, the innovation system
in the informal economy largely rests on “collective learning experiences” based on low entry barriers and free flows of knowledge
(McCormick 1998). Individual firms or economic units are not the
key determinants of innovation and efficiency. Rather, the dynamics
among similar enterprises in collective geospatial clusters determine the
rate of innovation, economic success and the value of the cluster
(McCormick 1998).
Appropriation efforts must also be considered in light of the social
systems – specifically family structures, community networks and commercial clusters – within which the informal economy operates.
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255
Knowledge flows are characterized by trust, reputation, reliability, social
and cultural signaling, and the willingness to pool resources and collaborate. This facilitates access to information, and critically reduces
transaction costs (Portes and Sensenbrenner 2009; Nordman and
Coulibaly 2011). The technological knowledge involved in manufacturing, as described by the case studies is largely tacit, or “non-codified.”
Therefore knowledge dissemination is largely based on mentorship and
personal interactions. In this context of informality, the formal appropriation of ideas can be considered alien.
On the other hand, and in contradiction to the above view, it has been
argued that the presence of perpetual copying and absence of appropriation mechanisms is seen as a barrier to scaling up innovative activity in
the informal economy (Daniels 2010). Entrepreneurs are arguably unable
to develop their businesses beyond a certain stage as they lack exclusive
rights to or control over their innovations. Therefore, they may have
fewer incentives to invest in machines or human capital, for example,
training new apprentices, and are unable to reach certain economies of
scale.
Firms may also forgo the possibility of specializing in different styles
and techniques, or of innovating beyond incremental improvements or
adaptations in processes, as copying is the norm. The absence of branding or certificates/labels, leading to anonymity of the sector’s products in
the eyes of consumers, has also been said to prevent producers of goodquality products from being rewarded (Kabecha 1997). However, according to the South African case study covering personal care products,
branding is broadly used amongst informal entrepreneurs, who pay
special attention to building their brand reputation, but without necessarily filing for a formal trademark.
One factor that may be responsible for the prevalence of imitation
rather than invention in the informal economy is the difficulty of appropriating benefits through formal or informal protection mechanisms.
The ease of copying and the lack of appropriation methods may create
a situation in which individual entrepreneurs cannot grow by inventing
novel processes or products. From a consumer’s perspective, in the
absence of trademark protection, it may be more difficult to differentiate
good-quality products from bad-quality products. New products or
processes introduced by innovating entrepreneurs are successful until
competition by copying adversely affects their revenue. As found in
Chapter 4 on Kenya, in this particular metal manufacturing cluster,
inventors may have two weeks to appropriate the benefits of their new
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product before somebody else copies it. Once copied, the diffusion is very
rapid so that in a matter of months many are producing similar products.
Lower prices of imitative products by copying competitors are also
reported to have eventually driven the original inventor out of the
market. In Chapter 3, Bull and his co-authors (p. 125), note that “[t]he
association actively encourages information sharing by holding meetings, and intervenes when an inventor tries to work in secrecy.”
Due to this systematic effect, only small incremental improvements in
processes and some incremental improvements or adaptation of products are likely to be achieved (Daniels 2010). Economic growth and
productivity gains – as understood by economists – in the informal sector
are thus inherently limited in scope.
Furthermore, firms that operate in the informal sector might then
also have a negative influence on the formal sector. Informal firms
that fail to comply with various economic regulations or to meet their
tax obligations are able to expand and take market share away from
formal firms, even when they are less efficient overall (OECD 2009).
At worst, economists are concerned that informal firms may also
undermine the incentives of formal sector firms to innovate, adopt
new technologies, develop their IP rights or develop brands (OECD
2009). Conclusions in this regard would require a better understanding of the complex relationship between formal and informal business
in particular sub-sectors.
In sum, the current empirical evidence is not systematic enough to
favor one view over another, which could then be generalized to the
broad spectrum covered by the informal sector. For a start, and in the
absence of a clear counterfactual argument, it is difficult to rigorously
determine the level and type of innovation that would have occurred in
a different setting. The problem starts with the fact that innovation
remains difficult to measure, even in the formal sector. Appropriately
identifying and measuring innovation in the informal sector is only
a fairly recent academic preoccupation. Moreover, the heterogeneity of
sectors and the informal economy’s innovation and learning systems will
certainly influence the overall outcome.
That is why country sector studies, including those presented above,
are a useful research tool to shed light on the phenomenon of appropriation in the informal sector. On this basis more precise and contextspecific recommendations can be made on the use and usefulness of
formal to less formal appropriation mechanisms.
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Practical Challenges in the Use of Formal IP
It is important to consider whether there are specific conditions
relating to informal economy actors that complicate the use of the
IP system. Do the lack of formalization and the absence of an
established legal applicant identity act as barriers? Are informal
economy actors also sometimes excluded from legal protection
through their inability to write to or interact with official, formal
institutions? Are established IP institutions unreceptive to inventions
from the informal economy?
Authors of country studies studied the challenges in the formal use of
IP by the informal sector and identified the following obstacles for
informal firms in acquiring IP protection:
• Existing formal IP schemes such as patents may not be relevant to
informal economy actors.
• Innovations may not meet the threshold requirements for formal IP
registration.
• Firms may not be aware of the formal IP system, or cultural/social
barriers may prevent them from using it.
• They may face financial, educational and other access barriers.
• Formal requirements may be insurmountable, in particular as registration requires that firms have a legal identity, thereby excluding
informal firms from the IP system.
• Established IP institutions may not be receptive to inventions from the
informal economy.
Two major themes permeate these above points: (i) is IP needed and
suitable in the informal economy context? (ii) What obstacles (if any) do
informal sector actors face in accessing the IP system? We will consider
these in more detail.
Needs Assessment and Suitability
The biggest question seems to be whether the IP system is at all relevant
to the informal sector. Certain forms of formal IP protection require
a degree of invention that might not be easily met by actors in the
informal economy (WIPO 2008, p. 20). This is particularly so in the
case of the requirements of novelty and “inventive step” or nonobviousness for patent protection. For utility models, industrial designs,
trademarks and copyright, formal protection requirements are less
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onerous. Nonetheless, ideas typically need to be new and different from
those already on the market.
On this first point, however, experience shows that the threshold for
accessing formal IP protection is not as high as one might think, especially given the wide range of options available.
First, the Honey Bee Network in India described in Box 6.1 proves
that certain inventions in the informal economy can be awarded
patents at home and abroad. But clearly IP rights such as patents
are likely to be most important in a scenario where complementary
formal research and development processes take place in universities
and high-technology hubs, or when innovation efforts in informal
clusters are pooled with the help of intermediary organizations or
through contact with the formal sector. The studies in Kenya, Ghana
and South Africa indicate that formal modes of knowledge appropriation, such as patents, are sought by some informal actors, though
very few. Moreover, about a third of respondents in the South African
case study indicated that they were interested in making use of formal
IP mechanisms.
Second, if one takes into account forms of IP other than patents, such
as utility models, geographic origin or certification schemes, industrial
designs, trademarks, copyright and plant varieties, certain forms of
protection might well be suitable for informal sector innovations.
Compared to patents, some of the latter are cheaper and more accessible
forms of protection.
Still, given the diversity of the informal sector, the suitability of formal
IP rights can only be established through case-by-case analysis. Much
depends also on the extent to which the rule of law is stable and enforceable in the context being considered. The effectiveness of formal IP rights
is inevitably tied to the strength of governance systems more generally.
Therefore, various different schemes, from the formal IP rights mentioned just now to semi/informal protections for trade secrets to traditional knowledge benefit-sharing schemes, each have strengths and
weaknesses in different contexts.
Starting from the assumption that existing formal IP does not work for
the informal sector, some commentators have proposed to develop new
forms for formal IP better suited to the informal sector (Basheer 2008;
Gupta 2012). The common threads among these suggestions are: lower
costs for acquiring and enforcing rights; limited or no registration
requirements; weaker rights with a more limited duration of protection;
and reduced barriers to licensing or to the use of the protected idea by
a p p r o pr i at i o n an d i n t el l ect ua l p roperty
259
other entrepreneurs. In particular, a utility model-type system with
a lower registration threshold, a correspondingly weaker set of rights
and lower costs is being promoted in this context (Basheer 2008).
Other proposals go further in considering possibilities for others to
reuse a protected idea in a simple and cost-efficient way. Specifically,
Basheer (2010) has suggested the creation of an easy-to-use and affordable registration system, wherein the only criterion for registration is that
the applicant must disclose a useful “new technical advance.” Protection
would be afforded for a limited duration, for example, five years, and one
difference from the standard utility model scheme is that these inventions
would be subject to compulsory licenses. In other words, the invention
could be used by any third party that wishes to make a product based on
this right in exchange for royalties.
These proposals should be studied in detail to consider their merits
and define the shape they might take. A new legal, formal appropriation
mechanism would need to bear significant advantages over what already
exists.
Again, the effects of using formal versus more informal appropriation systems need to be carefully assessed on a case-by-case basis.
In some instances, and as in the formal sector, use of informal
mechanisms may be preferable. Indeed, the South African case
study in Chapter 4 highlights several benefits of a scenario where
informal appropriation mechanisms are promoted over formal
mechanisms. In the short to medium term at least, the benefits of
encouraging informality might include more stable employment relationships that are carefully cultivated in order to prevent knowledge
leakages, innovation manifested in new modes of customer support
and product differentiation, broader diversification of home and
personal care products, and improved social networks in informal
settlements (Kraemer-Mbula and Tau 2014, p. 53).
Whether these perceived advantages would be called into question by
more formal IP protection is largely an empirical question, however.
Establishing the correct counterfactual – knowing what would have
happened with more or less formal IP use – is challenging in any respect.
Moreover, it is impossible to predict with certainty what the future will
be. Different appropriation strategies and different kinds of IP rights may
be more or less relevant in different scenarios for the future (Elahi and de
Beer 2013). At this stage, it is prudent not to overplay or downplay the
notion of formal IP protection while pretending that this assessment is
valid for all informal sectors, clusters and niches alike.
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j er e m y d e b e er a n d s a c ha wun s c h -vi nc e n t
Another challenge is the fact that the existing IP system often obliges
the applicant to establish the name of a single inventor or applicant in
order to grant exclusive protection. Yet ideas in the informal economy
may grow more organically or, as in the case of herbal medicines, in
larger groups or communities, and over decades or centuries. In these
cases, assigning ownership of ideas to individuals or specific entities is
particularly difficult. Protecting the knowledge created by indigenous
peoples and traditional communities which may not be novel, and
most of which is collectively held by a group of persons, brings additional
challenges.
One pragmatic way to help micro-entrepreneurs manage IP issues and
select the appropriation scheme best suited to their objectives is via
intermediary organizations (see Chapter 3 in this volume). Studies such
as Kawooya’s (2014) research on Ugandan automotive artisans suggest
that intermediary organizations are effective in furthering meaningful
formal–informal sector interactions, and to potentially help in managing
associated IP rights. The authors of Chapter 5 also mention a possible
role for business incubators in this context. There are two key benefits of
a collective approach also highlighted in the Kenyan study. As Bull and
his co-authors conclude in Chapter 3 (p. 132): “A cluster-wide appropriation mechanism would distribute the cost over all the members and
thus not be an excessive burden on individuals. It would support and
build collaboration within the cluster and would not disrupt the social
fabric.”
The idea that collectives, community groups, industry associations,
trade unions, or other formal or informal groups of individuals can help
to harness the potential of IP rights is also consistent with the core
findings of the Open AIR network (de Beer et al. 2014, p. 386).
Hurdles in Accessing the IP System: Awareness and Costs
The suitability of any particular appropriation scheme is closely tied to
the issue of awareness and how to overcome existing obstacles such as
administrative complexities and costs.
An important policy challenge will be to make informal economy
actors aware of the possibilities that formal IP rights might offer.
Raising awareness of IP and promoting low-cost mechanisms was mentioned to a greater or lesser extent by every case study author. This will
require raising awareness of the uses of IP and its potential costs and
benefits.
a p p ro p r i a ti o n an d i n t el l e c tu a l pr o p er t y
261
Research has also identified cultural and social barriers to potential IP
uptake in the informal economy. Whether these barriers are insurmountable should be a matter for further case-by-case study.
In addition, informal economy actors might need to overcome
a number of practical hurdles in order to access the IP system, notably
a lack of time to devote to IP matters, the need to acquire the necessary
skills and limited financial resources. Costs are significant, particularly
when it comes to patenting and legal fees (Basheer 2010). Formal registration requirements could prove to be an insurmountable obstacle to
informal economy actors, for reasons relating to distance (because travel
may be required to reach the IP office and informal economy actors may
not have access to IP systems online), time or skills.
From a policy perspective, it seems important to ensure that IP registration systems are accessible in terms of time, expertise and financial
costs. But raising awareness about IP, facilitating registration and lowering the associated costs are all unlikely to bear fruit in themselves.
In practice, broader innovation and IP policies will provide various forms
of advice and support to informal sector innovators (see Chapter 7).
Experience and more detailed work by innovation scholars over the last
decade have shown that treating or fostering IP in a disconnected fashion
from other economic and innovation policies rarely yields the desired
benefits.
The experience of the Indian Honey Bee Network has also shown that
an institution needs to vigorously work at identifying innovations in the
informal sector in the first place. As Gupta (2012) puts it, “the scouting is
far more important than just waiting for the innovators to turn up at your
door.” A proactive approach is required to spot and nurture innovations
in the informal sector. This involves providing advice and market
research, creating the right linkages between different actors such as
scientific institutions or business partners, facilitating access to finance
and other assistance.
When it comes to formal IP itself, more is needed than just creating
awareness. When potentially protectable innovations or brands have been
identified, technical assistance is required to assess which form of IP
protection is accessible and promising, and thus whether criteria such as
“novelty” are met. A reality check concerning the patentability of an
invention includes prior art searchers requiring special patent databases
and technical know-how which the applicant is unlikely to have themselves.
This dimension and potential added cost of making formal appropriation means work must be factored in when trying to foster the use and
262
j e r e my de beer an d sacha w u ns c h- vinc ent
assess the impact of formal IP. And indeed these findings are not applicable to the informal sector only; experience in developed and developing
countries alike suggests that these are issues faced by many businesses
and policymakers concerned with the formal sector too.
Finally, the costs of obtaining formal IP protection are not the only
kinds of costs to consider for effective policymaking. Acquiring formal
rights through application or registration processes is one small part of
an appropriation strategy. These rights must also be enforceable. Any
business will consider how well its rights will be enforced in the marketplace, given the particular context of the low- or middle-income country
in question. As the case studies show, some informal businesses conclude
that registration is pointless if rights cannot be enforced. But ensuring
enforceable IP rights involves considerable cost not only to the rights
owner but also to the public, for everything from customs and border
services to investigation and policing personnel to courts and other
adjudicative processes.
Conclusions
A clear gap exists in our understanding of innovation appropriation
mechanisms in the informal economy which this chapter aims to help fill.
In sum, this research shows that the question is not whether appropriation methods are relevant in the informal economy, but rather which
mechanisms (formal and/or informal) may be more appropriate or
promising in the specific case and sector under consideration.
The kinds of appropriation forms that matter are not merely formally
registered patents, trademarks or copyrights. IP protection can take
many other forms, some of which are structured as legally enforceable
property rights, others of which provide effective de facto protection.
Indeed, and perhaps not surprisingly, our synthesis of existing
research suggests that the majority of innovation appropriation mechanisms in the informal economy are informal in nature, with lead time, sales
or service efforts, customer loyalty and after-sales efforts being the most
important. Studies emphasize that few informal sector actors are trying to
appropriate their innovation via semi-formal mechanisms, except for
secrecy. The current use of formal IP is low to non-existent, raising
important issues about the understanding and awareness that informal
actors have regarding the wide spectrum of mechanisms of knowledge
appropriation available to them.
a p p r o pr i at i o n an d i n t el l ect u al p roperty
263
As regards the effects of above conditions, on the one hand one might
see the absence of formal appropriation and work in clusters as strengths
of the informal economy’s innovation system. On this view, the innovation system in the informal economy largely rests on “collective learning
experiences” based on low entry barriers and free flows of knowledge.
Appropriation efforts must also be considered in light of the social
systems, with knowledge flows characterized by trust, reputation, reliability, social and cultural signaling, and the willingness to collaborate.
This facilitates access to information, and reduces transaction costs.
On the other hand, the presence of perpetual copying and absence of
appropriation mechanisms are a barrier to scaling up innovative activity
in the informal economy. Entrepreneurs are unable to grow their business beyond a certain scale, as they lack control over their innovations.
When trademarks, brands or certificates and labels are inaccessible, this
might lower the average quality of goods and services produced, although
other forms of reputation and trust mechanisms may well be in place.
The latter view needs to be put into its proper context. IP is rarely
either the sole driver of or obstacle to innovation, be it in the formal or
the informal sector. Indeed, the inability to expand an informal business
operation will be rooted in multiple constraints that small informal
enterprises face: lack of premises, finance, access to technology, isolation
from key organizations in the broader innovation system, and others.
As far as possible, in developing innovation and IP policies for the
informal sector one should carefully consider the systemic effect they
might have on the ecosystem of existing informal clusters. Which new
policy forms will positively influence the rate and return of innovation?
What consequences might more formal IP protection have in terms of
distribution? As noted by Essegbey et al. (2014, p. 46), “[i]t is not simply
about the gains accruing to the individual producing the innovation. It is
also about the gains accruing to the larger collective where others may be
able to have access to the knowledge embodied in the innovation.” Similarly,
in Chapter 4 Kraemer-Mbula (p. 181) cautions that in a scenario where
policymakers do more to promote formal IP rights in the informal sector,
“[t]he broader economic and social impacts of this strategy would need
deeper analysis, as it might leave behind the most marginalized microentrepreneurs that remained unable to access information.”
Current evidence from research is not clear enough to favor one view
over another. In principle, and in the absence of a counterfactual, it is also
difficult to speculate or rigorously determine the level and type of innovation that would have occurred in a different setting. Country studies
264
jeremy de beer a nd sac ha wuns ch-v incent
which are detailed enough to pick up the sectoral and cultural specificities
are the right research tool. It is particularly noteworthy, for instance, that
our studies highlight that formal IP becomes more important as the
interaction between the formal and the informal sector for joint collaborative innovation increases.
On the basis of these detailed studies, precise and context-specific
recommendations can be made on the use and worth of formal to less
formal appropriation mechanisms. Chapter 7 makes a foray in this respect.
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COMMENT 6.1
emmanuel sackey
African Regional Intellectual Property Organization (ARIPO)
The informal sector in Africa covers all small-scale businesses and productive activities of entrepreneurs who are often not registered as companies and generally use basic levels of technology to produce simple
consumer commodities. This sector is often referred to as the engine of
industrialization in Africa due to its sheer size: more than half the African
population have developed such businesses as a matter of survival or as
a source of community cohesion. Most actors in the informal economy
do not comply with standard business practices, taxation requirements
and business reporting requirements, but are otherwise not engaged in
overtly criminal activities. In some instances, small- and medium-scale
businesses in Africa are not distinct from those in the informal economy.
Interested parties have tried to find ways of improving the activities of
the sector, to enable actors in the informal economy to leverage their
innovations and enhance their business operations. However, as emphasized in Chapters 2–6 of this book, the informal sector is extremely
heterogeneous, and actors’ ability to develop new and innovative products, processes and services varies significantly depending on the size,
focus, resources and the business environment in which they operate.
Based on this starting point, the evidence presented in Chapter 6 and
in the country studies included in this book suggests that innovation is
occurring in the informal economy but that actors in the sector face
difficulties in appropriating returns for their innovations using the formal IP system. Indeed, the authors of this chapter emphasize that the vast
majority of entrepreneurs in the informal economy do not attach much
significance to IP and its uptake is low. In the face of low awareness and
use, prohibitive cost and cumbersome administration through national
IP offices in Africa, actors in the informal economy have no option but to
use less costly mechanisms such as secrecy and lead time, in most cases
coupled with marketing strategies and access to distribution channels to
promote and protect their businesses and innovations.
This finding is pertinent and corroborated by other relevant studies of
SMEs in Africa, some of which operate in the formal and some in the
informal sector.
For instance, Ojode (2011) found that 87 percent of informal entrepreneurs in Kenya did not attach much significance to IP and that
co mmen t 6. 1 e mman uel sac key
269
awareness of IP was low among them. Furthermore, only 17 percent of
the entrepreneurs in the informal economy have been able to somehow
leverage their IP assets to attain some competitive edge. A few honest
respondents (3 percent) admitted to violating other people’s IP in the
course of their business – hence the worry that effective IP enforcement
could actually threaten their business survival. This circumstance –
where existing businesses potentially violate others’ IP rights – requires
further quantification and research.
Tita (2009) studied the management of IP for SMEs in the six countries
representing the Central African Economic and Monetary Union
(CEMAC) who are members of the African Intellectual Property
Organization (OAPI).5 The study focused on the manufacturing, services, handicraft, traditional medicine and beverage and transport sectors
within the informal economy. About 36 percent of respondents were
familiar with the IP system but had not used it to protect their innovations while the rest did not consider the IP system to be an appropriation
mechanism. Respondents identified resource constraints and lack of
capacity as major drawbacks and said they were start-up entrepreneurs
and had used funds from their personal savings or obtained loans from
family members and friends to establish their businesses. They were
mainly interested in fast returns to repay their loans and therefore
considered the formal IP system as an additional cost with no immediate
return.
Research carried out in Rwanda showed that of the total of sixty-six
surveyed SMEs, fifty-six firms indicated that lack of IP awareness constituted the most serious barrier to the use of the IP system (Kwizera
2010). Out of 114 patents granted by the office of the Registrar General of
Rwanda, only two were filed by nationals. The study also highlighted the
fact that most SMEs believe that the formal IP system only benefits large,
wealthy companies and expressed the fear that even if they sought
protection of IP rights, this would not prevent large companies with
more resources from infringing their rights.
A few other studies highlight a positive trend: among informal economy actors, the share of young, educated people with knowledge of the IP
system is increasing, although IP use remains low.
5
These countries and their populations are Cameroon (19.5 million), Chad (11.2 million),
Congo (3.7 million), Equatorial Guinea (676,000), Central Africa Republic (4.4 million)
and Gabon (1.5 million).
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j e r emy de beer and sacha w u ns c h- vinc ent
In her study of the patent system in Tanzania, Mulonge (2010) found
that nearly 70 percent of SMEs in Tanzania are owned by entrepreneurs
who are forty years old at most and have been in business for less than
twenty years. Two-thirds of respondents had completed Polytechnic or
University. Awareness of the IP system was greater among this group
than among older, less educated respondents. Yet despite this progress,
only 8 percent of the actors in the informal economy have used patent
information in their innovation activities.
Another study conducted by Nweke (2011) shed light on the dynamics
of the informal economy in Nigeria. The research examined the integration of IP tools into the business strategies of SMEs in Abuja. Most
entrepreneurs in the informal economy were in one of two age brackets,
21–30 or 30–50, and a significant number had high educational attainment such as a university degree. Within this cohort, of the 56 percent
who were aware of the IP system but had not acquired IP rights, only
17 percent indicated that they became aware of IP from the national IP
office. Many respondents could not distinguish between business registration and trademarks, which were identified as the most familiar IP
tool.
Strictly speaking, the research design of the above studies does not
permit us to distinguish easily between IP awareness and IP use of
formal SMEs and that of small entities operating in the informal sector.
There may be significant differences between the two, and policy and
other approaches to overcome IP-related barriers might usefully differ
depending on whether they address small economic agents in the
formal sector or those operating in the informal sector. At the moment,
however, apart from the research presented in this book there are few
empirical studies of attitudes toward and uptake of IP in the informal
sector only.
Nonetheless, and reinforced by experience, these findings point to the
fact that small business units in Africa face difficulties in appropriating
returns for their innovations using the formal IP system.6
Change may be on the horizon on this point, though, in part thanks to
rising education levels. As has been observed in the studies conducted for
this book and in the aforementioned research, the growing number of
young, literate entrepreneurs in Africa today might allow a paradigm
6
See also Samad (2007), Decker, Schiefer and Bulander (2006) and Wafa, Noordin and
Kim-Man (2005).
co mment 6.1 e mmanuel sackey
271
shift in how innovation is appropriated in Africa in the future. Notably,
new entrants into the informal economy have more capacity to use the
formal IP system and to develop cutting-edge technologies. These same
actors are beginning to appreciate the value of IP to protect their innovations and grow their businesses.
In this respect, it will be essential for African governments to develop
policies and strategies to promote and protect innovations emanating
from the informal economy as a spur to economic development. It would
therefore be useful to know how the IP system can best be used to support
the innovations of the informal economy in Africa, possibly in combination with traditional appropriation mechanisms. Making progress on this
front will require policymakers to overcome a number of challenges
facing the informal sector in Africa in the appropriation of the formal
IP system, as follows.
Lack of IP appreciation and awareness. Among the reasons identified
for the low level of IP use are lack of awareness of the IP system, a lack of
identified IP experts capable of drafting specifications for patents and the
cost of IP protection. Owing to a lack of resources or expertise, actors in
the informal economy do not have the capacity to commercialize new
products; they do not know where to turn to for help or strategic advice
on how best to manage their IP. Cultural attitudes relating to African
social ideals, beliefs and inherited business practices are also a challenge
to be overcome before any meaningful appreciation of the IP system may
be expected within the sector. For a large number of entrepreneurs, peer
recognition seems to suffice; whenever they innovate and develop IP that
could provide a market advantage, that information is often freely shared
by the innovator to achieve “bragging rights.” Some actors who already
owned various forms of IP reported their inability to exploit or even
license out some of the IP as frustrating experiences. No infrastructure
exists for fostering positive networking between generators/owners of IP
and potential users.
Relevance, accessibility and supportiveness of IP offices. With
respect to IP professionals and consultants, the informal sector seems
convinced that the services offered are irrelevant, inaccessible and expensive. The entrepreneurs also seem to expect several government agencies
involved in policy formulation, training, R&D, marketing and standardization to play a more supportive role in enabling the sector’s market
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participation. An attitude exists among the actors that the government
owes them more than could be realistic in terms of infrastructure and
support services. This argument is difficult to reconcile with the reality
that the vast majority of these entrepreneurs do not actually pay any
taxes. Still, it is apparent that the IP services offered by IP offices to the
informal economy could be relevant but are hardly affordable or
supportive.
Cost of IP protection. Kwizera (2010) argues that the cost of IP
protection hampers the use of the system by SMEs or the informal sector.
These include the registration cost, renewal cost, cost for the enforcement
of IP rights and cost for the drafting of patent specifications. It was
observed that the perception of cost of IP protection differs among
SMEs: while it was appreciated by some as a necessary cost of business,
others felt that prohibitive cost might compel them to seek other appropriation mechanisms to protect their innovations. The cost of IP protection is also exacerbated by liquidity constraints when it comes to
enforcement of IP rights.
Lack of qualified personnel in patent drafting. Studies have shown
that there is a lack of qualified personnel in patent drafting and in filing
for other IP rights. In the study by Kwizera (2010), Rwandan SMEs
indicated that the patent system was complex for them and they did
not have any IP experts to draft their specifications. It was also highlighted that many businesses in the informal sector seek advice on
business issues from accountants who are not familiar with the formal
IP system.
Overlong pending period in the registration process. Some of the
above-mentioned studies identify inefficient administration of the
national IP office as another barrier to use of the IP system. This is
attributed to limited staff and manual processing of applications.
In 2014, ARIPO conducted technical missions to five of its Member
States and found that the staff strength of the IP offices was as follows:
Swaziland had eight staff members, Mozambique had forty, Liberia had
eleven, Sierra Leone had fifteen and Gambia had ten. This level of
capacity was found to be inadequate to address the needs of users of
the IP system and drive national IP policies including raising awareness
of the utility of the IP system.
comment 6.1 emmanuel sackey
273
A more proactive, understanding and effective IP office – as regards
the informal economy in particular – is required.
To expand on the discussion of the appropriation mechanisms used by
indigenous and local communities (ILCs), many ILC actors in Africa
operate in the informal economy, particularly in traditional medicine,
manufacturing, ecological management, handicrafts, textiles and the
creative industries. There is a general belief that ILCs’ close association
with the environment in the performance of their daily duties and
contact with cosmology over many centuries have given them a deep
understanding of the inter-relationships among different elements of
their habitats and economic activities. The knowledge gained by ILCs
acquired several functions including communication, codes of conduct,
arrangement of life events, and forms of utility and contingencies for
survival and community cohesion, factors that underpin the operations
of actors in the informal economy (Sackey and Kasilo 2010). Traditional
knowledge (TK) is therefore seen as the bedrock on which the African
informal economy has been built to ensure economic sustainability, selfreliance and cost-effectiveness of the actors. The survival of the informal
economy in Africa is testament to the resilience and growth of African
traditional knowledge (Sackey and Mutasa 2014).
With the vast knowledge existing within these African communities,
different appropriation mechanisms for indigenous knowledge systems
have been developed depending on the type of knowledge in question.
Most of the TK is collectively owned rather than being confined to
individual ownership. Importantly, holders of indigenous knowledge
make use of both informal traditional appropriation mechanisms and
the formal IP system.
Correa (2001) alludes to various forms of ownership. TK can be
produced by individuals without any interface with the community or
outsiders. This could be regarded as individual knowledge. He points out
that this is especially the case when a healer uses rituals as part of their
healing methods, thus claiming monopoly of the knowledge. In this
instance, secrecy is used as the appropriation mechanism for the protection of the knowledge. In some instances, possession by individuals does
not imply that the knowledge is perceived by communities as belonging
to them. Those individuals with such special knowledge do not own it as
such, but may be bound by obligations to share the knowledge within the
community. Such individuals act as stewards within their communities.
Though the knowledge can be confined to one or a few individuals, it is
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j e r emy de beer an d sach a wu nsc h- vinc ent
usually transferred as a gift to the next generation in the form of election
of suitable individuals.
Although there is a tendency to argue that communities and peoples
are characterized by a strong sharing ethos with respect to biological
resources and biodiversity knowledge, this does not mean that everything
is shared with everybody (Dutfield 2000). Sometimes, TK is possessed or
owned by some but not all the members of the community. In Correa’s
analysis, he identifies commons where certain knowledge may be available to all members of a group, and may be regarded as common knowledge, as is usually evidenced in home remedies (Correa 2001).
The “traditional knowledge commons” established by the Kukula near
Bushbuckridge, South Africa, is another excellent example of the practical tensions surrounding the selective appropriation of TK (Cocchiaro
et al. 2014).
Customary laws and protocols have also been used by communities as
an appropriation mechanism, and these define the framework for the
sustainable utilization and management of indigenous knowledge.
Through customary laws, communities can maintain control over and
exchange their knowledge and associated genetic resources.
Indigenous communities in Africa have also been using formal
appropriation mechanisms, protecting their knowledge using the conventional IP system. Trademarks, certification marks, patents, industrial design, geographical indications (GIs), plant variety protection and
copyright have all been used to protect the TK of indigenous communities. In view of the fact that most of the knowledge is in oral form, the
use of documentation has been considered as a complementary measure under the formal IP system. For traditional cultural expressions,
the most relevant forms of protection are industrial design and
copyright.
Although indigenous people have been using the conventional IP
system to protect their knowledge, it has many shortcomings. Under
formal IP systems, the notion of ownership is based on private rights, yet
most TK is collectively owned. Duration of protection is an even greater
concern since TK is passed on from generation to generation. Eligibility
issues have also been problematic since TK sometimes fails to meet
specific criteria to qualify for protection. Furthermore, a lot of the TK
within the communities is regarded as public domain knowledge –
although this assertion is very much contested. Monetary gains have
been the major incentive for using the formal system, but in the case of
TK, some components such as the spiritual aspects may not be
comment 6.1 emmanuel sackey
275
commoditized. Additionally, the traditional system is more holistic and
so cannot be segregated into disciplines to merit effective protection
under the conventional IP system.
Studies have shown that the development of a sui generis system that
fully embraces the holistic nature of TK while at the same time addressing
all the right holders’ needs would be the most effective means of protecting that knowledge. This would enable actors in the informal economy
and those that use their knowledge, products and services as frameworks
for innovation and creativity to acknowledge and share benefits with the
knowledge holders.
Scenarios for the Future
As the authors of this chapter note, most actors in the informal economy
do not use the formal IP system to protect their innovation. The question
whether this absence of formal appropriation harms the scalability,
diffusion and impact of innovation in the informal economy needs
further investigation. ARIPO has been conducting roving seminars in
the Member States of the Organization; in 2014, seminars were carried
out in Swaziland, Mozambique, Liberia, Sierra Leone and The Gambia.
Each five-day seminar focused on how SMEs could make use of the
formal IP system to enhance business competitiveness and protect their
innovations. It was found out from the seminars that given the steady
growth of youth populations, and the types of innovation that are seen in
the informal economy, strategies should be developed by governments
and national IP offices to create awareness about the usefulness of the IP
system as a catalyst to promote wealth creation and nation building. This
view has also been reported in several research studies. But it remains to
be seen what modus operandi will trigger such realization and
exploitation.
In the same vein, IP policies and strategies now being developed by
several countries in Africa aim to provide crystal-clear pathways by
which conventional IP tools can be systematically utilized for economic
development as well as guidelines on those countries’ growth, diversification, competitiveness of the production and distribution system, technology generation and acquisition, innovation and capacity building.
Efforts have been made to include policies and strategies that focus
specifically on the informal economy, to help informal sector actors
leverage IP to enhance their business competitiveness – see the Ghana
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j e r emy de beer an d sacha w u ns c h- vinc ent
IP policy formulated in 2014, the Zambia IP policy formulated in 2010
and the draft Zimbabwe IP policy started in 2014.
With respect to awareness creation, a recent campaign by the
Mozambique IP office merits further attention. Within a couple of
years the proportion of applications filed by informal economy actors
increased from 5 percent to over 50 percent. This supports the view that
efforts to create awareness of the benefits of the formal IP system may
cause a significant shift from traditional appropriation mechanisms
toward the formal IP system. ARIPO has also observed a three-fold
increase in the level of utility model applications after emphasizing the
importance of utility models during awareness-raising efforts. In the case
of Ghana, it has been reported that more than 10,000 industrial designs
have been registered in Ghana since 1994, and this has also been attributed to the government’s emphasis on the importance of the textile
industry to the economy of Ghana. These positive results need to be
validated.
Further research is needed, particularly in Africa, to facilitate crosscountry comparisons, address the empirical gap and allow for more
robust analysis of mechanisms to appropriate returns from innovative
endeavors within the informal economy. This goal is to enable policymakers, entrepreneurs and start-up businesses to make better use of the
formal IP system to enhance business competitiveness and growth for the
social, cultural, economic and technological development of Africa.
References
Cocchiaro, G., Lorenzen, J., Maister, B. and Rutert, B. 2014. “Consideration of
a legal ‘trust’ model for the Kukula healers’ TK commons in South Africa,”
in De Beer et al. (eds.) Innovation and Intellectual Property: Collaborative
Dynamics in Africa. Cape Town: UCT Press, pp. 151–71.
Correa, C. 2001. Traditional Knowledge and Intellectual Property: Issues and
Options Surrounding the Protection of Traditional Knowledge. Geneva,
Quaker United Nations Office.
Decker, M., Schiefer, G. and Bulander, R. 2006. “Specific challenges for small
and medium-sized enterprises (SMEs) in m-business; a SME-suitable
framework for mobile services,” in Proceedings of the International
Conference on E-Business (ICE-B 2006). Setubal, Portugal, INSTICC
Press, pp. 169–74.
Dutfield, G. 2000. “The public and private domains: intellectual property rights
in traditional knowledge,” Science Communication 21(3): 274–95.
c o mmen t 6. 1 e mman uel sac key
277
Kwizera, S. 2010. “Factors Affecting the Use of Intellectual Property System by
Small and Medium Enterprises (SMEs) in Rwanda.” Unpublished masters
dissertation, Mutare, Zimbabwe, Africa University.
Mulonge, M.N. 2010. “Patent Information as Catalyst for Growth and
Development of SMEs: A Case Study in Tanzania.” Unpublished masters
dissertation, Mutare, Zimbabwe, Africa University.
Nweke, O.B.C 2011. “Integrating Intellectual Property Tools into Business
Strategies of Small and Medium-Scale Enterprises in Abuja, Nigeria.”
Unpublished masters dissertation, Mutare, Zimbabwe, Africa University.
Ojode, C.O. 2011. “An Assessment of Intellectual Property Effectiveness in
Enhancing Small and Medium-Sized Entrepreneurs’ (SMEs)
Competitiveness.” Unpublished masters dissertation, Mutare, Zimbabwe,
Africa University.
Sackey, E.K.A. and Kasilo, O. 2010. “Intellectual property approaches to the
protection of traditional knowledge in the African region,” African Health
Monitor 13: 89–102.
Sackey, E.K.A. and Mutasa, G. 2014. The Protection of Traditional Knowledge
and Expressions of Folklore: the African Perspective. Unpublished book
manuscript.
Samad N.A. 2007. “Positioning Malaysian SMEs in the global market,”
Proceedings of Persidangen Kabangsaan IKS 2007. Kofa Kinabalu,
University of Malaysia.
Tita, A.N. 2009. “Management of Intellectual Property for SMEs Development:
Case Study of the Central African Economic and Monetary Union
(CEMAC).” Unpublished masters dissertation, Mutare, Zimbabwe,
Africa University.
Wafa, S.A., Noordin, R. and Kim-Man, M. 2005. “Strategy and Performance of
Small and Medium Enterprises in Malaysia,” Proceedings of the
International Conference in Economic and Finance (ICEF), Labuan,
University of Malaysia.
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COMMENT 6.2
dick kawooya
University of South Carolina
This chapter breaks new philosophical and conceptual grounds in the
informal economy literature and discourse. Specifically, it helps clarify
our understanding of the motivation for innovation in the informal
economy, if IP and other appropriation mechanisms can be considered
tools for facilitating or motivating innovators in the sector.
The authors identify two key questions for assessing the impact of
various appropriation methods:
(1) To what extent do they foster innovation and the diffusion of
knowledge?
(2) To what extent does the absence of formal or informal appropriation
harm the scalability, diffusion and impact of innovation?
The chapter offers no definitive answer to either question, largely because
the informal economy and the actors therein are not homogenous.
Answers will vary depending on the size and scope of operation of the
informal economy actor in question. Likewise, the sector an actor operates in will significantly impact on whether and how that actor would
view IP. Finally, and probably most importantly, the relationship of
actors in the informal economy with their peers in the formal sector
will also affect their perception of IP. My comment here focuses on the
value of such relationships in diffusing, utilizing and protecting mutually
beneficial appropriation tools and mechanisms which, if applied properly, can help informal enterprises scale up.
As discussed in the chapter, the tools and mechanisms for IP creation,
protection and appropriation vary, ranging from “proprietary legal
rights” to “design, production, or service delivery features that provide
competitive advantage.” The authors of the chapter conclude:
“Intellectual property protection can take many other forms, some of
which are structured as legally enforceable property rights and others of
which provide effective de facto protection. That such protections are not
legally formalized, however, does not mean they are not important.”
While enterprises operating in the informal economy continue to be
resilient, the chapter provides strong evidence that the kind of IP tools
used by most informal enterprises are also those least likely to sustain the
enterprise or facilitate its scaling-up. On the other hand, the authors note
co mment 6. 2 di ck kaw oo ya
279
that some kind of vertical integration is key to informal enterprises
utilizing both formal and informal appropriation tools to scale up their
activities. The resilience of the informal economy as a whole is highlighted, but the lack of sustainable and scalable informal enterprises leads
one to ask how informal enterprises might be vertically integrated or
linked with the formal sector as a means of ensuring sustainability.
Of course, such integration ought to happen without necessarily losing
the open and collaborative virtues that define these enterprises.
Key to the notion of vertical integration between the formal and
informal economies is the notion of intermediation, where an agency,
individual or any kind of entity plays an intermediary role between the
formal and informal sectors (Howells 2006). A power imbalance in
vertical integration was recognized in my study in Uganda (Kawooya
2014), but partly alleviated by an intermediary acting as arbiter or
“interpreter” of the relationship between formal and informal economy
actors. This is just one of several reasons why intermediaries are important in interactions between formal and informal operators.
Intermediation has been substantially studied and well understood in
certain fields, probably in agriculture more than others. Intermediaries
are usually illustrated through the agricultural extension services (AESs),
which involve an agricultural extension officer (AEO) with formal specialized knowledge and training advising small or informal farmers and
agriculturalists on the best or most recent trends or innovation in their
areas of farming. The AEO’s role is to promote modern, improved, tested
or innovative farming practices, often introducing the most recent
research emanating from formal agricultural research institutions
(Klerkx and Leeuwis 2009; Klerkx and Gildemacher 2012). Utilization
and diffusion of new farming techniques are enhanced by the intermediaries – without them there would probably be little or no diffusion of
new innovative techniques. The AEO can also facilitate horizontal integration by transferring best practices or innovative farming practices
among small-scale or informal farmers in his or her catchment area
who are not necessarily in direct communication.
Vertical integration can happen with or without an intermediary.
From the chapter case studies, it is evident that the latter is less likely
because more often than not, informal enterprises or actors operate in
different environments from their formal counterparts. Likewise, the
language used by enterprises in each sector, be it technical or otherwise,
will differ significantly, necessitating an intermediary who understands
or operates in both worlds. Areas of overlap, where they exist, are likely to
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be mediated by an entity whose character and expertise allows forward
and backward communication and interaction between formal and
informal enterprises. The intermediary can be a distinct entity like the
“Gatsby Garage” cited in Kawooya (2014). The Gatsby Garage’s tentacles
spread between formal and informal enterprises or sectors. It was run
by Makerere University’s College of Engineering, Design, Art and
Technology (CEDAT) in the Ugandan capital city, Kampala, and served
as an intermediary between CEDAT and informal artisans whose services
and skills CEDAT needed in the fabrication of Kiira EV, a prototype
electric car designed and developed in Uganda by engineering students
and faculty at CEDAT’s Centre for Research in Transportation
Technologies (CRTT).
An alternative to intermediaries like Gatsby Garage can be the “clusters” of informal enterprises or sectors that facilitate the “cluster-wide
appropriation mechanisms” identified in the chapter. While firmly situated in the informal economy, a cluster can function as an intermediary
role, but only if it is well developed structurally and represents a relatively
homogenous sub-sector.
Such is the importance of intermediaries that the authors of Chapter 6
argue that it is “plausible to assume that the current use and enforcement
of formal registered IP forms, be it patents, trademarks, industrial designs
or others, is rare to non-existent among informal sector innovators who
do not have the aid of intermediary organizations” (p. 240). The potential
role that intermediaries play in the productive and innovative activities of
informal enterprises, makes it an interesting topic to include in case
studies. The lack of detailed treatment of this issue is not necessarily an
omission on the part of chapter authors; rather, it is due to lack of
empirical research and literature on the subject in areas of the informal
economy other than agriculture. More scholarship and literature on
intermediation in other sub-sectors of the informal economies will go
a long way to enable scholars and policymakers to understand how those
sectors can be vertically linked to take advantage of more robust and wellestablished appropriation tools that provide better protection for their
innovation.
When thinking about intermediation between formal and informal
intermediaries, several key questions come to mind:
(1) What characterizes an entity as a formal–informal economy intermediary, or what features or competences make an entity ideal for
such an intermediary role?
comment 6.2 dick kawooya
281
(2) Can the study of and experiences of intermediaries like the Gatsby
Garage be instructive in how intermediation can be achieved in other
areas of the informal economy, especially the kind of intermediation
that fosters the utilization and protection of appropriation tools? Are
intermediaries like the Gatsby Garage rare in the automotive and
other sectors? Does the intermediary role of the Gatsby Garage actually facilitate the acquisition, utilization and protection of various
appropriation tools developed as part of that vertical relationship?
(3) What is the role of information and communication technologies
(ICTs), if any, in the intermediation functions of intermediary entities?
A study of cross-sector intermediaries could examine the feasibility and
possible roles of different intermediaries as information- or knowledgebrokers bringing formal sector innovation to the informal sector.
Specifically, studies could examine the feasibility of different professionals such as librarians, information resource personnel, lawyers, engineers and others acting as intermediaries to facilitate the discovery,
interpretation and analysis of formal sector innovations, leading to
vertical transfer, exchange or integration of innovation between the
formal and informal sectors, and the role of ICTs in those processes.
How can the professionals use ICTs to deepen the vertical integration,
exchange or transfer of innovation between the formal and informal
sectors using openly available and accessible digital information and
innovations? And what policy interventions might be needed to facilitate
or deepen ICT-enabled intermediation functions of different
professionals?
By examining appropriation mechanisms in both the formal and
informal sectors, this chapter offers a solid basis for further examining issues of vertical integration between the two sectors. It provides
a good starting point for understanding how intermediation can be
the basis for fostering vertical integration and which appropriation
tools will be most useful in facilitating the scaling-up of informal
enterprises.
References
Howells, J. 2006. “Intermediation and the role of intermediaries in
innovation,” Research Policy 35: 715–28.
Kawooya, R. 2014. “Informal–formal sector interactions in automotive engineering, Kampala,” in de Beer, J., Armstrong, C., Oguamanam, C. and
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Schonwetter, T. (eds.) Innovation and Intellectual Property: Collaborative
Dynamics in Africa. Cape Town, UCT Press, pp. 59–76.
Klerkx, L. and Gildemacher, P. 2012. “The role of innovation brokers in
agricultural innovation systems,” in World Bank Agricultural Innovation
Systems: An Investment Sourcebook. Washington DC, World Bank, pp.
211–30.
Klerkx, L. and Leeuwis, C. 2009. “The emergence and embedding of innovation brokers at different innovation system levels: insights from the Dutch
agricultural sector,” Technological Forecasting and Social Change 76(6):
849–60.
comment 6.3 shamnad basheer
283
COMMENT 6.3
shamnad basheer
Nirma University and SpicyIP, India
Mainstream innovation and IP debates have, for the most part, ignored
what is commonly referred to as the “informal” economy. This book aims
to redress this deficit. Chapter 6 discusses innovation incentives and
knowledge appropriation/diffusion mechanisms for the informal economy. This short piece is intended as a comment on that chapter, and
draws significantly from the key findings in Chapters 3–5 dealing with
specific sector studies in Africa.
The sheer diversity of the informal sector makes for a wide range of
innovations. Illustratively, consider the following from India:
(1) Agricultural innovations. Gobind Deb Nath’s multi-purpose rickshaw, where special wheels, attached to the rear axle of the rickshaw
are multifunctional in that they serve as paddy huskers, grass cutters,
and bamboo mat cutters (NIF 2007, p. 21).
(2) Medicinal innovations. There are plenty of examples on this count,
with innovation being carried on by traditional/alternative healers
working as individuals or as collectives, including family members
and indigenous communities.7 Illustratively, Gunaram Khanikar,
a traditional healer of some repute, came up with a drug to cure oral
cancer.8
(3) Mechanical and other innovations. Remya Jose, a twenty-year-old
student from Kerala, created an exercycle-cum-washing-machine,
which is essentially a cycle which when pedaled helps propel a wheelshaped washing machine (Halarnkar 2009).
It is well-nigh impossible to traverse the entirety of innovative activity
within the informal sector.9 Further, given that almost every country
7
8
9
See, for instance, the medicinal knowledge documented by the Indian Foundation for
Revitalisation of Local Health Tradition, http://www.frlht.org/.
He was congratulated by the Indian government for his innovative contributions to
healthcare. Given his experience of sharing knowledge with third parties who went on
to patent them without acknowledging him, he is now averse to sharing information on the
herbal composition that he uses for his various cures. For more details, see http://nif.org.in
/innovation/herbal_medicine_for_heart_palpitation-herbal__medicine__for__malaria/163.
The NIF documents such innovations in the Indian context. See www.nif.org.in and Gupta
(1997).
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(even the most developed ones) is prone to “informal” spaces, one might
be hard-pressed to do a comprehensive cross-country audit. This sentiment may have prompted the editors of this book to limit their initial
investigation to Africa, a continent known for its sizeable informal
economy. In order to capture the sheer diversity of informal innovations,
the sectoral focus ranges from chemicals to traditional medicine to metal
manufacturing.
My comment here cautions against the tendency to superimpose
mainstream models of innovation incentives such as IP rights on the
informal economy.
If one thinks of formal innovation as a series of waves in a tumultuous
sea, the “informal” sector may well be more like an “undercurrent” –
often not seen, and flowing in a direction counter to the mainstream.
Subsuming such an undercurrent within the mainstream innovation
framework might do more harm than good for the informal economy
and its innovative/creative potential.
Further, the informal sector could well present an opportunity to
engage in a creative exploration of newer models of incentivizing innovation. This sector has not yet been fossilized within a mainstream IP
incentive framework, where the status quo is often more important than
change. Indeed, it is deeply paradoxical that while IP regimes are meant
to foster innovation, they themselves have largely been shielded from
innovative experimentation (Basheer 2015).
Informal Innovations and Incentives
Unless one studies the nature of innovative activity in the informal sector,
one cannot have a true sense of the role and nature of incentives and
appropriation mechanisms.
The African country studies in this book suggest that for the large part,
most such innovations are “incremental” (see Chapter 2 and the country
studies). They emanate from low-cost models and are driven more by
a desire to survive and eke out an existence than any real impetus to
invent, scale up and grow. One would therefore imagine a more reduced
scope for incentives and appropriation mechanisms for such inventions
(at least of the pecuniary type engendered by most mainstream IP
regimes) than in the formal economy.
It is therefore not surprising to learn from the African studies that the
informal economies surveyed did not avail of formal IP protection in any
significant manner.
comment 6.3 shamnad basheer
285
A large number of interviewees who constituted the informal economy
in South Africa (52 percent) opined that IP was not intrinsically suited to
informal activities or inventions (Chapter 4). The Ghanaian study by
Essegbey et al. bears out the same sentiment, noting that the nature of
informal inventions in the Ghanaian herbal sector often did not match up
to the high patent threshold (Chapter 5). It therefore suggests a sui generis
regime of protection.
Similarly, the Kenyan study in Chapter 3 also suggests the relative
unimportance of formal IP appropriation mechanisms to many in the
informal sector. However, it also points to exceptions in the form of
individual micro-entrepreneurs whose businesses are built on the
strength of new products and ideas and who endorse a stronger IP regime
as the way forward. In this regard, it bears noting that the study documents three different kinds of innovative activity within the metal manufacturing segment, namely:
(1) adapting existing products, most often seen in clusters producing
commodity goods;
(2) developing metal representations of iconic Kenyan images such as
giraffes, elephants and Maasai tribesmen; and
(3) isolated workers developing new and novel products.
In keeping with these three broad heads of innovative activities/clusters,
it notes the differing nature of appropriation mechanisms and their
importance:
(1) Those working in clusters producing commodity goods for lowincome consumers rely more on “trust,” their exclusive relationship
with customers and sometimes even a “first to market” strategy.
Their main competitive advantage comes from the fact that they
can produce goods at prices cheaper than any imports. Therefore, for
this group, import tariffs are more important than IP protection.
However, the study also notes that this is not a static position and
that, in the event of producers cultivating a middle/upper-income
market for their products, the putative value of IP protection (mainly
brand and design protection) would increase.
(2) Those working in clusters making products for middle- and upperincome markets often resort to “trade secrecy” by keeping the
production process hidden from outsiders and distributing the
manufacture of components across several suppliers, so that only
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the owner has access to all the components necessary to assemble
a product.
(3) Those working in an isolated ecosystem, as opposed to clusters,
demonstrate the most interest in protecting their IP, and pursue
formal registration of their trademarks and utility patents.
While the African studies are right to suggest the relative lack of importance of well-known IP regimes such as patents, copyright, trademarks,
designs and trade secrets in the informal innovation ecosystem, they pay
less attention to the potential role of less well-known or well-used IP
regimes that are likely to be of some relevance to the informal sector.
These include GIs, plant variety protection, utility model protection,
traditional knowledge protection and biodiversity protection.
This may have had to do with the fact that some of the studies,
particularly the Kenyan studies on metal manufacturing, may not have
permitted an exploration of regimes such as plant varieties and biodiversity protection that are largely predicated on the appropriation of bioresources.
The Ghanaian study advocates a sui generis regime to protect the
traditional knowledge of informal medical practitioners, but does not
elaborate further. Traditional knowledge is not an easy fit within the
larger IP paradigm, and there is no international consensus on how best
to protect it (Weeraworawit 2003).10
Unlike most IP regimes that are modeled around the idea of the
individual inventor or creator (Lemley 2012), traditional knowledge is
usually built around a community-based/collective knowledge system
(WIPO 2001; Nijar 2013). Furthermore, while IP regimes insist on
novelty for the most part, traditional knowledge (unless retained as
a community secret) may already be known.
What makes the issue of traditional knowledge even more challenging is
the fact that there are several kinds of such “knowledge.” Broadly speaking,
one might have knowledge that, though traceable to a certain country of
origin, is now widely “open” and accessible to the public across borders.
The use of turmeric for wound healing is a good example of this.
Alternatively, it could be “closed” in the sense of being known only to
10
An intergovernmental committee was set up in the year 2000 under the auspices of WIPO
for member states to evolve an international regime for the protection of traditional
knowledge. A few countries such as Thailand, Brazil, China and the Philippines have
instituted national legal regimes to protect traditional knowledge. However, there is no
detailed assessment yet on how those regimes have worked and the extent to which they
suit the requirements of the informal sector.
c o mmen t 6. 3 sh amn ad basheer
287
certain select communities or families. It could also be knowledge linked to
a genetic resource found within the territorial bounds of a certain country,
knowledge known across several countries, or knowledge known only to
members of a certain community. A nuanced appropriation/diffusion
policy approach will need to account for these differences.
A related concern is biopiracy and the pressing need to prevent the
misappropriation of bio-resources and associated traditional knowledge
through mainstream IP regimes (such as patents); a narrative that is
particularly strong in countries comprising indigenous populations and
traditional medicinal knowledge.
Two high-profile cases from India are illustrative in this regard.
The first relates to Neem, a plant traditionally known for its antibacterial
properties and used as a fungicide. A multinational corporation’s attempt
to patent this known use (a “method for controlling fungi on plants by
the aid of a hydrophobic extracted neem oil”) in the United States and the
European Union11 was successfully challenged by a group of Indian
activists.
The second case relates to turmeric, a herb traditionally known to heal
wounds. In 1995, two Indian nationals at the University of Mississippi
Medical Center were granted US Patent No. 5,401,504 for the “use of
turmeric in wound healing.” This patent was successfully challenged by
the Indian Council of Scientific and Industrial Research (CSIR).
Concerned about the exorbitant costs associated with each of the legal
challenges above, the Indian government devised a smarter way of preventing the misappropriation of ancient Indian knowledge.
The government initiated a Traditional Knowledge Digital Library
(TKDL) to document all Indian traditional knowledge, as available in
the various traditional texts (TKDL undated; Gupta 2000; Reddy 2012).
It then made this TKDL database available to eight national patent offices
(including the Indian Patent Office) under access agreements that
enabled patent officials to quickly determine if a claimed invention in
a patent application was merely appropriating something already
known.12 While the database has managed to successfully thwart the
issuance of some patents over known traditional knowledge,13 the
11
12
13
US Patent No. 5,124,349 (filed June 26, 1989); European Patent No. 0436257
(filed December 20, 1990).
These include the US Patent Office, European Patent Office, Canadian Patent Office,
United Kingdom Patent Office, German Patent Office, Australian Intellectual Property
Rights Office and the Japanese Patent Office.
See, for example, CISR (2015).
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j e r e my de beer an d sach a wu nsc h- vinc ent
government has not yet devised a proactive strategy to leverage this
database for wider use by scientists, researchers and others interested in
the valuable medical information that it contains, nor has it taken any
steps to expand it to include “oral” traditional knowledge and other
community knowledge not found in published texts.
In terms of legal norms to protect against the misappropriation of
biodiversity and associated knowledge, India enacted the Biodiversity
Act. Much in line with the Convention on Biological Diversity,14 this
legislation provides for access and benefit-sharing to biological resources
occurring in India.15 While the regulation of biodiversity through legal
regimes such as the present one is not directly related to the generation
of incentives for facilitating knowledge flows, it does so indirectly by
preventing unauthorized appropriation of resources and encouraging
benefit-sharing with communities and countries that possess such
resources/knowledge. It would be useful to explore the role of these
legal regimes in serving as appropriate innovation incentives for informal
communities and others that have preserved this knowledge.
The role of other less well-used IP regimes such as GIs and plant
variety protection also ought to be explored. Illustratively, it is not yet
clear if the mere registration of a variety of GIs in India has enabled
informal communities that use these indications to command a premium
price for their wares, or helped them in any other significant manner
(TERI University 2013).16
Even more well-known IP regimes such as patents and copyright may
require recalibration in terms of their suitability or otherwise for the
exigencies of the informal sector. Illustratively, the Kenyan study and the
Ghanaian study note the prime importance of trade secrecy as a tool to
appropriate informal innovations.
However, none of these studies explores the specific form of tradesecrecy protection available and whether it is optimal for the informal
sector. While some countries protect trade secrecy through common law
precepts, others do so through statute.17 Given the importance of trade
14
15
16
17
The Convention on Biological Diversity (CBD) is an international treaty that came into
force in 1993. See www.cbd.int/intro.
See the Biological Diversity Act 2002 (India).
TERI University’s survey of users of four registered GIs in India found that the benefits of
registration had accrued mostly to manufacturers and big traders in the sector (48 percent), with only 9 percent believing that benefits have gone to the artisans, weavers and
farmers producing the relevant products.
See, for example, Trade Secrets Act B.E. 2545 (2002) (Thailand); Act on the Protection of
Trade Secrets (1990, p. 409) (Sweden); the Trade Secrets Protection Act 2009 (Uganda).
co mment 6.3 shamnad basheer
289
secrecy norms for the informal sector, this will require a more detailed
investigation in years to come. Bearing in mind the importance of noneconomic incentives in driving innovation in this sector (such as the role of
the “divine call” documented in the Ghana study),18 one might require the
fashioning of trade secrecy regimes that also account for the social and
anthropological dimensions of knowledge generation and appropriation
(Cohen and Sauermann 2007).
Open Knowledge Flows in the Informal Sector
Most studies rightly highlight the potential conflict between mainstream
IP regimes and the notion of “openness” and collaborative sharing that
often permeates the informal sector. The South African study in
Chapter 4 states that 88 percent of those surveyed believed in the open
sharing of knowledge. A quote captures this sentiment:
An old lady in the neighborhood knew how to make candles, and she
taught me the basics, so with her I learnt how to mix wax and fragrances.
[Then I learnt more from different places and different people] . . . and
now I am making perfumes, lotions and hair masks. The knowledge
I have, I have received it from elsewhere. I don’t mind sharing it.
[Informal manufacturer of skin and hair care products, 23 years old]
The study also suggests that the sharing ethos is premised on the sentiment that there is no real “ownership” over ideas/products. This could
have significant implications for IP debates, but the point requires careful
consideration: is this owing to the fact that the concept of “ownership” of
an idea is alien to such communities (Sapp 2006)? Or is it merely that the
products themselves were not “new” in the patent sense of the term, but
were based on existing ideas/products? A quote from the South African
study is telling in this regard:
The knowledge on how to make these products is widely available; we
have not invented anything, but rather put together bits of knowledge
publicly available. We are all about free revealing . . . what makes the
difference to the business is not keeping things secret, but building trust
around your brand and to do that you need to invest a lot of time and
effort building a close relationship with your customers.
[Tshamupo co-owner, manufacturer of natural beauty products]
18
See footnote 22 below.
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j er e m y d e b e e r a n d sa c ha wun s c h -v i nc e n t
The Kenyan study notes that associations that regulate informal sectors
actively encourage openness and sharing: “The Kamukunji Association
actively encourages information sharing by holding meetings and intervenes when an inventor tries to work in secrecy. If someone gets a head
start, the association estimates he or she has about two months before
competition is widespread.”
It goes on to caution against the imposition of a mainstream IP regime,
noting that it “is critical to recognize that the values prized by those
working in clusters – relationships based on trust and the sharing of
resources – are vital to the functioning of the larger society. These values
are sometimes seen as being at odds with protecting an individual’s IP.”
At the same time, the study notes that in the sub-sector catering to richer
consumers (artworks, etc.), trade secrecy is common.
A closer study of such openness and sharing among informal communities may offer valuable lessons for the formal economy, given that
openness and collaboration were an intrinsic part of the innovation
ecosystem of informal communities several centuries prior to their
becoming the buzzwords they are today (Bavikatte et al. 2009; Abrola
and Gupta 2014).
Formalizing Informality?
Central to the debates around incentives and the informal economy is
a dilemma best articulated by Essegbey et al. (2014, p. 5): “On the one
hand, informality is desirable whereas on the other hand, informality
appears to be a disadvantage. The challenge is how to shape policies and
programs to exploit informality and ensure the advancement of traditional medicine.” In other words, how do we draw on informality without
assuming that a full-fledged conversion to “formality” will leave us
better off?
Given that a “formalization” process almost always entails a drive
toward increasing production and scale, it will likely impact the informal
sector in a significant way. For example, formalization would probably
spur traditional healers to reformulate their herbal compositions as
“pills” with longer shelf lives and evolve treatment regimens that are
quicker in redressing “symptoms” as opposed to a longer and more
sustainable “holistic” approach. There are serious dangers in this “reductionist” approach that attempts to simulate the commercial success of the
allopathic drug industry (Fan 2003).
c o mmen t 6. 3 s h amn ad basheer
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The formalizing trend also assumes that the same kind of incentives
that work in the formal sector will necessarily work in the informal sector
as well. And yet studies reveal that non-pecuniary incentives often play
a significant part in the innovative/creative process in informal communities (Bhaduri and Kumar 2011; Sheikh 2014). The Ghanaian study
refers in passing to a “divine” call that propelled some of the traditional
medicinal healers.19 The Moses case study in the Chapter 3 on Kenya and
in Bull et al. (2014) highlights the role of an “inventive” attitude in
spurring innovations. The study notes in general that innovations are
driven by market demand, competition and an inventive attitude.
One might also consider some examples from India. Chintakindi
Mallesham, a school dropout from a village in India, invented
a weaving machine after seeing his mother break her back weaving the
famous Pochampalli sari manually for hours on end. Mallesham demonstrated that innovation is not always driven by the lure of money, but can
be prompted by more sublime considerations such as love and compassion (Anand 2011).
Or take Vellan Vaidyan, a tribal healer from Wayanad reputed to have
cured a number of complex modern ailments.20 Insisting that he is
simply a conduit for higher forces, he does not charge any fees, but leaves
a box outside his rustic clinic for donations. A crude form of crowdsourcing one might say, and one that predates many of the current initiatives
in vogue today. Similarly, there are several other examples of collaborative and open-access innovation that predate the more recent examples in
the formal sector. These could offer us important insights if only we are
open to the idea that we have as much to learn from the informal sector as
informal sector actors have from us.
The above examples illustrate the considerable role of non-pecuniary
incentives in driving informal innovation. One hopes that future
research on the informal economy will shed additional light on noneconomic considerations, including the intrinsic human desire to “create” something new or be adventurous. A number of scholars point to
the existence of such non-pecuniary incentives in the formal sector as
well (Cohen and Sauermann 2007), casting doubt on the notion that IP
rights necessarily enhance the rate and range of innovation across all
19
20
“[O]thers too claimed they had a divine call (10 percent) from God for the healing of
certain diseases, and for some they practice as a hobby.”
Personal interview with Vellan Vaidyan, July 10, 2014.
292
j e r emy de beer an d sacha w u ns c h- vinc ent
technology sectors (Merrill, Levin and Myers 2004; Hall 2007; Torrance
and Tomlinson 2009).
Given this skepticism about the relevance of IP for all sectors of the
formal economy, it would be unwise to transpose this mainstream model,
based largely on pecuniary incentives, to the informal sector.
Furthermore, the current patent system expresses a preference for
certain kinds of inventive thought or creativity, as opposed to others.
Thus, for example, notwithstanding the high level of inventive thought
that may accompany a discovery of a unique phenomenon of nature
(such as a plant with rare medicinal properties), most legal regimes
prohibit patents over “products or phenomena of nature.”21 And yet in
the context of the informal economy, a number of traditional medicinal
systems may comprise such natural discoveries (Fabricant and
Farnsworth 2001; Iaccarino 2003). The patent system discriminates
against such findings, holding that they are but products or phenomena
of nature, but the discovery of these natural phenomena may be far from
routine, and often the product of a highly creative and observant mind.
Consider the example of a rural school teacher from India who came up
with the idea of using the extract of naffatia as a herbal pesticide. Legend
has it that a group of farmers were having tea one morning. In order to
protect the tea of one of the farmers who had to leave the group for
a while, his wife covered the tea with the leaf of naffatia. Upon his return,
the farmer fell ill almost immediately after taking the tea. When taken to
the doctor, his bloodstream was found to have high levels of toxicity and
he survived with great difficulty. The observant school teacher noted that
if the leaves were so toxic that merely covering a cup of tea with it could
very nearly prove fatal, it would perform well as a herbal pesticide (Gupta
2006).
This is not to suggest that such discoveries ought to be patentable in
the informal economy, but to merely suggest that the mainstream IP
paradigms are prone to exclude key parts of innovative processes that
are endemic to traditional knowledge systems within the informal
sector.
21
Illustratively, see Section 3(c) of the Indian Patents Act, which excludes from patentability
the “discovery of any living thing or non-living substance occurring in nature.” Similarly,
in the United States, courts have repeatedly held that “[p]henomena of nature, though just
discovered, mental processes, and abstract intellectual concepts are not patentable, as they
are the basic tools of scientific and technological work. Monopolization of those tools
through the grant of a patent might tend to impede innovation more than it would tend to
promote it.” See Ass’n for Molecular Pathology v. Myriad Genetics, Inc 133 S. Ct. 2107.
co mmen t 6. 3 sh amn ad basheer
293
Conclusion
The purpose of this short comment is to caution against the simplistic
tendency to superimpose an existing “formal” IP appropriation regime
onto the informal economy, for the informal may well be an invisible
undercurrent to the formal economy. Subsuming it within the mainstream framework may do more harm than good. We need to first
examine this undercurrent and understand it better in order to fashion
optimal policy solutions.
Second, and more importantly, it is foolhardy to assume that the
informal sector simply needs to learn from the formal sector and formalize as quickly as possible. On the contrary, the informal economy may
have important lessons for the formal economy on a variety of fronts.
This is particularly so around the notion of open and collaborative
innovation and non-pecuniary incentives, which have been staple aspects
of many informal communities for several centuries.
The studies included in this book are a very useful step in this direction, meticulously capturing hitherto unknown data on the informal
economy. However, since they are effectively the first set of comprehensive studies into the informal sector, they point to some facets only of the
informal innovation matrix. One may need more studies across several
other sectors and several other countries to better understand and
appreciate the nuances of the informal innovation ecosystem. But the
present set of studies set the tone for this larger and more challenging
exercise.
References
Abrola, D. and Gupta, A. 2014. “Understanding the diffusion modes of grassroots innovations in India: a study of Honey Bee Network supported
innovators,” African Journal of Science, Technology, Innovation and
Development 6(6): 541–52.
Anand, R. 2011. “Meet Chintakindi Mallesham – the inventor of the Laxmi
Asu machine that relieved the pain of several weavers,” The Better India,
March 2011.
Basheer, S. 2015. “Alternative incentives for pharmaceutical innovation,”
Intellectual Property Journal 27(1): 13.
Bavikatte, K., Cocchiaro, G., Jonas, H., Rens. A. and Abrell, E. 2009. Imagining
a Traditional Knowledge Commons: A Community Approach to Ensuring
the Local Integrity of Environmental Law and Policy. Rome, International
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Bhaduri, S. and Kumar, H. 2011. “Extrinsic and intrinsic motivations to
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Bull, C., Daniels, S., Kinyanjui, M.N. and Hazeltine, B. 2014. “Country study
on innovation, intellectual property and the informal economy: the informal metalworking sector in Nairobi,” report prepared for the Committee
on Development and Intellectual Property (CDIP): Thirteenth Session,
CDIP/13/INF/3 ANNEX. Geneva, WIPO.
CISR 2015. “TKDL Outcomes Against Biopiracy (2014),” Council for
Industrial and Scientific Research. www.csir.res.in/CSIR/TKDL/
TKDLOutcomes_2014.asp.
Cohen, W.M. and Sauermann, H. 2007. “Schumpeter’s prophecy and individual incentives as a driver of innovation,” in Malerba, F. and Brusoni, S.
(eds.) Perspectives on Innovation. Cambridge, Cambridge University Press,
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Essegbey, G.O., Awuni, S., Essegbey, I.T., Akuffobea, M. and Micah, B. 2014.
“Country study on innovation, intellectual property and the informal
economy: traditional herbal medicine in Ghana,” report prepared for the
Committee on Development and Intellectual Property (CDIP): Thirteenth
Session, CDIP/13/INF/2 ANNEX. Geneva, WIPO.
Fabricant, D.S. and Farnsworth, N.R. 2001. “The value of plants used in
traditional medicine for drug discovery,” Environmental Health
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Fan, R. 2003. “Modern Western science as a standard for traditional Chinese
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Gupta, A.K. 1997. “The Honey Bee Network: linking knowledge-rich grassroots innovations,” Development 40(4): 36–40.
Gupta, A.K. 2000. “An approach for establishing a traditional knowledge
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Gupta, A.K. 2006. “Roots of creativity and innovation in Indian society:
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Halarnkar, S. 2009. “Top grosser 3 Idiots to fund real life inventors,”
Hindustan Times, Mumbai, December 31, 2009.
Hall, B. 2007. “Patents and patents policy,” Oxford Review of Economic Policy
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Iaccarino, M. 2003. “Science and culture,” EMBO Reports 4(3): 220–23.
Lemley, M.A. 2012. “The myth of the sole inventor,” Michigan Law Review 110
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7
Innovation Policy and the Informal Economy
Toward a New Policy Framework
erika kraemer-mbula and almamy konté
Introduction
Investing in innovation has become a common concern for government
policies in order to maintain competitive advantage, increase productivity and create new jobs. However, along with economic growth, emerging
economies are witnessing growing disparities between rich and poor,
manifest to some extent in expanding wage differentials and the intractable presence of informal economic activities. Such disparities pose
alarming threats not only to economic growth itself but also to social
cohesion and sustainability. Developing countries are starting to recognize the importance of making equitable development a priority goal for
the longer term. Nevertheless, innovation policies across the world are
not generally driven by a “distributive logic,” resulting in limited impact
in reversing the trend of increasing inequality.
On the basis of empirical evidence from three African countries –
Kenya, South Africa and Ghana – and the initial policy section in de Beer,
Kun and Wunsch-Vincent (2013), this chapter identifies a range of policy
interventions with the potential to positively affect innovation in the
informal economy. Traditional supply-side approaches to innovation
policy are giving way to “systemic” rationales which recognize the need
to combine measures that stimulate the supply of innovation with
demand-side instruments. As Flanagan, Uyarra and Laranja (2011,
p. 8) put it, “the expansion of the legitimate scope of innovation policy
implies that instruments intended to achieve other policy goals such as
procurement, regulation, education and tax measures could or should be
‘co-opted’ in the service of innovation policy.” Borrás (2009) describes it
as a process both of “widening” and of “deepening” innovation policy, as
innovation policy expands its realm of action to other policy areas
(widening) and adds new tools to the traditional supply-side instruments
296
i n n o v a t i o n p o l i cy an d th e i n f orm al ec onom y
297
(deepening). A growing body of literature provides valuable insights
about the specific opportunities and challenges of innovation systems
in developing countries, demanding tailored approaches to innovation
policy rather than mere imitation of policy interventions used in mature
economies (Cassiolato and Vitorino 2009; Chaminade et al. 2009; Scerri
and Lastres 2013; Soares, Scerri and Maharajh 2014). Moreover, in
developing countries it is becoming more apparent that innovation
policies should be conceived with social goals in mind (Arocena and
Sutz 2012).
Countries experiencing high levels of income inequality and unemployment are increasingly interested in expanding the impact range of
their innovation policies. However, putting distributional aspects at the
center of innovation policy implies dealing with a complex range of
policy implementation levels, actors and stakeholders. In addition, current possibilities to expand the policy approach to innovation are
restricted by the legacies of and evolution from past decisions and
approaches. All these factors add to the complexity of reaching an
adequate innovation “policy mix.”
Among the questions raised in this chapter are whether policy
approaches to the informal economy generally aim to foster innovation
by informal actors; whether traditional policy approaches to innovation
have any impact on promoting innovation in the informal economy; and
whether new approaches need to be developed. The fourth section of this
chapter explores concrete possibilities to integrate innovation and informal economy considerations in policy interventions.
It is argued that an integrated framework for innovation policy must
respond to the reality of developing countries, focusing on the capacity of
policy frameworks to deliver in terms of institutional forms and target all
economic and social actors, including those operating informally.
Ignoring the informal economy in strategies aimed at supporting innovation may lead to further exclusion and inequality, especially in the
context of developing countries.
Conventional Policy Approaches to the Informal Economy
in Developing Countries and Their Treatment of Innovation
Evidence across countries confirms that informality does not dissipate
with economic growth. On the contrary, it persists in fast-growing
countries (La Hovary 2013 and Chapter 1 in this volume). Despite the
intractable presence of informal economic activities, neither current
298
e r i ka kr aemer -mbul a an d alm am y k onté
policy documents nor the academic literature propose a uniformly
agreed policy framework that fits the needs of the informal economy
(de Beer, Kun and Wunsch-Vincent 2013). While many countries have
some sets of policies and programs to address it, these have not been
primarily aimed at fostering existing informal structures, nor have they
acknowledged their innovative potential.1
Conventional approaches to the informal economy are broadly concerned either with the elimination of the informal economy or with the
transition to formalization. In the first case, focus on the “underground”
aspects of informality has emphasized the informal economy as the locus
of corrupt activities, lack of compliance with legislation, tax evasion and
worker exploitation (Portes 1983). In this view, the informal economy is
perceived by policymakers as an undesirable feature that should eventually be eliminated.
However, more recently, scholars and practitioners have recognized
the entrepreneurial nature of many informal activities, which has
prompted a shift from the desire to suppress the informal economy to
the aim of gradually converting some of its activities into a part of the
formal sector; in other words, supporting the transition to “formalization” of the informal economy. In these cases, the goal is usually to
diminish the underlying causes of informality by reducing regulations
or market conditions that encourage firms to operate informally. Some
examples include suppressing regulations that make business registration
inefficient and costly and simplifying business registration procedures, as
well as other administrative and tax laws. At the international level,
notably through the International Labour Organization (ILO), particular
attention has been paid to the enforcement of labor rights and the social
protection of informal workers. In particular, the focus has been on
increasing compliance with rules and regulations in the following areas:
business registration, taxation, labor, health and safety, environment,
consumer protection and intellectual property (IP) protection or sectorspecific laws (Becker 2004; UNESCAP 2006; OECD 2009; Oviedo 2009).
The ILO’s Decent Work Agenda has served as the basis for a policy
framework based on seven key avenues toward formalization which
include quality employment generation and growth strategies; the regulatory environment; social dialogue, organization and representation;
promoting equality and addressing discrimination; measures to support
1
See IDRC (2011) and Muwonge, Obwona and Nambwaayo (2007).
i n n o v a t io n p o l i cy an d t h e i n f orm al ec onom y
299
entrepreneurship, skills and finance; the extension of social protection;
and local development strategies (La Hovary 2013; ILO 2014).
This issue of policy coherence is of key relevance when it comes to the
informal economy since regulations and policies that are explicitly aimed
at the informal economy are often described as ad hoc, unstructured and
uncoordinated between ministries, institutions and various government
levels (de Beer, Kun and Wunsch-Vincent 2013). A typical policy coherence problem is that economic development resources are concentrated
in the national and provincial spheres, but regulatory and management
responsibility, and knowledge generation, is local. Indeed, it is municipalities and city councils that engage with the informal economy in
different ways (David et al. 2013).
Over the years, experts and policymakers have recognized the need for
a more coordinated and structured approach to the informal economy.
National economic and other policy frameworks should address the
informal economy more coherently. Moreover, in certain national or
sub-national governments, policy ambitions have shifted from suppressing the informal economy to creating an enabling environment.
Policymakers have recently come to recognize that a “formalized informal economy” might lose its dynamic contributions to growth and
employment, once stifled by bureaucracy (Conroy 2010). As a result,
for certain local or national governments, the goal has become to foster
the productivity of the informal economy and the quantity and quality of
the employment it generates.
As a result of this recognition, there have recently been more constructive policy approaches to the informal economy, and these continue
to develop. Systemic interventions continue to be rare, and the nature of
intervention models at the national level is often ill-suited to local needs.
Expectations and policy coordination between national and local levels
often remain misaligned. Even for progressive approaches, the notion of
“developing” entrepreneurs and economies “out of informality” and the
desire to “manage the undesirable consequences of the informal economy” still prevail. For instance, the ILO’s efforts to guide the transition to
formalization emphasize that “by its very nature, the characteristics of the
informal economy are largely negative” (ILO 2014, p. 9), highlighting the
high social costs of the informal economy for businesses, workers and the
community.
Conventional approaches to the informal economy are rarely designed
with a view to fostering innovation within it. While national development plans and strategies may acknowledge the potential of the informal
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economy for employment creation, they tend to be silent on how existing
livelihoods will be supported. The lack of empirical research on innovation in the informal economy hampers related evidence-based policy
making. As mentioned above, policies at best target the productive
capacity and productivity of informal enterprises. However, some commonly found policies are likely to have a direct or indirect impact on the
growth and innovation of informal businesses. These include (1) the
regulatory environment, (2) infrastructure and urban spaces, (3) support
to micro, small, and medium enterprises (MSMEs), (4) organization and
representation, (5) entrepreneurship, skills development and finance,
and (6) promoting equality and social inclusion. These approaches are
elaborated as follows:2
First, the regulatory environment affects all actors of a productive and
innovation system. They shape the relations and interactions between
individuals, groups and organizations, influencing the way actors engage
in innovation activities (Kraemer-Mbula and Wamae 2010b). Informal
economic agents are indeed affected by broad policies related to labor
relations, welfare, social security and education, as well as legislation
related to civil law. Having such institutions in place provides the background to economic and innovation activity. In relation to our case
studies, all three countries have well-developed rules and regulations
guiding economic and social activity. All three have an extensive web
of labor regulations. However, none of the three countries has a national
policy for the informal economy.3 In South Africa, legislation guiding
informal economic activities exists at the metropolitan level, mostly
oriented to the activities of street trading. In Senegal, by contrast, the
new National Economy Policy called Plan Senegal Emergent includes an
explicit program on extension of social protection to the informal
economy.
Second, it is important to improve the infrastructure and provide
urban spaces. Basic infrastructure is essential for any business activity.
Access to electricity, water and waste disposal are fundamental for
informal economic activities. Informal manufacturers often lack adequate production and marketing facilities; therefore, access to production sites (such as permitting the use of residential allotments) can be
a critical factor in the success of an informal business. Given the
2
3
Selected policy approaches on the basis of the policy frameworks developed by La Hovary
(2013), Chen (2012) and other scholarly contributions.
Some countries such as Papua New Guinea have gone so far as to develop a national policy
intended to stimulate informal economic activity.
i nnovation po licy and t he info rmal economy
301
concentration of informal businesses in crowded urban areas, municipalities are beginning to understand the importance of allocating informal traders dedicated spaces in large cities with adequate infrastructure.
However, it is important that municipalities remain mindful and maintain the dynamic equilibrium of relations between the informal sector
and its customers – these are local markets in high-transit areas such as
taxi ranks. The South African government is currently piloting a Shared
Economic Infrastructure Facility (SEIF) to fund new upgrades or maintenance of infrastructure that is shared by a number of informal businesses on a fifty-fifty cost-sharing basis with municipalities.4
Third, micro-, small- and medium-sized enterprises (MSMEs) have
received special attention in policy frameworks in developing countries
due to their contribution to employment and income generation. African
countries are no exception. Legislation regulating SMMEs in several
countries covers informal enterprises by definition, although further
clarity is needed on such definitions.5 All three countries have agencies
dedicated to the SMME sector: Ghana has its National Board for Small
Scale Industries (NBSSI); Kenya has the Department of Micro and Small
Enterprise Development (DMSED) within the Ministry of Labor; and
South Africa recently established the Department of Small Business
Development. Moreover, a few countries in Africa have established
dedicated ministries and public organizations with the sole purpose of
overseeing and guiding informal economic activities. One example is the
Senegalese Ministry of Trade, Entrepreneurs and the Informal Sector,
which recognizes the informal economy as a critical contributor to the
country and has since 2012 become a leading department in supporting
the informal sector, serving as an intermediary between the formal
private sector and the informal economy.
Fourth, the ability of informal workers to organize and be represented
is central in order for them to articulate their needs and engage in policy
dialogue. Upscaling, modernizing, accessing new markets, adopting
technologies, improving production processes and accessing finance are
complex activities that require experience, a good understanding of
markets, and networks. This is a sophisticated set of skills and means
that is generally beyond the reach of most informal entrepreneurs.
Collective arrangements such as trade unions, representative associations, sectoral organizations and cooperatives can play a key
4
5
See www.thedti.gov.za.
See, for instance, the case of Kenya discussed by Bull et al. in Chapter 3.
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intermediary role. These structures can be critical to facilitate participation of marginalized informal producers in modern markets, navigating
through negotiations and improving the bargaining power of vulnerable
informal micro-entrepreneurs. Programs providing support to cooperatives, self-help groups and business and workers associations in creating
organizational capacity, cooperation, clustering and political representation can all have tangible impacts in helping to articulate the needs of the
informal economy, including those related to finance, skills development
and technology transfer. Intermediaries such as non-profit organizations
and informal sector associations can also mediate access to formal markets for poor producers or users in value chains (Von Broembsen 2012),
stimulating linkages between formal and informal actors and the integration of the informal economy in formal sector value chains. The case
of Kenya, as described in Chapter 3, highlights the importance that the
jua kali associations have in representing the collective interests of
informal metalworkers.
Fifth, policies that promote entrepreneurship and skills development
are crucial. On average, the level of education in the informal economy is
low (see Chapter 2). Therefore, policies affecting the informal economy
include general policies targeting basic literacy and numeracy. Countries
such as Kenya and South Africa have gone as far as developing programs
to develop the skills of informal workers – in Kenya through a voucher
system (Kraemer-Mbula and Wamae 2010a) – providing opportunities
for education and training covering basic skills but also more advanced
business and financial skills as well as language skills.
Finally, the informal economy is largely populated by marginalized
communities, either living in informal settlements or from segments of
the population that are generally subject to some kind of social exclusion – women, the young, disabled people and migrants. Therefore,
targeted efforts to reduce discrimination in access to resources and
opportunities by marginalized groups can have tangible impacts in the
informal economy, including on innovation. Developing countries have
a higher proportion of young people, many of whom find themselves
unemployed. In addition, women continue to be the largest disadvantaged group, especially in poorer societies. At the same time, African
economies are seeking ways to diversify beyond resource-based economic activities. A number of sectors (such as ICTs and entertainment)
have shown significant potential in the last decade, pointing to alternative
sources of economic growth to overcome the overdependence on natural
resources. Many of those engaged in informal economic activities display
i n n o v a t i o n p o l i cy an d th e i n f orm al ec onom y
303
entrepreneurial talents, skills and endeavor which urgently need to be
harnessed rather than deterred. Policy programs facilitating female and
youth start-ups are focusing on supporting and nurturing the ideas and
entrepreneurial talent of young Africans to avoid the far-reaching consequences of persistent and widespread youth unemployment and gender-based inequalities. South Africa’s recently launched National
Informal Business Upliftment Strategy (Nibus) includes a component
focused on the provision of skills development and training to informal
traders which prioritizes women, young people and disabled owners of
informal businesses.
While many of these initiatives are directly aimed at, or to some extent
include, the informal economy, the interactions between the formal and
informal sectors and the role of formal sector institutions need to be kept
in mind when designing polices for the informal economy. Institutional
weaknesses such as excessive regulation and the weak rule of law applied
to the formal sector tend to influence the size of the informal economy
and the type of activities within it (Singh, Jain-Chandra and Mohommad
2012). Policies aimed at the informal economy will function well only in
tandem with policies aimed at improving the functioning of institutions
in the formal economy.
To a large extent, policy approaches have focused on formalization,
improving productive capacity, facilitating market access and improving
social security of informal traders. The promotion and support of innovation in informal economic activities have rarely, been part of the policy
approach.
Conventional Approaches to Innovation Policy
and Their Treatment of the Informal Economy
Developing countries have recognized the strategic importance of supporting innovation as a means of economic development. This interest
has materialized in an expansion of the institutional arrangements and
government bodies mandated with coordinating innovation in each
country along with widespread formulation of Science, Technology and
Innovation (STI) policies. While identifying a range of opportunities to
boost the private sector, these strategies still fall short of fulfilling the
needs of a growing base of entrepreneurs and innovation actors in the
informal economy, limiting the impact and reach of innovation policies
in such contexts.
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Innovation policy is becoming common practice across the developing
world, and most developing countries have formulated policies guiding
the performance and improvement of innovation activities. In general, it
can be said that innovation policy documents recognize the transformative power of innovation, affecting economies and societies in a myriad of
ways, but especially by improving productivity and competitiveness and
creating job opportunities. Innovation policy is thus becoming a central
pillar of economic policy. It has now been accepted that the informal
economy is an integral part of the economic reality in developing countries. But do innovation policies give sufficient consideration to the
informal economy; and, if not, what are the main gaps and opportunities
and how can they be addressed?
Discussions about innovation policy still focus almost exclusively on
formal organizations and institutions, especially on formal research and
development (R&D) and the role of universities and research organizations as major sources of knowledge. A few studies have recently started
to point out that most innovations in the informal sector are non-R&D
based and in many cases take the form of changes in the organization of
service provision or the adaptation of existing products and technologies
to local markets (see Chapter 2). Nevertheless, national innovation policies continue to be dominated by science and technology perspectives,
putting less emphasis on other learning dynamics that are more relevant
to the informal economy.
Some scholarly contributions have warned us about the dangers of
adopting narrow perspectives of innovation policy in developing countries, focusing exclusively on support for formal scientific research. Some
of these contributions are based on the distinction between two modes of
learning and innovation: the STI mode – reliant on formal scientific and
technical forms of knowledge – and the Doing, Using and Interacting
(DUI) mode – based on experience-based and informal processes of
learning (Jensen et al 2007; Lundvall 2007). These two modes of learning
are vital to innovation. This literature therefore suggests that innovation
policy in developing countries must target both formal and informal
modes of learning.
A lack of systematic evidence on the innovative potential of the
informal economy limits the ability of current innovation policy
approaches to reflect the needs of the informal economy. In fact, since
the informal economy is not viewed as a potential source of innovation, it
is almost never perceived as an explicit innovation policy target.
i n n o v a t i o n p o l i cy an d th e i n f orm al ec onom y
305
The issue of policy coordination becomes relevant in this context,
whereby the various layers of policy design and policy implementation
lead at best to inaction toward the informal economy. Provincial or local
governments that interact with the informal economy have little input
into, or even awareness of, innovation strategies which are typically
developed at the national level.
The contribution from the innovation systems literature is now widely
accepted as a framework to formulate interventions by many governments (Smits and Kuhlman 2004), and systemic perspectives are gaining
considerable ground in innovation policy formulation in developing
countries. However, systemic interventions remain difficult to implement, given the wide range of interpretations in their translation to
concrete programs, and the multiple possibilities of policy levels and
actors that may be involved (Morlacchi and Martin 2009).
Typically, innovation policy materializes in a set of policy instruments
which are combined in “mixes” (OECD 2010). While this concept of an
“innovation policy mix” is gaining currency, the complementarities, and
thus positive and negative relations between innovation policy instruments, and the ways of “localizing” policy mixes in such a way that they
address the main innovation challenges of a country still deserve much
attention and research (Lastres and Cassiolato 2005; Flanagan, Uyarra
and Laranja 2011; Cunningham, Edler Flanagan and Laredo 2013).
In relation to the policy mix, a number of policies and programs are in
place to enhance the development of the research system, with innovation receiving growing attention both institutionally and in policy.
Table 7.1 summarizes the conventional innovation policy instruments,
which include the following:
First, policy instruments to develop the research system. The research
system remains the centerpiece of STI policy in practically all countries.
Initiatives in this area include programs to build the capacity of existing
research organizations through investment in research infrastructure
(such as grants to facilitate the acquisition of large and/or specialized
equipment likely to advance scientific research, or the creation of new
research infrastructures), and investment in creating a larger and better
cadre of researchers by promoting international cooperation in research
and cross-border mobility. These types of interventions target both
public and private research organizations, mostly universities, which
are considered to be at the center of the research system. Knowledge
produced in universities remains at a great “distance” from communities
and informal actors, while traditional knowledge generated through
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Table 7.1 Examples of conventional instruments of innovation policy and
their treatment of the informal economy
Policies to develop the
research system
Policies to support
overall investment in
innovation
Policies to stimulate
public demand for
innovative solutions
and products
Policies to enhance
innovation
competencies in firms
Policies to strengthen
linkages within
innovation systems
Policies for knowledge
appropriation
Examples of policy
interventions
Targeted actors
Development of research
infrastructures,
promotion of
international research
cooperation
Direct subsidies,
innovation grants, fiscal
incentives
Public procurement of STI
Research
organizations,
researchers
Innovation awards/prizes,
training, technology
development support,
incubators, science
parks
Technology transfer,
support of innovation
networks, clusters
Support services for
copyright, trademarks,
industrial designs,
patents
Private sector: large
formal enterprises,
SMMEs
public research
organizations
(PROs) private
sector, general public
Private sector:
innovative firms,
tech-intensive firms,
SMMEs
PROs, innovative
firms, tech-intensive
firms, SMMEs
Private sector: large
formal enterprises,
SMMEs
Source: Authors.
millennia remains largely disconnected from universities (KraemerMbula 2014). However, universities are increasingly expected to create
insights of direct relevance to society through engagement with the
community, manifest in attempts to bring the research system closer to
the informal economy, mostly through participatory research and knowledge transfer (Göransson and Brundenius 2011; Kraemer-Mbula 2014).
Existing evidence indicates that the incentives to produce socially relevant research receive insufficient attention in innovation policies in
developing countries.
i n n o v a t io n p o l i cy an d th e i n f orm al ec onom y
307
In Kenya, Ghana and South Africa, national innovation policies are
dominated by science and technology perspectives or institutionalized
and formalized R&D. Only South Africa has a dedicated policy for
innovation (the Ten-Year Innovation Plan).6 In Ghana, support for
innovation appears to take a more sectoral stand, articulated in
a national program focusing on innovation in traditional medicine in
Ghana. The National Science, Technology and Innovation Policy (2010)
objective is to use STI to reduce poverty, increase the international
competitiveness of enterprises and promote sustainable environmental
management and industrial growth (MESTI 2010).
Second, policy instruments to support overall investment in innovation. Certain instruments such as incentives for private R&D (R&D
grants and R&D tax schemes), innovation fund schemes, technology
extension services and the like are longstanding and widely used policy
instruments for stimulating innovation in firms that are not active
innovators. These instruments are typically made available to formal
enterprises in order to assist their technological efforts. Registration is
a common requirement to access this type of support, meaning it is out of
reach of most informal enterprises. Due to the nature of informal economic activities, fiscal incentives such as tax deduction for early stage
investors or R&D tax credits are also unavailable to them.
Direct funding such as R&D grants and funding schemes for innovation do exist in Ghana, Kenya and South Africa. In Ghana, a national
Science and Technology Research Endowment Fund (STREFund) was
established in 2008 and is currently administered by the Council for
Scientific and Industrial Research. The National Research Fund was
established under the Science, Technology and Innovation Act in 2013
in Kenya and is currently being operationalized. South Africa has a range
of funding mechanisms for innovation, largely managed by the
Technology Innovation Agency (TIA). The majority of these funding
instruments require businesses to be registered. One exception is the
Youth Technology Innovation Fund, launched in 2012, which caters to
innovators between the ages of eighteen and thirty years who are not part
of the mainstream funding process.
Third, policy instruments to stimulate public demand for innovative
solutions and products. In the context of developing countries,
6
The Ten-Year Innovation Plan is designed to address five “grand challenges,” namely: (1)
bio-economy, (2) space science and technology, (3) energy security, (4) climate change and
(5) human and social dynamics. It is in relation to this last thematic target area that the
informal economy would be expected to be addressed.
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stimulating demand for innovation involves transforming the needs of
the poorest groups in society into effective demands and connecting
those demands more effectively to the supply side of innovative activity.
In this regard, Arocena and Sutz (2012) suggest that the stimulation of
demand in developing countries requires innovation policies to be complemented by social policies. The demand for innovation can be stimulated through public procurement. Given the large sums involved, public
procurement carries enormous potential to shape markets, influence the
development of innovative solutions and improve public services.
It therefore constitutes a key potential driver of social, economic
and environmental objectives, and is a driver of innovation objectives.
This potential role is not without challenges, remaining an underresearched and unexploited area in connection with innovation and
equitable development. In some countries, such as South Africa, the
main policy frameworks driving the development and innovation agenda
(such as the Ten-Year Innovation Plan and the National Development
Plan) make explicit mention of the role of procurement to stimulate
innovation. In Kenya, explicit incentives are directed at encouraging
formal suppliers to collaborate with informal enterprises in public procurement – see Chapter 3 in this volume. However, these remain isolated
examples, realizing the impact of public procurement effectively in the
informal economy remains extremely challenging. In this regard, the
example of Kenya highlights the potential that public procurement has
to integrate informal suppliers into the supply chain for items purchased
by the government. While not directly tied to innovation, it at least
challenges both formal and informal enterprises to develop creative
ways to collaborate.
Fourth, policy instruments to enhance innovation competencies in
firms. These are instruments aimed at stimulating greater innovation in
already innovative firms, to complement and synergize their technological efforts. This is generally pursued through technology incubators,
science parks and innovation awards/prizes. These types of instrument
generally remain disconnected from the informal economy and, if not
complemented with support to innovation in informal enterprises, they
may lead to a wider gap in the performance between formal and informal
enterprises and further marginalization of the latter.
Severe problems with youth unemployment in the three countries in
this study have triggered a general sense of urgency in policy circles,
resulting in efforts geared toward promoting employment opportunities
by supporting micro and small businesses. However, policy instruments
i n n o v a t i o n p o l i cy an d th e i n f orm al ec onom y
309
that stimulate the integration of informal enterprises within formal value
chains remain few and neglected. Informal economic activities provide
job creation opportunities along value chains; the challenge is building
work competencies and innovation capabilities along those chains.
Technology incubators have become popular means of promoting innovation competencies in firms and value-chain integration. The three
countries examined are no exception, with ongoing efforts to enhance
infrastructures that serve modern business development. Technology
incubators and industrial parks in ICTs, textiles and the like are usually
located in metropolitan areas, often inaccessible to the myriad of entrepreneurs who could benefit from these programs living in informal
settlements or areas marginal to large cities. The case of South Africa
provides examples of technology transfer organizations (technology
incubators) and business incubators offering such opportunities to informal enterprises located out of metropolitan areas (see Chapter 4).
However, such examples are scarce and their ability to offer opportunities
at a large scale remains limited.
Fifth, policy instruments to strengthen linkages within innovation
systems. Many African cities have developed economic agglomerations
or small-scale industrial clusters. Common challenges for these clusters
include, among others, technological obsolescence, information deficiencies, and competitive pressures from international markets.
As innovation policies are increasingly formulated within an innovation
systems framework, some countries are developing instruments to foster
growth and innovation in existing clusters and industrial districts. New
clusters have also been created by policy design. The rationale for this has
been to enhance the benefits of collective efficiencies, use clusters as
a testing ground for new products as well as platforms to exchange
knowledge. However, this type of support also generally leaves out
informal enterprises.
The evidence from the three case studies illustrates the disconnection
and isolation that informal entrepreneurs have from the wider innovation system. This indicates a need to establish bridges and connections
between the modern science and technology system and informal systems production. There are examples of policy instruments to develop
linkages across the system. In the case of Ghana, efforts have gone into
creating bridges between the modern science and technology system and
the traditional medicine system. This has resulted in traditional herbal
preparations being prescribed in public healthcare institutions.
Nevertheless, there remains significant marginalization of informal
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traditional medicine practitioners, which is not conducive to innovation.
In this respect, Kenya’s 2030 Vision acknowledges the importance of
producer-based groups or associations representing the collective interests of individuals or micro-enterprises, which has led to the development of programs promoting their role and interaction with policy
makers and research organizations, especially in farming and retail.
Finally, policy instruments for knowledge appropriation. Chapter 6
reveals that informal actors face a number of difficulties in using the IP
system, such as limited knowledge of the IP system, lack of clarity about
its relevance to their business strategy, the system’s complexity and (from
the perspective of SMMEs) the high cost in terms of both time and money
of using the system. Moreover, Chapter 6 proposes a set of policy
suggestions centered on (a) ensuring that IP registration systems are
accessible in terms of time, expertise and financial costs, (b) facilitating
technical assistance to assess adequate forms of IP protection, (c) ensuring that IP rights are enforceable in the marketplace, taking into consideration the country context, and (d) taking careful consideration of
the systemic effects of IP policies on existing informal clusters and their
potential impact on inequality, exclusion and income distribution.
All three countries studied in this volume have mechanisms in place, in
the form of regulations and governing bodies, to protect the rights of
innovators. Moreover, Kenya has recently made efforts to improve access
to IP protection for micro and small enterprises. However, these efforts
must be informed by the range of reasons why informal entrepreneurs
fail to make use of formal mechanisms of knowledge appropriation,
which include cultural and economic factors. Informal entrepreneurs
resort to secrecy and other informal mechanisms of knowledge appropriation for a number of reasons, and this practice appears to contradict
the nature of the formal mechanisms’ knowledge appropriation. At the
heart of this conflict is the limited awareness of and knowledge about the
IP system. The case of Ghana shows evidence of the emergence of
institutional structures established to represent the interests of informal
economic agents in relation to IPRs, with the example of a ten-member
Committee on Herbal Medicine Research and Intellectual Property
Rights Protection. The work of the Committee and the subsequent
implementation of its report and recommendations are expected to
widen the scope of impacts of national policies regarding knowledge
appropriation in herbal medicine.
It becomes clear that innovation policy is not a single action.
Instruments with different potential and actual effects on the informal
i n n o v a t i o n p o l i cy an d th e i n f orm al ec onom y
311
economy are combined. Bringing the informal economy into the realm of
innovation policy implies taking into consideration the complementary
or balancing effects that each of these instruments would have on informal economic activities and on the broader innovation system.
At present, this is far from the reality of innovation policy practice in
Africa and developing countries at large.
Integrating Innovation and the Informal Economy in Policy
In the wake of the global economic recession, there has been renewed
interest in informal economic activities in developing countries.
Contemporary times have shaped the reality for many emerging countries as characterized by relatively fast economic growth, higher investment in innovation, large inequalities and persistent informality,
requiring fresh approaches to our understanding of the relationship
between innovation, equitable development and the informal economy.
This section explores concrete areas that could form the initial steps
toward an integrated innovation policy mix to advance the transformative agenda toward more equitable development. Table 7.2 summarizes
the impact that policy approaches to the informal economy (identified
in the second section) and policy approaches to innovation (identified in
the third section) can have on innovation activities in the informal
economy. The sections above emphasize the existing disconnect in current policy frameworks, which prioritize promoting innovation in developing countries while often overlooking the informal economy. Policy
approaches to the informal economy have largely focused on formalization rather than innovation, while innovation policy frameworks focus
on formal enterprises with little consideration of the informal economy.
One of the objectives of this chapter is to highlight the potential
benefits of bringing these two approaches closer together, paying attention to innovation and informal economic actors. The framework below
therefore distinguishes between the “current” and “potential” impact of
existing policy approaches on innovation in the informal economy.
The synthesis in Table 7.2 illustrates how selected policy interventions
may appear to have direct or indirect negative impacts on innovation in
the informal economy. On this basis, it identifies the potential positive
impact that such policies could have, as well as the policy fields and levels
of governance that would need to be activated to achieve such positive
impacts. It is not intended to be a comprehensive examination of all
existing ways in which policy interventions may affect innovation in the
Table 7.2 Policy approaches to the informal economy
Policy approaches to the informal
economy
Impact on innovation in the informal economy
Policy areas to bring into the innovation
policy mix
Current
Potential
Policy area
Level of governance
Adequate regulatory environment
• Equal access to property
• Equal access to labor and employment opportunities
• Equal access to housing
• Equal access to health
• Indirect positive.
Facilitating basic
operations of informal
enterprises
• Improve access to
employment and
decent jobs
• Improve human
capabilities
• Labor policies
• Welfare policies
• National
Improving the infrastructure and
urban spaces
• Ensuring access to basic infrastructure such as electricity, water and
waste disposal
• Ensuring the informal economy has
access to production sites (permitting the use of residential allotments)
Support to SMMEs
• Support participation of microenterprises in trade fairs and
exhibitions
• Indirect positive.
Facilitating basic
operations of informal
enterprises
• Improve firm
infrastructure
• Improve human
capabilities
• Urban planning
• Water and sanitation
management
• Local/municipal
authorities
• Indirect positive.
Facilitating investment,
marketing and networking to informal
enterprises
• Improve access to market opportunities and
international exposure
• Industrial policy
• SMMEs support
programs
• Financial
policies
• National
• Local/municipal
authorities
Facilitating organization and
representation
• Support for representative associations, cooperative arrangements and
intermediaries
• Indirect positive.
Increased bargaining
power of the informal
economy and articulation of needs
• Stimulate linkages
between formal and
informal actors, and
integration of informal
firms in formal value
chains
• Rural
development
• Agricultural
policy
• Industrial policy
• Local/municipal
authorities
Entrepreneurship, skills development
and finance
• Ensuring basic literacy and
numeracy
• Developing skills through postschool education and training
• Providing access to finance: microfinance, subsidized financial services
• Indirect positive.
Improving basic skills
and business operations
of informal enterprises
• Enhanced human
capabilities
• Provision of advanced
skills to informal
workers
• Absorptive capacity
• Improved access to
financial resources for
innovation
• Education
policies
• Post-school
training
• National
Promoting equality and social
inclusion
• Indirect positive.
Incentive to establish
• Improve
entrepreneurship
• Cooperative
policies
• National
Table 7.2 (cont.)
Policy approaches to the informal
economy
• Youth-based start ups
• Women entrepreneurs
Impact on innovation in the informal economy
Policy areas to bring into the innovation
policy mix
Current
Potential
Policy area
Level of governance
enterprise by disadvantaged communities
• Indirect negative.
Narrow definition of
business enterprise and
profit-maximization
• Improve access to
income
• Development of community-relevant
enterprises
• SMMEs support
programs
• Local/municipal
authorities
Innovation policy approaches
Impact on innovation in the informal economy
Policy fields to bring into the innovation
policy mix
Current
Potential
Policy area
Level of governance
Policies to develop the research
system
• Research infrastructures
• Promotion of research
• International research cooperation
and suchlike
• Indirect negative.
Concentration of government support on
highly skilled people.
Widening gap
• Indirect positive.
Participatory research.
Socially relevant
research involving
informal actors
• Research policy
• National level
Policies to support overall investment
in innovation
• Direct subsidies
• Innovation grants
• Fiscal incentives
• Indirect negative.
Concentration of innovation funding support
• Direct positive.
Allowing nonregistered firms to
• Innovation
policy
• National level
• Local/municipal
authorities
Policies to stimulate public demand
for innovative solutions and
products
• Public procurement of STI
• Indirect negative.
Concentration of
opportunities in formal
enterprises.
Widening gap
• Direct positive.
Collaboration between
formal and informal
enterprises. Expanding
value chains
• Procurement
policies
• National level
Policies to enhance innovation
competencies in firms
• Innovation awards/prizes
• Technology development support,
incubators, science parks
• Indirect negative.
Concentration of support in formal enterprises. Widening gap
• Direct positive. Cocreation innovation
hubs, inclusive of formal and informal
• Innovation
policies
• Urban planning
• National level
• Local/municipal
authorities
Policies to strengthen linkages within
innovation systems
• Technology transfer
• Innovation networks, clusters
• Indirect negative.
Concentration of support in formal enterprises. Widening gap
• Indirect positive.
Enhancing forward and
backward linkages
• Technology
policy
• Industrial policy
• National level
• Local/municipal
authorities
Policies for knowledge appropriation
• Support services for copyright, trademarks, industrial designs, patents
• Indirect negative.
Concentration of
knowledge in formal
enterprises.
Impediment to knowledge dissemination.
Widening gap
• Indirect positive.
Broadening knowledge
appropriation frameworks. Improved access
to informal economy
actors
• IPR policy
• National level
on formal enterprises.
Widening gap
access funding
mechanisms
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e r i k a kr a eme r - m b u l a a nd al m a m y ko n t é
informal economy. Rather, it makes an initial attempt to start thinking
about supporting innovation in the informal economy from a systemic,
multidimensional perspective.
Conventional policy approaches to the informal economy as identified
in the second section include:
•
•
•
•
•
•
provision of an adequate regulatory environment
improving infrastructure and urban spaces
support to SMMEs
facilitating organization and representation
entrepreneurship, skills development and finance
promoting equality and social inclusion.
Most conventional policy approaches to the informal economy have an
indirect positive effect on innovation activities in the informal economy
by facilitating basic business operations of informal enterprises. For
instance, although entrepreneurship in the informal economy occurs
largely outside of formal regulatory systems, broad policies related to
labor relations, welfare and social security as well as legislation related to
civil law do improve access to the basic conditions for realizing human
capabilities. Such basic capabilities are necessary conditions for innovation in both formal and informal economic activities. Policies that target
the improvement of infrastructure and urban spaces, as well as those
providing general support to SMMEs, also hold the potential to improve
access to infrastructural resources and markets for informal microenterprises, for instance, policies aimed at improving ICT infrastructure
(such as supporting local agencies with the mandate of improving bandwidth and exploring the opportunities for wireless technologies).
Although it is far from a homogenous group, those in the informal
economy in emerging economies tend to be marginalized members of
society, often engaged in survivalist activities and often in vulnerable and
isolated positions (especially those engaged in domestic work, homework
and own-account work). In this respect, representation and organizing
strategies in the informal economy hold great potential for informal
economic activities, including innovation. The evidence provided by
the three case studies highlights that informal worker organizations,
including cooperatives and other types of associations, can be central in
articulating the needs of informal actors and improving their collective
bargaining power. These collective strategies can be instrumental in
stimulating linkages between formal and informal actors and integrating
informal firms into formal value chains.
i n n o v a t i o n p o l i cy an d t h e i n f orm al ec onom y
317
Policies promoting general entrepreneurship, skills development and
finance can indirectly benefit innovation in informal firms by providing
basic education, skills and training which enhance human capabilities.
Entrepreneurship is one of the largest sources of employment in developing countries, and these enterprises are often in the informal economy
(La Hovary 2013). This area of policy can include various types of
interventions such as reducing start-up costs or providing fiscal incentives for firm creation. The same applies to policy programs offering
micro-finance and subsidized services to enterprises, which provide
much-needed access to seed funding and financial resources.
These policies have an indirect effect on informal enterprises but their
impact could be greater if they also targeted the informal economy. For
instance, the Micro and Small Enterprise Technology Project in Kenya
was a pilot program established by the government and funded by the
World Bank in 1997. The key component of the project was a voucher
training program that covered up to 90 percent of the cost of skills and
management training purchased by informal sector micro-enterprises
and small businesses. A post-evaluation of the project showed that the
training had a beneficial impact on participating firms, although the
impact of the project on the training market had been modest
(Hallberg 2006; Kraemer-Mbula and Wamae 2010a).
Another possibility would be to establish programs that facilitate
entrepreneurs’ search for skills. One of the key characteristics of developing countries is a severe shortage of skilled personnel. Entrepreneurs
struggle to locate skills that would fit their productive needs. Mechanisms
that facilitate the search for skills could expand beyond the formal
education sector into the informal sector. The informal sector can be
a valuable source of skills and knowledge, acquired either through informal mechanisms (traditional apprenticeships) or in a formal setting
(public or private education and training institutions). For instance,
informal actors may be transient – operating temporarily in the informal
sector – owing to bottlenecks in the formal sector or periods of transition,
such as university graduates who are not immediately absorbed into the
formal sector or civil servants made redundant (Kraemer-Mbula and
Wamae 2010a). The match between productive entrepreneurship and
skilled employment could also be encouraged through active communication strategies such as advertising using various media or through the
regular provision of workshops by firms. This type of intervention would
not only complement policy programs to support local enterprises but
also advance the skills of informal workers.
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e r i ka kr aemer -mbul a an d alm am y konté
In the policy area related to the promotion of equality and social
inclusion, interventions to support marginalized groups, such as
women or the young, to overcome embedded disadvantages can have
an indirect positive impact on innovation in the informal economy.
However, this type of support usually leaves out other frequent forms
of community group support and informal organizations that are not
business enterprises. One example is the rotating credit unions or collective saving schemes such as stokvels in South Africa. These self-help
savings clubs have a strong gender component, giving women access to
credit, often used to start an informal micro-enterprise (Verhoef 2001;
Woodward et al. 2011).
Conventional policy approaches to the informal economy as identified
in the third section include:
• policies to develop the research system
• policies to support overall investment in innovation
• policies to stimulate public demand for innovative solutions and
products
• policies to enhance innovation competencies in firms
• policies to strengthen linkages within innovation systems
• policies for knowledge appropriation.
As has been mentioned, policies to develop the research system are
central to STI policy across the world, including in developing countries.
However, an exclusive focus on researchers and formal research activities
can have an indirect negative impact on the informal economy through
the concentration of government support on highly skilled people,
widening the gap between formal and informal. But research policies
can have an indirect positive impact on informal economic actors
through the promotion of participatory research where intended users
engage in the research process. The responsiveness of universities to the
societies around them – the so-called third mission of universities – has
been explored in the literature (Brundenius, Lundvall and Sutz 2009;
Göransson, Maharajh and Schmoch 2009; Bianco and Sutz 2014;
Mohamedbhai, Frempong and Addy 2014; Albuquerque et al. 2015)
and some innovative models have been tested to bring research closer
to the needs of society by involving beneficiaries in the research itself
(Arocena and Sutz 2005; Juma 2011; Kruss and Gastrow 2015). However,
the lack of incentives and the predominance of performance-based
research funding models discourage researchers in developing countries
from spending extra time engaging with the broader community.
innov atio n pol icy and t he informal economy
319
The following five identified areas of innovation policy largely target
formal enterprises: policies to support overall investment in innovation;
policies to stimulate public demand for innovative solutions and products; policies to enhance innovation competencies in firms; policies to
strengthen linkages within innovation systems; and policies for knowledge appropriation. This concentration of innovation policy instruments
on formal – and often already innovative – enterprises can indirectly have
a negative effect on innovation in the informal economy by making most
funding mechanisms available to risk-taking entrepreneurs and the
highly skilled, which may lead to bigger income gaps.
In this respect, broadening innovation policy instruments to informal
enterprises could have a great impact on overall innovation activity.
There is a significant social and economic cost when the majority of
enterprises (which are informal in most developing countries) are not
able to succeed and upscale their innovation efforts. Inclusive approaches
within innovation policies to support informal enterprises in areas such
as access to financial resources for innovation, promoting collaborations
between formal and informal enterprises in the context of value chains
and public procurement could transform cycles of poverty and marginalization into active contributions to overall innovation activity in developing countries.
One example would be extending traditional “innovation fund” programs to informal sector enterprises. Innovation fund schemes can be
found across all countries, and they usually consist of grants that cover
part of the cost of an innovation project. They are oriented to innovative
firms, generally formal SMMEs, where firms apply for funding to either
(a) improve their products, processes and services or (b) do testing,
piloting or pre-commercial validation of the technological component
of an innovative project. This type of funding can be expanded to
informal sector enterprises, for instance, following the model of the
“creative credits” (Bakhshi et al. 2011), an innovation voucher program
designed to foster new innovative partnerships between SMMEs and
creative service providers. Creative service providers may not be
restricted to formal enterprises but could also include those in the
informal economy.
Another example broadens the concept of traditional science parks to
a new modality of co-creation. Traditional science parks have become
very popular policy instruments in developing countries, emphasizing
the idea that scientific and technology-based innovation are the core of
an innovation system. Traditional science parks are usually affiliated with
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e r i k a kr aemer -mbul a an d alm am y konté
a university or research institute and focus on supporting technologyintensive and highly innovative businesses in new emerging sectors. This
traditional model has recently been complemented with a new generation of co-creation “innovation hubs” which are starting to surface
globally and are especially relevant in the context of developing countries
(Comins and Kraemer-Mbula 2016). Co-creation hubs are often conceived as creative experiments rather than spaces to incubate high-tech
businesses. Rather than profit-making, they tend to develop around
finding a solution to a specific challenge (such as regenerating
a neglected urban area or finding a solution to emerging social and
environmental challenges). Co-creation initiatives are focused on the
interactive aspect of innovation and are less concerned about the technological aspects than with building the “soft” aspects of innovation
through networking and collaboration, not only among firms, but also
with a broader range of societal stakeholders – including the informal
economy. In this respect, they combine an interest in innovation for both
societal and commercial purposes (Comins and Kraemer-Mbula 2016).
Co-creation models emphasize the importance of creating synergies
among a variety of stakeholders, acknowledging that the impetus for
innovation can come from many different sources, including users of
products or services, wider communities, suppliers, competitors and
delivery partners. The main idea is that institutions ought to be rooted
in their specific local context and recognize that innovation does not
come purely through scientific and technological developments. This
modality of innovation hub leaves plenty of room for collaborations
between formal enterprises, informal enterprises and a range of other
stakeholders in order to find innovative and locally relevant solutions.
Moreover, these new types of initiatives appeal strongly to young people,
who are a major resource in developing countries.
In this chapter it is argued that moving toward a broader framework of
innovation policy that includes the informal economy requires not only
widening the scope of innovation policies to include a more diverse range
of policy fields (including labor, welfare, urban planning and social
policies among others) as part of the innovation policy mix but also
ensuring that existing innovation policy instruments are extended to
actors in the informal economy. The current framework of innovation
policies, if unchanged, is likely to lead to a wider inequality gap through
the continued support and concentration of opportunities and resources
in the formal and highly skilled segments of society. Achieving some level
of coherence across the various components of such an innovation policy
i n n o v a t i o n p o l i cy an d t h e i n f orm al ec onom y
321
mix involves complex coordination between various levels of governance
(national, provincial and local), which clearly calls for policy learning in
terms of scope, interpretation of change and implications for policy
legitimization.
For policy makers, then, the question should not be a matter of
choosing between the formal and the informal when it comes to innovation. Rather, the question should be how to expand and widen support
structures for innovation in an economic reality where actors have
different degrees of informality, from the most informal to the most
formal. Ignoring large vulnerable communities of potential and actual
innovators in innovation policy programs and policy making processes is
unlikely to lead toward a more equitable future. How can innovation be
supported in a way that addresses the most pressing social and economic
challenges – like unemployment, poverty and marginalization – and
allows a transition toward more equitable development?
Today, many developing countries have recognized the long-term
limitations posed by the path to inequitable development. Given the
potential benefits that a more innovative and participatory informal
economy bring, it is crucial that governments complement their efforts
to support innovation with efforts to support the needs and creative
activities of the informal economy.
Conclusion
Countries around the world have embarked on the promotion of innovation as a key strategic tool to achieve faster economic growth. However,
in emerging economies, policies inspired by prevailing approaches in
more advanced economies appear to be leading to wider inequalities if
they are not steered toward distributive goals. To some degree, this
chapter takes up this challenge and proposes an integrated approach to
the innovation policy mix, inclusive of the informal economy. Such an
integrated approach calls for deepening and widening of innovation
policy frameworks.
A typical feature of emerging economies is the asymmetric distribution of research and innovation capacities. The coexistence of a few
“islands of excellence” – innovative leading businesses, research organizations and universities – with a large majority of low-productivity firms
and research organizations has been acknowledged in the literature
(Paunov 2013). These asymmetries can be exacerbated by policy frameworks that only make incentives and funding mechanisms available to
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formal organizations and highly skilled researchers. This chapter argues
that innovation policy can become a tool to achieve faster economic
growth and more equitable development. Some of the requirements to
achieve such goals include:
(1) Recognition of the informal economy at the innovation policy level.
This would be the first and foremost step toward designing innovation policies that are locally relevant in the context of developing
countries.
(2) Widening the scope of innovation policies to include those policy
areas that directly affect informal economic actors (including labor,
welfare, urban planning and social policies among others) as part of
the innovation policy mix.
(3) Ensuring that existing innovation policy instruments are extended to
suitable actors in the informal economy, for instance, thinking
creatively about innovation hubs as spaces for co-creation, leaving
room to engage the informal sector or redesigning traditional instruments such as innovation funding mechanisms in such a way that
they encourage collaboration with and participation from the informal economy.
(4) In the process of designing incentives and mechanisms intended to
shape the innovative behavior of actors operating in the informal
domain of the economy, policies and programs ought to be mindful
of the cultural attributes of different ethnic groups and communities.
Such considerations can play a critical role in the response of different actors to incentives, and ultimately the effectiveness and positive
impact of policies and programs.
(5) Policy makers in emerging economies must pay particular attention
to the distributional effects of innovation policies and programs.
As Kerr and Kolavalli (1999) point out, the distributional effects of
technical change – between different stakeholders, same stakeholders in different regions and across regions – will depend on
policies and institutions.
(6) Coordination of policies at various levels of governance. At the
institutional level there are two main broad dimensions: the
national and the local. National government agencies set up
national priorities and objectives, while local governments are
closer to local communities, informal actors and the level of
implementation. It is therefore of central importance to build
i nnovation po licy and t he info rmal economy
323
the capacities of municipal governments to better understand
and implement innovation strategies at the local level.
(7) Identification of and data collection on the types of innovation that
occur in the informal economy. While efforts to collect data in
formal enterprises are taking off in emerging economies, data on
micro-enterprises, especially informal ones, are practically nonexistent. Emerging economies should engage in large-scale data
collection exercises that identify local grassroots innovators in key
sectors. Such exercises would allow identification of the types of
innovations that are taking place in the informal sector, which ones
have larger potential for employment creation, upscaling, social
transformation, firm creation and other policy objectives.
The chapter has addressed and examined congruent options to intervene
in the transformation and evolution of innovation systems in developing
countries in such a way that innovation is put at the service of transformation toward more equitable development.
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COMMENT 7.1
anneline morgan
Southern African Development Community (SADC) Secretariat7
Introduction
Africa faces many challenges especially in terms of economic growth and
social development, which is characterized by high levels of poverty,
unemployment, inequality and restricted access to basic services and
infrastructure. For example, the 2012 Human Development Report for
Southern Africa paints a bleak picture of development in the sub-region,
stating that it remains one of the poorest in the world despite
a population of over 275 million and abundant natural resources.
The report also states that as at 2010, approximately 45 percent of the
total population lived on $1 or less per day.8 Many countries in subSaharan Africa have Science, Technology and Innovation (STI) policies
in place, but these policies largely focus on research and development
rather than innovation as such. There are also many debates and schools
of thought as to whether innovation issues should be managed and
coordinated by STI ministries or departments, or ministries or departments of trade and industry.
The second section of this chapter describes conventional policy
approaches to the informal economy in developing countries and their
treatment of innovation. Traditionally, industrial or economic policies
address issues of innovation directly or indirectly, but when it comes to
implementation the focus is on unemployment and economic growth,
overlooking issues of innovation, inequality and poverty and the potential offered by the informal economy. Policies and regulations inhibit
informal economic actors from integrating and participating in the formal economy. Issues such as taxation, compliance and quality standards
serve as barriers to recognizing innovations in the informal economy.
The challenge is to find the policy balance that supports the informal
economy without stifling its growth and potential while at the same time
7
8
The views in this commentary are made in my personal capacity and do not necessarily
represent the views of the SADC Secretariat.
Human Development Report for Southern Africa (HRD-SA 2012): Enhancing Human
Development through Regional Integration in SADC by the Economic Commission for
Africa, Southern Africa Office.
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making sure regulations are in place to ensure quality, accountability and
growth.
One also needs to know who are the main actors and stakeholders in
the informal economy. Is it locals or foreign nationals or migrants, for
example? In many countries, significant input from foreign nationals or
migrants is becoming the norm. Such is the case in South Africa, where
foreign nationals are largely the driving force of the informal economy,
which has led to tensions with locals in the access to and share of the
informal economy. This policy question will have a fundamental impact
on the way a country develops interventions to support the informal
economy. In South Africa, the Broad-Based Black Economic
Empowerment Act of 2003 aimed to facilitate the distribution of wealth
to marginalized groups in the economy, but this has led to a few “black
elites” having access to a very small proportion of the economy.
In Zimbabwe, the Indigenisation and Economic Empowerment Act of
2007 is a deliberate policy intervention to create an environment to
enhance economic activities of indigenous Zimbabweans, facilitate
their involvement in the economic activities of the country and ensure
that there is equitable ownership of the nation’s resources (Chowa and
Mukuvare 2013).
Do current policy-making processes and systems provide space for
the informal sector/economy to have a voice in policy development and
implementation? In many countries, the trade union sector plays this
role, but mainly in negotiating workers’ rights and labor issues – wages,
salaries and working conditions. Informal economy actors do not have
a “formal” structure or institution to represent their issues, which are
mainly about having a share of the economy and improved business
conditions such as access to finance and markets. There is a need to shift
the public policy-making process to include the informal economy.
There is a need to register and profile the informal economy at all
levels – local, provincial/district and national – in order to understand
their needs and challenges. This will lead, directly or indirectly, to the
creation of associations within the various sectors of the informal
economy.
The third section of this chapter describes conventional approaches to
innovation policy and their treatment of the informal economy, prompting several questions. Do countries need to develop stand-alone innovation policies or should innovation policies be integrated into all key
strategies such as economic, social, science and technology policies?
Should innovation policy be driven by a single institution or should
co mmen t 7 . 1 an n el i n e m organ
329
this responsibility be shared by all key sectors in both public and private
institutions? There is a need to understand the informal economy in
terms of its drivers, stakeholders, consumers, environment and various
sectors in order to integrate and support it within the innovation policy
framework. There is a need to create an environment that facilitates
interaction, partnerships and dialogue between and among the public
and private sectors and the informal economy.
Traditionally, engagement and interaction with the informal economy
has been largely left to NGOs, CBOs and so on. There is current debate
and discourse on innovation for inclusive development or social innovation. The OECD defines “inclusive innovations” as “projects/initiatives
that directly serve the welfare of lower-income and excluded groups,”
while “grassroots innovations” are “inclusive innovations emphasizing
the empowerment of lower income groups” (Heeks et al. 2013). This also
relates to innovations in the informal economy. As Kruss and Gastrow
(2015) note, “In the South African context of a large informal sector, high
rates of unemployment and the potential significance of links to value
chains in the formal sector for local and regional economic development,
understanding the dynamics of university involvement in innovation to
enhance livelihoods in informal settings is significant.” Innovation ecosystems and value chains should recognize the informal economy in local
communities.
The authors point out the potential of public procurement to stimulate
demand for innovation, so encouraging advances in home-grown products, solutions and goods and services. There is a need to design
incentive schemes for both formal and informal economies, to facilitate
interactions and partnerships between and among the various sectors
such as agriculture, tourism, services and transport.
We also need to understand better whether intellectual property rights
(IPRs) function as an enabler of or A barrier to innovation in the
informal economy. Do current IP systems cater for the informal economy? It is important to understand that many innovations in the informal economy involve indigenous or traditional knowledge which has
been generated and preserved over generations. Therefore, issues of
culture and trust will play a key role in determining whether or not the
informal economy embraces IPRs. It is important to create awareness
and understanding of the pros and cons of IPRs, and to appreciate and
understand the operating practices of informal economy actors when
considering IP policies and regulations in this regard.
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e r i k a k r aemer -mbul a an d a lm am y konté
Conclusion
An integrated approach to the innovation policy framework is necessary
in order to facilitate learning, knowledge exchange, technology transfer
and adaptation and to create awareness of social issues such as culture,
diversity and religion which are normally taken for granted or overlooked in innovation ecosystems and value chains. The recently adopted
SADC Industrialization Strategy and Roadmap 2015–2063, approved by
the Extraordinary SADC Summit in Harare, Zimbabwe, in April 2015,
recognizes the “importance of technological and economic transformation of the SADC region through industrialization, modernization, skills
development, science and technology, financial strengthening and deeper
regional integration” (SADC 2015). It further states that the SADC
region will seek to progressively move from factor-driven to investmentdriven growth and ultimately a high-growth trajectory driven by knowledge, innovation and business sophistication. The Strategy recognizes the
importance and role of strengthening small and medium-sized enterprises through training programs, information and financing and by
creating a favorable policy environment for their participation in the
economy. There is thus an opportunity to ensure that the informal
economy is considered in the implementation of the regional
Industrialization Strategy and Roadmap, since the economies of the
SADC region are largely driven by the informal sector. This chapter
provides valuable insights and recommendations to help toward an
integrated approach to innovation policy, which can in turn contribute
to industrial development, socio-economic development and regional
integration.
References
Chowa, T. and Mukuvare, M. 2013. “An analysis of Zimbabwe’s Indigenisation
and Economic Empowerment Programme (IEEEP) as an economic development approach,” Researchjournali’s Journal of Economics 1(2). www
.researchjournali.com/pdf/213.pdf.
Heeks, R., Amalia, M., Kintu, R. and Shah, N. 2013. Inclusive Innovation:
Definition, Conceptualisation and Future Research Priorities
(Development Informatics Working Paper Series no. 53). Manchester,
School of Environment, Education and Development (SEED).
Kruss, G. and Gastrow, M. 2015. Linking Universities and Marginalised
Communities: South African Case Studies of Innovation Focused on
c o mmen t 7 . 1 a n n el i n e morgan
331
Livelihoods in Informal Settings. Cape Town and Ottowa, HSRC Press and
International Development Research Centre.
SADC 2015. SADC Industrialization Strategy and Roadmap 2015–2063.
Botswana, SADC. http://sadc.int/files/8314/4007/6006/
SADC_Industrialisation_Strategy__Roadmap.pdf.
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COMMENT 7.2
judith sutz
Universidad de la República, Uruguay
This is a very interesting and comprehensive chapter. I would underline,
as a primary merit, its universality: although inspired by and rooted
empirically in African cases, it rings bells for other places, even those
where informality is not as massive as in the examples provided.
Whatever the level of informality, whatever the institutionalization of
science, technology and innovation (STI) policies, the divorce described
in the chapter between informal endeavors and prevailing knowledge
production practices is immediately recognizable.
I would like to highlight three features mentioned in the chapter that
justify this assertion, giving examples from a small Latin American
developing country, Uruguay. First, informal activities are usually invisible in STI policies and to knowledge producers, especially those at
universities. To begin with, informal actors are not registered. When
a social reality does not have a formal existence it is almost impossible to
devise a policy to address it; when actors are not recognized and registered, even if they have well-defined behaviors, they will not become
a policy target. A main characteristic of informal actors is their difficulty
in uniting around a common set of interests that might give the visibility
needed to highlight their vindications. The authors rightly stress the
importance of collective arrangements and the key role that intermediaries can play in overcoming these difficulties. But where can such
intermediaries be found? There are many NGOs that work specifically
with deprived people, but not so many working with informal productive
actors. In Uruguay, one of those intermediaries is the Extension Unit at
the public university (the University of the Republic in Uruguay).
It works with rural workers, artisanal fishermen, informal waste collectors, undertaking various activities, including research on technical matters, in a participatory way. The recognition, for themselves as well as for
society at large, of these weakly visualized social actors is a first step
toward including them in the design of knowledge policies.
The example of informal waste collectors is interesting. After some
time working with the Extension Unit, an informal cooperative was
formed. But then the following dilemma appeared: the cooperative organization brought dignity to the collectors working life, particularly
because it meant that waste classification was no longer carried out in
co mmen t 7 . 2 j udi t h s u tz
333
their houses, but such dignity came at a price because they started making
much less money than when wives and children had been engaged in the
classification work. To find a way to add value to the waste collection and
classification, a research project was started, involving social workers,
economists and engineers. One of its conclusions was that the workers
would need to bypass the commercial intermediaries that buy the outcomes of their work, particularly plastic material, at a very low price. This
would require a machine for compacting plastic; since a new one was
unaffordable, the challenge was to adapt an old one, and that was
achieved. As the authors argue, informal workers need to be recognized
and registered to become part of policies, and this needs the figure of
intermediaries, whatever their form, to overcome the dispersion, weakness and sometimes a sort of self-dismissive inclination that affect people
living in informality.
A second feature highlighted in the chapter that I would like to
mention is related to the role of universities. It is true that universities
are usually far removed from the problems and challenges faced by
people working in informal conditions; generally speaking, they do not
engage greatly with the problems and challenges of poor people. Why?
Researchers at universities study topics either because they find them
interesting or because they are requested to and paid by non-academic
actors, mainly business enterprises or the government. On top of that, the
academic evaluation systems that decide their fate as researchers are
gauged mainly on the number of papers they publish in refereed journals – the more mainstream and international, the better. To put the
might of universities’ research capacities at the service of the informal
workers, be it directly in relation to their trade or indirectly in relation to
their living conditions, a different set of goals and incentives need to be
put in place. The point is not that everyone must get involved in processes
of co-production of knowledge with informal actors, but researchers
should be given the material and symbolic means to enable them to do
so without being punished academically. At the Uruguayan public university, we know well how difficult this can be. The co-production of
knowledge is time-consuming; it requires the development of communication skills that are not so important in more classic research projects.
Such co-produced knowledge is usually of local importance and it is not
easy to find international journals that will publish the results. However,
if several stakeholders at national level start to question the imperialism
of the prevailing academic evaluation system because it hampers the
possibility of contributing to social and developmental goals, things
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er i ka k r aemer -mbul a an d a lm am y konté
may start to change. In Uruguay, researchers’ representatives in various
institutions started a common search for academic evaluation alternatives with the aim of making room for more socially engaged research.
Even if tangible results have not yet been achieved, the recognition of
a common goal has energized discussions within each institution and this
is gaining legitimacy for the issue. This is no small achievement, because
it is no longer so easy to dismiss the demand to address the social
relevance of research now that several researchers from various institutions are calling for it.
A third and final point to highlight from the chapter – selected from
several that deserve careful attention – relates to the characteristics of STI
policies in relation to the informal economy. I recommend in particular
that policy makers and other readers study Table 7.2, which shows policy
approaches to the informal economy. The column on current impact on
innovation in the informal economy suggests that all the measures and
instruments listed seem to have an indirect negative effect, but all have
a potential positive effect too, mainly indirect but also direct. Let’s take
the first row in Table 7.2, policies to develop the research system: these
may have an indirect positive effect on participatory research and socially
relevant research involving informal actors. The question is how to
realize this potential. A small but nonetheless significant step is to state
explicitly when writing STI national plans that the informal economy and
the social well-being of marginalized people will be policy targets, with
specific plans, specific instruments and specific budgets. This is starting
to happen in different Latin American countries, sometimes in an explicit, institutionalized way, as it is the case with the Secretary for Social
Innovation within the Brazilian STI Ministry, the Colombian Fund for
STI for inclusive development, or the Department of Technology
Assessment for Social Demand within the Argentinean Institute for
Industrial Technology. In Uruguay, the aim is incorporated into the
STI plan, but little has been done so far; however, the fact that the aim
is written there constitutes an important to push in this direction.
We are talking here about national policies, but there are other policies
to develop the research system, particularly those fostered by universities.
In the Uruguayan case, the University Research Council has a program
called “Research and Innovation Oriented towards Social Inclusion.” It is
a competitive call for projects to be funded by the university budget. Such
projects differ in several respects from classical R&D calls for projects.
For instance, the projects are presented by a university team but need to
be backed by an external actor that is directly affected by a problem of
co mmen t 7 . 2 j udi t h s u tz
335
social exclusion, or by an intermediary acting on their behalf.
The evaluation process includes the classic peer-review examination to
assess the scientific soundness of the project, but also interviews conducted separately with the university team and with the external actor to
calibrate (1) the extent to which the problem to be researched is a barrier
to social inclusion and (2) the degree of interaction among the university
team and the external actor during the construction of the proposal.
In a period of seven years, around fifty projects have been supported by
this program. But perhaps in the long run the most important effect of the
program will be in gradually creating awareness among university
researchers that social inclusion is an issue that they can and must
consider.
I hope I have conveyed the intellectual excitement and the reflexive
turn induced by reading this chapter. It is a good time for books like this
to defy our thinking on these matters.
8
Formulating an Agenda for the Measurement
of Innovation in the Informal Economy
jacques charmes, fred gault and sacha wunsch-vincent
Introduction
Measuring the informal economy (IE) and innovation within it remains
difficult. This chapter provides two ways forward.
Even at the most basic level such as data on employment or production, activities in the IE are not regularly or exhaustively recorded in
official national statistics. However, important progress has been made in
defining informal employment and informal sector enterprises and providing basic data, as Chapter 1 showed.
Providing statistics on and analysis of innovation in the IE will, however, require additional work and the development of novel statistical
approaches and indicators. Clearly, the measurement of innovation in
the formal sector has improved in the course of the last two decades.
Interest has also been growing in tailoring measurement tools to the
needs of developing countries. Yet these efforts have hardly been applied
to the informal sector. Besides, not all conventional innovation indicators
may be appropriate in the context of the IE. The incentives for innovation
and its impacts differ at times from those in the formal sector, in
particular when a social or community dimension has to be factored in.
Building on the preceding chapters and existing work in the field, this
concluding chapter aims to shape an agenda for the measurement of
innovation in the IE.
The discussion is structured in three parts. The first discusses innovation measurement approaches applied to the formal sector, what can be
learned from them, and whether the definitions and methods used could
be transposed to the informal sector. The second reviews efforts to date to
measure the informal sector and explores how to integrate them with
efforts to measure the formal sector. This includes consideration of
methodological issues relating to sampling and the use of general surveys.
336
a g e n d a f o r meas ur emen t o f innovation
337
Finally, we evaluate the possibility of conducting semi-structured interviews and more ad hoc surveys in informal sectors or clusters within
specific countries.
In the coming years, new efforts are planned to gather data and better
measure innovation in developing countries, such as the third edition of
the African Innovation Outlook. This will widen the scope of reporting
and analysis to include coverage of innovations in the informal sector
(AU-NEPAD 2014). The suggestions in this chapter are intended to lay
important groundwork for future empirical work, to help develop appropriate indicators and support new approaches to innovation policy in
developing countries. Pragmatic suggestions are formulated, pointing to
potential opportunities and challenges. Two viable scenarios emerge: (i)
adding a couple of innovation questions to existing large-scale surveys of
the IE and/or (ii) conducting ad hoc questionnaire- and interview-based
sectoral studies in selected countries, as was done for the country studies
in this book. Both options can benefit from lessons learned in conducting
the three different but mutually supporting types of innovation and IE
surveys, and their respective expert communities, which have different
but complementary skills.
Measuring Innovation in the Formal Sector and Applicability
to the Informal Sector
What Innovation Surveys Are Carried Out in the Formal Sector?
Since the early 1980s, work has been undertaken to better understand and
measure innovation by establishing concepts, guidelines and surveys.
The Oslo Manual initiated by the Organisation for Economic Cooperation and Development (OECD) introduced standard definitions
and indicators in 1992 (OECD 1992). In paragraph 146 of the third
edition of the Manual: “An innovation is the implementation of a new
or significantly improved product (good or service), or process, a new
marketing method, or a new organizational method in business practices,
workplace organization or external relations” (OECD/Eurostat 2005).1
The guidelines have been revised since, in collaboration with Eurostat,
the statistical office of the European Commission (OECD/Eurostat 1997,
1
See also paragraph 150: “A common feature of an innovation is that it must have been
implemented. A new or improved product is implemented when it is introduced on the
market. New processes, marketing methods or organizational methods are implemented
when they are brought into actual use in the firm’s operations” (OECD/Eurostat 2005).
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j acq ues ch ar mes et al.
2005). These guidelines are the starting point for the construction of
innovation surveys, most notably the Eurostat Community Innovation
Survey (CIS), developed in Europe, which has often been used as the
model for ensuing innovation surveys across the world (see Box 8.1).
One central aspect of these innovation surveys is that they measure
behavior. They ask if the enterprise introduced a new or significantly
improved good or service, and they also ask about the introduction of
novel organizational activity and marketing activity. The answers provide information about the firm as an innovative firm (OECD/Eurostat
2005, p. 47). There is also a question about ongoing or abandoned
innovation activities, a positive response to which classifies the firm as
innovation-active (OECD/Eurostat 2005, p. 59).
In this well-established innovation framework, innovation activities
could include the acquisition of machinery, equipment, software and
licenses, engineering and development work, design, training, marketing
and R&D where undertaken to develop and/or implement a product or
process innovation. Motives to innovate include the desire to increase
market share or enter new markets, improve the product range, increase
the capacity to produce new goods, reduce costs and so on. In addition to
these questions, surveys of innovation in the formal economy include
other questions, for example, on the sources of information for innovation, types and drivers of collaboration and expenditures on selected
innovation activities.
The data obtained are classified by size of the enterprise (number of
employees), geography and the industrial sector in which the enterprise
operates. This allows size-dependent, geographical and sectoral differences to be revealed through micro-data analysis.
Many countries outside high-income economies have adopted these
standard innovation survey tools.2 The UNESCO Institute for Statistics
and a range of partners, notably RICYT (Red Iberoamericana de
Indicadores de Ciencia y Tecnología) with its Bogotá Manual, have
produced a set of guidelines on how to implement innovation surveys
in developing countries. Estimates suggest that, to date, national innovation surveys have been carried out by ninety-five countries, fifteen of
them in sub-Saharan Africa, plus Egypt, Libya, Morocco and Tunisia (see
2
The goal of the UNESCO Institute for Statistics is to apply these standards across the world
to create an international database of innovation statistics for countries at all stages of
development. See www.uis.unesco.org/ScienceTechnology/Pages/innovation-statistics
.aspx.
a g e n d a f o r meas ur emen t o f innovation
339
box 8.1 community innovation survey 2012
The harmonized Community Innovation Survey 2012 includes questions which
follow eleven themes of inquiry:
(1) General information about the enterprise
(2) Product (good or service) innovation
(3) Process innovation
(4) Ongoing or abandoned innovation activities for product and process
innovations
(5) Activities and expenditures for product and process innovations
(6) Sources of information and cooperation for product and process innovation
(7) Competitiveness of your enterprise’s product and process innovations
(8) Organizational innovation
(9) Marketing innovation
(10) Public sector procurement and innovation
(11) Strategies and obstacles for reaching your enterprise’s goals
On product innovation some of the questions are the following:
2.1 During the three years 2010 to 2012, did your enterprise introduce:
Yes
No
Goods innovations: New or significantly
improved goods (exclude the simple
resale of new
goods and changes of a solely aesthetic 

nature)
Service innovations: New or


significantly improved services
2.2 Who developed these product innovations?
Tick all that apply
Your enterprise by itself
Your enterprise together with other
enterprises or institutions
Your enterprise by adapting or
modifying goods or services
originally developed by other
enterprises or institutions
Other enterprises or institutions
Goods
innovations


Service
innovations






Source: Harmonized Community Innovation Survey 2012.
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jacques c harmes et al.
Table 8.1 Innovation surveys in Africa
Country
Burkina Faso
Ethiopia
Gabon
Ghana
Kenya
Lesotho
Malawi
Mali
Mozambique
Nigeria
Senegal
South Africa
Uganda
United Republic of
Tanzania (Tanzania)
Zambia
Egypt
Libya
Morocco
Tunisia
Year of implementation of
most recent innovation survey
Reference period
2009
2011
NA
2012
2012
2012
NA
2012
2009
NA
2012
2008
2012
NA
2006–2008
2008–2010
2010–2012
2008–2010
2008–2011
2009/10–2011/12
NA
2008–2010
2006–2008
2008–2010
2009–2011
2005–2007
2008–2010
2008–2010
2012
2011
NA
2010
2008
2008–2010
2008–2010
NA
2009–2010
2005–2007
Note: Some of these countries conducted both R&D and innovation surveys as part
of the NEPAD ASTII project, whereas others such as Nigeria and Zambia conducted only an innovation survey.
Source: AU–NEPAD (2010, 2014) and UNESCO Institute for Statistics–UIS
Catalogue of Innovation Surveys, report generated on November 18, 2014.3
Table 8.1).4 These surveys are mostly the result of the work on the African
Science, Technology and Innovation Indicators (ASTII) program by
NEPAD (The New Partnership For Africa’s Development), with involvement from the African Observatory of Science and Technology
Innovation (AOSTI).5
3
4
5
See also Box 8.1: Towards a global database of firm-level innovation surveys of the
UNESCO Institute for Statistics, in Chapter 1, pp. 38ff., of Dutta and Lanvin (2013).
See also UNESCO Institute for Statistics (UIS), “UIS Catalogue of Innovation Surveys,
World,” report generated on September 24, 2014.
www.nepad.org/humancapitaldevelopment/astii/about.
a g e n da f o r meas ur emen t o f innovation
341
The ASTII innovation surveys follow the guidelines of the Oslo
Manual and are based on the above-mentioned CIS. The areas of enquiry
are (i) product innovation, (ii) process innovation, (iii) ongoing or
abandoned innovation activities, innovation activities and expenditure,
(iv) sources of information and cooperation for innovation activities, (v)
effects of innovation during the last two years, (vi) factors hampering
innovation activities, (vii) intellectual property rights and (viii) organization and marketing innovations.
Survey findings are well documented in the African Innovation
Outlook (AU–NEPAD 2010, 2014) and in country-specific reports.
Are Innovation Surveys Designed for the Formal Sector Applicable
to Measure Innovation in the Informal Economy?
The fact that innovation surveys are now largely deployed in Africa and
other developing regions demonstrates significant progress, but some
challenges remain.
First, among the existing formal sector innovation surveys, the sector
coverage varies greatly,6 some values are missing, and because of the
differing survey methodologies used, in particular the range of sampling
cutoffs, it is difficult if not impossible to make country comparisons.
Second, micro and small enterprises in the formal sector might be
omitted as well, as participating countries usually exclude firms with
less than ten employees from the sample. Arguably, small and microenterprises, which are often on the verge between formal and informal
activities, are particularly relevant for the study of innovation system in
these countries. Third, by definition, none of these business surveys in the
formal economy aims to survey innovation in the informal sector.
The first issue can be addressed over time as countries gain more
experience and if more resources are available to them. The second
issue is receiving attention by the communities designing the innovation
surveys, and to ensure that the spectrum of formal micro-firms is not
neglected. However, the third issue will continue to be a challenge if
action is not taken to address it, as the informal sector will never be
covered by full-scale enterprise innovation surveys.
We do not regard extending the large-scale innovation surveys to the
IE as a viable option. An innovation survey is a business survey and the
6
Some cover manufacturing, some cover mining and service industries while others include
sectors such as higher education and research establishments (see AU–NEPAD 2014).
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j acq ue s ch ar mes e t a l.
infrastructure is not present to support it in the informal sector. Adding
questions addressing the IE to existing innovation surveys would require
their scope and coverage to be expanded to cover the whole universe of
economic activity. This would mean that most of the questions would not
fit most of the observation units.
Moreover, it would be challenging to ensure that questions were tested
in informal sector contexts and the survey was then administered accurately. Identifying and properly sampling informal sector entities, deploying a questionnaire and ensuring reliable responses from them is more
challenging than when an innovation survey is sent to a standard list of
firms in the formal sector, addresses of which can be easily found from
business registers. Box 8.2 notes some further methodological difficulties.
The bottom line is that efforts to survey innovation in the formal
economy should focus on perfecting and harmonizing coverage (including all industrial sectors and sizes of firm), reliability and comparability
of results within the formal economy. Informal economic activity should
be surveyed separately.
However, it is still necessary to consider whether the definitions and
questions in formal sector innovation surveys might offer any lessons or
templates for surveying the IE, in particular by (i) adding a couple of
innovation questions or a short module to existing large-scale surveys of
the IE and/or (ii) conducting ad hoc questionnaire-based sectoral studies
in selected countries, as done for the country studies in this book.
Responses to some core questions on innovation collected from enterprises in the informal sector could provide policy-relevant information to
firms in the informal and formal sectors and to governments.
At the outset, one might ask if conventional IP and innovation indicators are appropriate in the context of the IE. Innovation activities and
actors and the underlying incentives for and impacts of innovation might
all be different in the IE from their counterparts in the formal sector,
whether of developed or developing countries. As a result, some or all
existing indicators, survey instruments, notions of collaboration and linkages, and impact assessment tools may not apply directly in this setting.
A thorough review of existing innovation surveys in Africa in the light
of our expertise in deploying innovation surveys in Africa’s formal sector
allows us to draw the following conclusions.7
7
The Kenya questionnaire is an example taken from the ASTII project (Kenya Ministry of
Higher Education, Science and Technology and Kenya National Bureau of Statistics
2012, p. 32).
a g e n d a f o r meas ur emen t o f innovation
343
box 8.2 methodological challenges in surveying
the informal economy
Irrespective of which type of survey is used to ask innovation questions, methodical challenges exist for any statistical survey targeting the informal sector.
The first question is how to test the questions to get meaningful results. A CISlike survey consists of a set of questions which ideally will have been tested with
businesses in the language used to administer the survey plus a structure that may
direct respondents to different parts of the questionnaire depending on their
answers to earlier questions. Cognitive testing aims to address the common
understanding of the question in the population being surveyed, but it should
also take into account linguistic and cultural differences in other jurisdictions if
the comparisons of survey results are to be meaningful.
Similar testing would need to be carried out in the informal sector to get a sense
of the sort of innovation-related questions that we consider later in this chapter,
in the section Review of Existing Informal Economy Surveys. Does one get
meaningful results to classic innovation survey questions in the informal sector?
How great is the likelihood of misinterpretation – if firms in the formal sector in
advanced countries interpret CIS questions differently, how reliably does this
predict problems in the informal sector as well?8
Second, there are challenges in sampling. For a business survey to provide
robust estimates of the variables measured, there must be a survey frame from
which a sample is drawn. The frame could be a business register, or the membership list of an industry association or an administrative list used for other
purposes than providing a survey frame such as records of firms that pay employment taxes or revenue taxes or records of the registration of firms as
a precondition of their doing business.
There are two problems here with regard to the informal sector. There is unlikely
to be a list of organizations that trade in the informal sector, and such organizations
may not have the characteristics of formal sector firms. They may be extended
families, interest, faith or tribal groups, or other informal consortia without registration, accounts or an established practice of reporting to government organizations.
In addition to the frame, there must be a means of conducting the survey.
In developed countries, printed questionnaires are still mailed to respondents
who then fill them out and return them. Web-based surveys may also be used.
In the informal sector, these techniques are unlikely to work as possible respondents may lack a reliable postal address or Internet access, or indeed a sufficient
level of literacy. Moreover, informal operators are unlikely to comply with any
obligation to respond to an official statistical survey.
As we will explain in more detail in the penultimate part of this chapter, the
only option is often to use interviewers to obtain reliable responses in a personal
conversation.
8
Even with cognitive testing of questions in one context, there may be comparability issues
across jurisdictions. See Arundel, O'Brian and Torgugsa (2013) and the literature cited
there. See also the section on Business Innovation Surveys in Wunsch-Vincent (2012).
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jacques charmes et al.
Many of the questions in the CIS-like surveys used now in Africa in the
formal sector are appropriate in the informal sector. The informal groups
that approximate to firms will know whether they have introduced a new
or significantly improved product to the market and whether they have
improved their transformation or delivery process, their organization or
their market development. They will also know, among other relevant
things, what their information sources are, which partners they work
with and where learning has occurred.
Some changes are needed, modifying or dropping existing questions
and adding new ones. For instance, questions on the sources of information for innovation will have to be adjusted to be relevant to respondents
in the informal sector. Adaptations are necessary when enquiring about
“linkages between the informal and the formal sector,” “learning by
imitation of the formal sector” or “innovation co-operation partners.”9
The ways of learning by doing that prevail in the informal sector and the
forms of apprenticeship also need to be reflected in the survey. When
asking about methods for maintaining or increasing the competitiveness
of product and process innovations (e.g. patents or other forms of formal
IP, lead time, complexity, secrecy), it will be necessary to consider other
options more relevant to informal sector actors, and to pose questions in
a form that such actors will understand.
Some of the questions in CIS-like surveys do not apply to the informal
sector. Technically, reliance on public sector procurement is one example. Similarly, public financial support for innovation activities from
government such as subsidies will not be relevant either, although
ongoing or emerging policy initiatives such as those described in
Chapter 7 of this book will need proper reflection in any tailored survey.
Questions on R&D performance and the use of universities and government laboratories as sources of ideas for innovation and of collaboration will also need to be dropped from surveys or significantly adapted.
Most other questions can be adapted to the informal sector but will need
to be administered by trained interviewers once a survey sample has been
identified.
In addition, new questions are required in order to understand the
informal enterprise and its environment. As Chapters 2 and 3 have
shown, informal sector actors are surrounded by various actors and
underlying policy frameworks, some of which are different from those
of the formal sector.
9
See, in particular, Kawooya (2014) on this point.
a g e n d a f o r meas ur emen t o f innovation
345
Finally, the question arises whether transposing formal sector innovation surveys to the informal sector is sufficient to grasp the breadth, depth
and expected outcomes of innovation in the IE.
Clearly, innovation is only considered from the enterprise perspective
in CIS-type innovation surveys. New products, processes or other enterprise innovations and their potential impacts on firm performance are
the focus of purely behavioral questions which are not normative in
nature, and which are only asked at the firm level without later economywide assessment of economic or social impacts. So a firm can report
behavior that shows that it has innovated, but without being certain that
this innovation has produced impacts in terms of increased revenues,
process efficiency, reduced prices or increased quality. Furthermore,
innovation surveys based on the Oslo Manual require innovations to be
connected to the marketplace. And formal innovation surveys have
a single time scale – usually the last three years; there is no monitoring
of previously recorded innovation activities or economic or social outcomes over time.
Yet for the IE – and for innovation in developing countries more
broadly – the desired measurement could be different and entail more
than measuring innovation activity at the firm level in one period.
Importantly, the focus on measuring innovation in a “market context”
only might well not be sufficient to capture the fuller dimension of these
activities.10
Innovation as discussed in the literature on innovation in developing
countries is based on concepts which go beyond enterprise innovation
and typical firm incentives to innovate, such as increased revenue and
market share (AU–NEPAD 2014). Academic and policy discussion of
innovation and development now often focuses on themes such as
“grassroots,” “frugal,” “inclusive” and/or “social innovation.”11
There is no formally agreed official statistical definition of these innovation- and development-related terms, but various authors have
attempted to define this field further. Mashelkar (2012), for instance,
describes “[i]nclusive innovation” as “any innovation that leads to affordable access of quality goods and services creating livelihood opportunities
for the excluded population, primarily at the base of the pyramid and on
a long-term sustainable basis with a significant outreach.” In most
10
11
See Box 1.2 in WIPO (2011).
See, for example, Gault et al. (2012), pp. 23–32; Gupta (2012), pp. 28–39; and Radjou,
Prabhu and Ahuja (2012). See also Muchie, Lundvall and Gammeltoft (2003) and Mutua
and Mbwana (2012). On “social” innovation, see Mulgan, Joseph and Norman (2013).
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jacques charmes et al.
definitions and discussions, the purpose of innovation in terms of
improving standards of living – including lower-cost goods and services
that meet poor people’s ability to pay – receives attention. Affordability,
opportunity and sustainability are connected to the innovation process
and outcomes.
All of these definitions address specific issues such as inclusiveness or
social outcomes which expand on the definition of innovation. No longer
is it just putting a new or improved product on the market or finding
a better way of getting there; more is required. This has implications for
measurement.
Importantly, measuring the above types of innovation would require
a focus on measuring the social contexts and outcomes of innovation.
First, not all transfers in the informal sector are mediated by a market as
transfers of goods or services may happen for social or other reasons.
New concepts and innovation questions going beyond the Oslo Manual
and CIS-type innovation surveys would be required to capture this
dimension. Second, if innovation is intended to be “inclusive” or to
meet other social objectives, from the measurement perspective it is not
sufficient to record the intention of the firm. Actors other than firms,
including entire communities, might need to be studied instead. This last
point clearly goes beyond the challenge of measuring innovation in the
informal sector.12
Furthermore, a one-off survey of one particular entity might not be
sufficient to establish whether the innovation did indeed result in greater
inclusiveness or any other impact. For this to be done, some sort of
survey, most likely a social survey, is required after the innovation has
been introduced to the market to assess impacts and, potentially, the
innovation’s sustainability.
12
Non-market innovations, innovations by groups, users, consumers and public institutions are commonplace in developed and developing societies alike. The current innovation literature increasingly reflects these forms of innovation, in particular with respect to
“user innovation” (see de Jong and von Hippel 2013). Some contributions discuss how to
conceptualize and measure “user innovation” by consumers, as opposed to firms
(Hienerth, von Hippel and Berg Jensen 2014). In a related fashion, a suggestion has
been made that the link to market be replaced by a link to “potential users” to cover user
and public sector innovation (Gault 2012). This is still under discussion in the innovation
community, but it would, if adopted, include non-market transfers of goods or services in
updated definitions of innovation. The discussion of innovation outside market contexts
is developing. Once it is more mature, it can usefully cross-fertilize with progress made on
conceptualizing innovation in the informal sector.
a g e n d a f o r meas ur ement o f innovation
347
The point here is that measuring innovation that meets certain economic or social objectives requires coverage of more than one time scale
and several different groups of respondents: the producer, consumers,
and so on. Such measurement is possible, but it requires more detailed
approaches, more longitudinal studies and certainly more time and
money. The ad hoc surveys of innovation in the IE used in this book
offer some solutions to above challenges, as they aim to capture some of
the social components of innovation.
Measurement of the Informal Sector to Date and Scope
for Introducing Innovation Survey Questions
The previous section considered the usefulness of classic innovation
survey questions in informal sector contexts and their possible adaptation. In this section we examine independent current initiatives to measure the informal sector, focusing again on Africa. We suggest how
innovation survey questions might be included in existing informal
sector indicator exercises by adding a couple of innovation questions or
a short survey module to existing large-scale “combined surveys” of
the IE.
Review of Existing Informal Economy Surveys
As described in Chapter 1, there have been ongoing statistical efforts to
better define and measure the informal sector over the last three decades,
with some notable progress.
During the past decade, many surveys of the IE have been carried out
across Africa and some of them have addressed some issues regarding
innovation. In a few countries they have started to be repeated. As major
providers of information for labor force statistics and national accounts
purposes, these data collections are expected to become more permanent
and continuous and could be developed to include a set of core questions
on innovation.
Since the early 1990s, and especially after the adoption of an international definition of the informal sector and recommendations for its
measurement, mixed surveys – that is, surveys of informal establishments
operated by members of sampled households – have blossomed in many
countries, particularly in Africa where the concept was born in the early
1970s. Initially, resource constraints meant that many surveys remained
limited to capitals, major cities or urban areas. More recently, their
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j acque s ch ar mes et a l .
coverage has become more widespread, covering entire national
territories.
ILO (2013) provides a detailed picture of the informal sector surveys,
and we include some questionnaire extracts at Annex 2 and Annex 3 of
this chapter.13 Broadly, mixed surveys include the following approaches:
– The 1–2 or 1–2–3 surveys are two-stage or three-stage surveys with
a labor force survey as the first stage allowing the identification of the
informal economic units which are then surveyed in a second stage
through an establishment questionnaire, the third stage being
a budget-consumption survey of the households of informal
operators.
– Ideally, the same questionnaire is used in all countries with marginal
changes. Other types of mixed survey may differ from this approach in
using a specific questionnaire in each country and also in that the firststage survey is not always a labor force survey. In some countries, the
survey can be limited to the first phase only, as, for example, in Mali.
– The dedicated modules of LSMS-type14 surveys can be considered, in
a sense, as mixed surveys, with the difference that the module is not
administered in a second stage but immediately, and within the premises of a household rather than an enterprise.
Mixed surveys require expanded samples in order to obtain
a representative picture of detailed industries because their universe is
not known.
Besides these mixed surveys, measurement of the informal sector is
being attempted through various other surveys, including various types
of combined survey:
– In some countries with an establishment or economic census or
a functioning business register, establishment surveys might be
a useful way of gleaning more information about the IE.
– Combined surveys of establishments and household surveys are a valid
tool. Here, the existence of an establishment census allows area-based
sampling of enterprises in parallel with household surveys for the
capture of home-based and mobile activities.
13
14
See also Section 1 and the Annex in de Beer, Kun and Wunsch-Vincent (2013).
The Living Standard Measurement Study (LSMS) is a World Bank Programme of surveys
addressing the measurement of various dimensions of living conditions of households,
including their expenditures and economic activities.
a g en da f o r meas ur emen t o f innovation
349
– Dedicated modules on non-farm enterprises in traditional living standard surveys can foster our understanding of the informal sector.
– Labor force surveys or other types of household survey which focus on
the criteria for the measurement of the informal sector are also in use.
Table 8.2 lists the various types of survey implemented at national level in
Africa during the two past decades.15
Many countries have conducted or are conducting economic or establishment censuses, generally for national accounts purposes. These censuses are used as listing-based frames for business surveys, including
surveys of the informal sector (except home-based or mobile activities),
but must be used immediately after their completion as they go out of
date rapidly.
Table 8.3 and Figure 8.1 summarize data collection on the informal
sector in Africa according to the type of survey. In sum, 44.5 percent of
African countries have carried out a mixed or a combined informal sector
survey in recent years and another 29.6 percent have implemented an
informal sector survey of small establishments.
Is Innovation Covered in Existing Informal Sector Surveys?
If So, How?
It is interesting to look at the content of the informal sector surveys to
assess the potential for questions on innovation.
In particular, two types of survey should be considered for the purpose
of surveying innovation in the IE: (i) mixed households/establishments
surveys, which particularly suit countries with a large IE, and (ii) combined surveys, which associate a household survey with a separate establishment survey able to capture micro and small enterprises as well as
small and medium enterprises, which often escape surveys on the formal
sector.
The major objectives of the mixed/combined/establishment surveys
are to collect data on employment and production for labor force statistics and the compilation of national accounts. The questionnaires are
designed to assess the performance of informal micro-enterprises in
terms of employment creation (characteristics of workers and of jobs)
15
To this list can be added the numerous 1–2 surveys undertaken in the capital cities of
Western Africa at the beginning of the 2000s: Abidjan, Bamako, Cotonou, Dakar, Lomé,
Niamey, Nouakchott, Ouagadougou and also Yaoundé, Bujumbura, Antananarivo.
Table 8.2 List of countries with informal sector surveys
Establishment census/
survey
Algeria 2011–12
Tunisia 1997, 2002,
2007, 2012
Mauritania 1992
Rwanda 2006
Mixed survey
1–2 or 1–2–3
Other mixed
Combined survey
LSMS-type surveys
Morocco 1999/2000 and
2006/07
Mali 1989
Egypt 2003, 2004,
2011
Ghana 1995, 2000, 2008
Cape Verde 2009
Guinea Bissau 2009
Mauritania 2012
Niger 2012
Senegal 2011
Burundi 2008
Cameroon 2005, 2010
DR Congo 2004/05, 2012
Comoros 2013
Madagascar 2012
Chad 1995–96, 2011
Nigeria 2010
Rwanda 2005, 2011
Ethiopia 2003
Kenya 1999
Kenya 2015
Uganda 2009/10
Source: Charmes (2014).
Note: In italics: urban areas only.
Botswana 1999, 2007
Mozambique 2004
Namibia 2008
South Africa 2002, 2005,
2009, 2013
Madagascar 2001, 2002,
2004, 2005, 2010
a g e nda f o r mea s ur emen t o f innovation
351
Table 8.3 Types of surveys for the measurement of the informal sector, by
sub-regions in Africa
Northern
Africa
Mixed surveys
(1–2 or 1–2–3)
Mixed surveys
(others)
Combined
surveys
Establishment
censuses and
surveys
LSMS-type
surveys
Labor force
surveys
Total number of
countries
Western
Africa
1
Middle
Africa
6
4
1
1
3
1
4
1
6
1
1
4
14
Southern
Africa
6
Africa
2
13
4
9
1
9
4
Eastern
Africa
2
1
15
2
2
11
3
8
16
4
12
40
Source: Charmes (2014).
Note: Several types of survey may be used in a country.
No survey
25.9%
All types of surveys
74.1%
Labour force surveys
31.5%
LSMS-type surveys
20.4%
Establishment censuses
and surveys
29.6%
Combined surveys
3.7%
Mixed surveys (others)
16.7%
Mixed surveys
(1–2 or 1–2–3)
24.1%
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Figure 8.1 Proportion of countries using different types of survey in Africa
Source: See Table 8.2.
Note: Values in percent of 54 countries in Africa.
0.8
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j acq ues ch ar mes et al.
and generation of output, value added, production costs, entrepreneurs’
income and also – less systematically – capital formation and assets.
Regarding the characteristics of the workforce, the following information is most commonly collected: sex, age, education level, type of training received and needed, number of years of experience, skill level,
stability, type and amount of remuneration.
Because they are embedded within very large questionnaires, the
modules on non-farm enterprises operated by household members are
strictly limited to the collection of quantitative data on labor, intermediate consumption and costs, assets, revenue and net income and inventory, as in the Ghana Living Standards Survey (GLSS). The only
qualitative information refers to the most serious difficulties encountered
in establishing (capital, credit, technical know-how, government regulations, other). Furthermore, as these surveys are not conducted within the
premises of the establishment, they are unlikely to be a source of information on innovation.
Some other types of IE surveys do sometimes include questions which
come closer to covering innovation (see Annex 2 and Annex 3), including
questions about competition, difficulties/barriers and prospects. Stage 2
of the 1–2–3 surveys – the mixed informal sector surveys popularized in
Western and Central Africa – are typical in this regard. These surveys
produce information about the constraints confronting informal sector
operators and the solutions that they adopt. They also collect some data
on sub-contracting: Is the informal sector enterprise sub-contracting
with other informal firms or home-based workers? Is the informal firm
sub-contracted by some other informal or formal enterprise? However, it
is difficult to capture from such questions in mixed surveys data resembling the questions about product, process, marketing or organizational
innovation obtained through surveys of innovation in the formal
economy.
Combined surveys such as those carried out in Egypt, Kenya and
Nigeria are a better way of collecting data on innovation, for at least
two technical reasons:
(1) Area-sampling based on establishment surveys ensures a sufficient
number of economic units in the various detailed industries.
Specifically, it allows for regular updating; for example, once the
areas have been selected with a probability proportional to the
number of establishments, a complete new enumeration of the
selected areas can be implemented. Consequently, the detailed
a g e n da f o r meas ur emen t o f innovation
353
questions on innovation are likely to provide a more accurate picture
than if they are addressed to a majority of lesser concerned IE actors,
for example, street vendors or informal units dedicated to trade
activities.
(2) Combined surveys allow flexible sampling ratios in order to reach
a sufficient number of units in major industries and small and
medium-sized establishments. They go beyond home-based or
mobile activities and micro-enterprises and also target small and
medium-sized entities, so covering a fuller range of informal economic activities. Traditional mixed surveys tend to cover a huge
number of trade establishments but only a small number of manufacturing establishments and small and medium-sized
establishments.
However, a realistic approach is required. First, combined surveys
require an establishment census to be implemented at a single point in
time, which is costly. Second, while combined surveys offer more flexibility in this regard, it is generally difficult to change the design of survey
questionnaires where they have been tested and used for a long time.
Third, this type of survey is better suited to more advanced developing
countries such as Kenya and Nigeria, where the number of small enterprises is significant and not well covered by the surveys of the formal
sector. Less developed countries are unlikely to be well covered by such
an approach. There is a need to ensure that the scope and coverage of
informal sector surveys are geared to the size of firm, and that discrepancies between the scope and coverage of innovation surveys and the
scope and coverage of informal sector surveys do not effectively exclude
intermediate enterprises.
With these caveats in mind, we can suggest a starting point for
integrating innovation questions in combined surveys.
Some of the few existing combined surveys already make a significant
effort in this direction. The Kenya Micro Small and Medium Enterprise
(MSME) Survey is a good example. The questionnaire is comprised of
several modules (see Annex 3 for some portions of the questionnaire),
including questions designed to collect information on entrepreneurial
dynamics and innovation:
(1) The modules on employment and workers collect data on skills
development received and required by operators, as well as inservice training for employees.
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j acq ues ch ar mes e t al.
(2) The module on business expenditure collects information on the cost
of licenses issued, advertising costs, product innovation, process
innovation and social responsibility.
(3) The module on access to information and amenities includes access
to electricity, telephone and computer services.
(4) The module on business income and seasonal variations includes
a section titled “Product, Process and Marketing Innovation” with
four questions that resemble CIS-type innovation surveys:
(a) During the period 2009 to 2013, did you introduce new or significantly
improved goods or services? Yes/No
(b) During the period 2009 to 2013, did you introduce new or significantly
improved methods of manufacturing or producing goods or services?
(c) During the period 2009 to 2013, did you implement a new marketing
method involving significant changes in product design or packaging,
product placement, promotion or pricing?
(d) Please estimate the total turnover in 2013 of goods and services innovations introduced in 2013 (Kenyan shilling, KSh).
(5) The module on capital and technology comprises six questions
which also survey the amount and sources of initial and additional
capital, the types of equipment, the type and sources of technological
advice and support, and the use of information and communication
technologies.
(6) The module on business organization and marketing comprises
seven specific questions on marketing relating to how prices are
set, information about buyers, sub-contracting, marketing innovation (advertising, etc.) and customer feedback mechanisms.
In sum, questions on all four types of innovation are included, in addition
to questions about various sources of information (technical advice,
customer feedback, etc.) and cooperation.
Building on this excellent start and the formal innovation survey questions, four to five innovation survey questions could be formulated and
surveyed through combined surveys in a more systematic manner and in
more countries. The African Observatory for Science, Technology and
Innovation (AOSTI) could be asked to review the results of the resulting
country initiatives and to convene meetings to review what is working in
more than one country, which could give rise to an African-wide measurement initiative.
a g e n da f o r meas ur emen t o f innovation
355
Assessment of Informal Sector Innovation via Qualitative,
Structured Interviews and Questionnaires
An alternative option is to undertake more ad hoc surveys based on semistructured interviews in particular sub-sectors or clusters of the IE in
specific countries. This is the method applied for the sector- and countryspecific studies featured in this book and for most existing sector-specific
studies on the informal sector.16
In the context of the IE, and given the aforementioned methodological
challenges, this more flexible and qualitative survey approach is often
more satisfactory.
Indeed, personal interviews using semi-structured questionnaires are
often the only way of securing high-quality survey replies, especially from
respondents in remote locations. The respondent does not need reading
or writing skills, and the statistical infrastructure requirements are also
much lower than those for a large-scale official statistical survey.
Alongside such practical considerations, this method might also be
better in contributing to our understanding of how innovation happens
in the IE, where ideas from innovation come from, how skills are
acquired, how the benefits are appropriated, and what the economic
and social context and outcomes of the innovation are. The approach
allows for a mixture of open-ended and closed questions.
The interviewer can adapt the interview in light of the responses more
dynamically than if a rigid, written-only survey tool was employed.
A more open and qualitative format might also be necessary in light
of the huge heterogeneity of the informal sector; a single standard
questionnaire with identical terms and questions might not appropriately capture important nuances.
Importantly, the structured interview technique is often the only way
of building trust with the respondent so as to obtain any reply at all.
The experience with the personalized surveys featured in this book
showed that gaining the trust of interviewees was critical to obtain
reliable answers, particularly when asking about such sensitive topics as
16
This section draws heavily on Kraemer-Mbula and Tau (2014), Bull et al. (2014),
Kawooya (2014) and Essegbey et al. (2014), and also benefited from the outcomes of
the WIPO and IERI International Workshop on “Innovation, Intellectual Property and
the Informal Economy,” Pretoria, on November 19–21, and the work of Open AIR.
Finally, the insights generated by Fu et al. (2014), a recent project designed to collect
detailed information on the innovation activities of more than 500 formal and informal
firms in Ghana, is also taken into account.
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the sources of knowledge which contributed to innovation or which
appropriation methods, including secrecy, the respondent was relying
on to protect his or her innovation. For this reason, the first, rare field
studies of the informal sector in the 1970s and 1980s combined qualitative, more anthropological survey approaches with other statistical techniques (see Box 8.3). These methods are well accepted outside economics
and statistics, in particular in the disciplines of law, management, political science, sociology and anthropology.
However, this area of enquiry is still recent and workable survey
templates are only developing. In the remainder of this chapter, we
suggest some general lessons and good practice based on recent survey
work performed in the informal sector.
Conducting this type of ad hoc, semi-structured survey is far from
straightforward. It requires particular methods, survey forms, interview
techniques and experience.
Specifically, when surveying the informal sector three main nonprobability sampling techniques are often used separately or together to
make the sample more representative, namely (i) purposive, (ii) snowball
and (iii) quota sampling methods. All three approaches are timeintensive, as the actual interview process might involve making initial
contact, then reverting to the respondent once or several times to go
through the survey questions. Some learning by doing by the interviewer
also occurs, as the interview techniques and the nature of the questions
can be perfected or adapted over time and case by case.
In the case of purposive sampling, a sample is drawn purposively from
available lists or association members; for example, Essegbey et al. (2014)
used a list of registered Traditional Herbal Medicine Practitioners in
Ghana obtained from the Traditional Medicine Practice Council
(TMPC). In this case, the researcher needs to exercise their judgment
in selecting the units that are being targeted.
The snowball interview technique, also called the chain referral sampling method, is commonly used for the identification of rare populations for which registers do not exist. The researcher starts with some
recommended interviewees, then asks them to help refer subsequent
interviewees. In the case of the study of informal home and personal
care product manufacturers in South Africa featured in Chapter 4 of this
book, for instance, an initial set of nine companies was identified in
collaboration with two technology incubators and two business incubators (Kraemer-Mbula and Tau 2014). The rest were referrals emanating
from the interviewees. Konté and Ndong (2012) also provide an example
a g e n d a f o r meas ur emen t o f innovation
357
box 8.3 early studies on apprenticeship, learning by
doing, knowledge sharing and innovation in the informal sector in tunisia
What follows is largely based on the knowledge acquired at the end of the 1970s
and the beginning of the 1980s from structured interviews with a sample of
artisans in Tunisia. The respondents were based in the main cities and worked
in furniture-making, shoe-making, metal-working, textile and clothing and
mechanical repairs. From hundreds of hours of tape-recorded interviews transcribed and translated from spoken Tunisian Arabic, several interesting observations emerge with regard to innovation, IP and transmission of knowledge.
The entrepreneur-craftsmen were identified through the so-called snowball
method, that is, they were introduced to the interviewer by a mutual acquaintance. There was no reference to the informal sector when they were approached,
because no one would have admitted belonging to what could be seen as an illegal
sector. The research method was qualitative and anthropologic. After a brief
presentation of the objectives of the study, the interview started by asking about
the interviewees’ biography: how they learned their craft, how they had opened
and run their own workshop, how they organized their work, their suppliers,
clients, workers, how they presently saw their role toward their own apprentices
and what they regarded as their main problems at a time of stiff competition.
To give a sense of the complex and nuanced insights generated, one lesson
learnt concerned the important role of apprenticeship in the sector. Many of the
entrepreneurs interviewed explained that they had to steal the secret of their trade
from their “master,” to test their knowledge hidden from their boss, but ultimately to show him the results in order to be acknowledged, gain his confidence
and receive “the key to the workshop” and eventually his blessing to open their
own shop. This kind of selection is interesting. It involves a highly effective means
of education, learning by doing, which also gives the young apprentice a sense of
responsibility. Furthermore, the existence of a “secret” clearly shows that small
entrepreneurs have a precise sense of their IP, and that they are eager to protect it
from competitors and safeguard their reputation. They know perfectly well what
innovations they have introduced and what “makes the difference” between their
work and that of others.
Interestingly, the resulting study was the first step in what was to become the
first national survey of the informal sector for national accounts purposes.
Source: Charmes (1978, 1979, 1981, 1982)
of a case study in the ICT sector where the sample was built using this
technique of interviewing traders in a market, gaining trust and introductions to other traders who, in turn, provided links to more traders.
Experience shows that interviewees are more willing to provide names of
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j acq ues ch ar mes et al.
other potential participants after they have responded to the interview
themselves.
When sampling following these first two methods, care must be taken
to try and survey the relevant populations in a representative manner,
that is, having a fair distribution in terms of gender, hierarchical levels
(e.g. master versus apprentice, head of the entity versus informal worker),
types of actors in the informal sub-sector, and so on.
The starting point for the quota sampling method is that a preliminary
knowledge of the population to be surveyed already exists. Quota sampling then consists of selecting an equal and small number of various predetermined fractions of the population in terms of gender, age, activity
and so on, and proceeding to pick respondents using “itineraries.”
An itinerary is defined in the area to be surveyed, and all units in that
itinerary are surveyed until a fraction is completed. Once a fraction is
completed, no more units from within that fraction will be surveyed.
The process continues until all fractions are completed.17
In all three methods, bilateral interviews are sometimes replaced by
focus group discussions.
Rather than just surveying the innovative firm or entity as in CIS
surveys, it is attempted in these ad hoc interview-based approaches also
to survey a broader set of actors of the relevant innovation ecosystem (see
Kraemer-Mbula and Tau 2014, Bull et al. 2014 and Essegbey et al. 2014).
Specifically, the following entities are also surveyed: (i) formal companies
supplying informal manufacturers, including contract manufacturers;
(ii) the customers of the IE entity, which often play an important role
as source of knowledge (see Chapter 3), (iii) government and regulatory
bodies, (iv) intermediary organizations engaged in knowledge transfer,
(v) associations representing the informal cluster (e.g. the jua kali association), (v) NGOs working to promote innovation and the understanding of IP in the informal sector, and finally, (vi) agencies providing
training and skills.
In terms of interview and survey format, rigorous interview guidelines
and formats must be agreed at the outset and followed throughout the
survey deployment. As outlined above, the interview templates include
17
Let us take the example of informal metal workers in Nairobi who are concentrated in
a given metropolitan area. An itinerary is defined in this area and a priori criteria are
decided – gender, age, type of products, and so on. The first metal workshop on the
itinerary is surveyed as long as it belongs to the informal sector. The itinerary is pursued
until a sufficient number (be it five, ten or twenty) of observations for each criterion or set
of criteria is completed in each group of interviewee types.
a g e n d a f o r meas ur emen t o f innovation
359
both open and closed questions to allow them to capture unexpected
phenomena and personal experiences that would inform the study
(Kraemer-Mbula and Tau 2014). The aim in interviewing is to generate
a conversation with the respondent, preferably at the location where
manufacturing and/or retailing of products takes place. As Fu et al.
(2014) put it, relevant findings sometimes emerge during informal discussion with a respondent before or after the interview.
One option is to leave interviewing in the hands of few experienced
interviewers, obviously limiting the sample size but ensuring that nuances can be captured appropriately. The other option is to aim at a more
standard questionnaire which is followed rigorously with closed questions, such as yes-or-no answers or a set of response options. In this case,
more general staff enumerators can be recruited and trained for data
collection. The potential closed answers need careful prior study to
appropriately anticipate the range of potential replies in the particular
IE sub-sector or cluster.
Where possible, and as usual for official statistical surveys, questionnaire surveys should be tested in a pilot before the full survey is rolled out.
It can be helpful to conduct a preliminary study based on in-depth case
studies of a small sample of respondents in the IE, to better design the
more formal questionnaire and survey work later (see Fu et al. 2014).
In practical terms, all interviews are recorded and transcribed, helping
to gather the data and for purposes of later data cleaning and validation.
The data can be collected manually or with the aid of Personal Digital
Assistants (PDA).18 As in the case of Chapters 3–5, visual documentation
through pictures is undertaken to complement the interview results.
They illustrate the range of innovative products or processes, the variations in details of specific products, and the adaptation of products that
takes place.
As with regular surveys, it is helpful if the benefits of the survey are
clear to the respondent (so-called benefit sharing), for example, by indicating that the survey results with help influence policy and or that the
survey will positively impact on the informal sector. Also, promising to
validate responses with respondents and to share the overall results of the
18
As Fu et al. note (2014), “the use of PDAs supports the work of enumerators, allowing
them to code consistency checks during the interview and systematic skips. Since the data
is already entered in a digital format, no other data entry is needed, which saves time and
as a system is less prone to mistakes. However, PDAs bring some disadvantages compared
to paper-based surveys, mainly in terms of the reliability of the devices and the computer
skills needed to use them.”
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survey is known to increase the number and the quality of responses (socalled validation and restitution). Restitution is also a matter of ethics in
social sciences.
In terms of substance, the survey questions deployed for the studies in
this book draw on approaches and questions used in formal CIS-type
innovation surveys. Importantly, however, the shared template also relies
on significant adaptation to the informal sector generally, and to the
specific sub-sector being studied.
Annex 1 contains the survey templates used in the fieldwork for this
book (annexes 1.1, 1.2 and 1.3). It also contains surveys for a case study in
Uganda (Kawooya 2014) and a study of the ICT sector in Senegal (Konté
and Ndong 2012) (annex 1.4 and annex 1.5 respectively).
The sequence of questions, their exact content and formulation varies
across our various survey tools, but they feature the following central
elements:
• The first survey section usually asks general information about the
interviewee – standard demographic variables such as age or gender.
Interestingly, and as opposed to formal enterprise innovation surveys,
the questionnaire is focused strongly on the respondent himself or
herself, be it the owner or an employee. Questions as to his or her
educational background and time spent in the cluster are included.
The religious or ethnic group and language of the respondent are
surveyed as well.
• In addition, respondents are asked about the nature of the firm and
work, such as the type of business, its field of activity, its premises, its
geographical location and, when the owner is surveyed, the numbers of
employees, revenues and other firm performance indicators.
• One particularity of these IE surveys is that in addition to religion and
ethnic group, they also often enquire about social values which might
have helped in contributing to the economic success of the entity, such
as solidarity, sharing, dialogue, hospitality, courage and reserve, as in
Konté and Ndong (2012).
• The remaining sections cover in different forms the themes discussed
in Chapter 2, namely (i) the level and nature of innovation activities,
including with questions relating to imitation and adaptation versus
originality (“Is this product your original design?”), (ii) sources of
information and knowledge, (iii) innovation partners and collaborators, with a focus on useful network and linkages, (iv) innovation
endowment and capacity in terms of skills, apprenticeships, teaching
a g e n da f o r meas ur emen t o f innovation
361
and learning (“Where did you learn the process of making the product
from?”), (v) obstacles to innovation, (vi) support measures and the role
of the national or local governmental authorities, and finally, given the
specific focus of our questionnaires, (vii) the role of various methods to
appropriate innovation investments such as lead time, secrecy and
formal IP rights.
The language of questions about innovation activities is simpler than that
used in formal sector innovation surveys. Examples are: “Have you
originated a new product/changed the process of producing the product
since you started working? Why? Where did you learn about the new
process? Do you do any research to improve the process of production?
Did any of the following institutions assist you in overcoming production
weaknesses? What benefits did you have from the change in process?”
The surveys also broach the topic of product design, enquiring
whether the design is original or modified.
With respect to the various forms of innovation, and similar to the
Kenyan MSE survey mentioned in the section above on “Measurement of
the informal sector to date and scope for introducing innovation survey
questions,” a number of questions are devoted to commerce and marketing
strategies as they relate to pricing, customer relations and supplier relations.
A central concern of these questionnaires is also to identify the potential desire to scale up activity and the obstacles to scaling-up.
Significant attention is then spent on apprenticeships and on-the-job or
other training, and the supply and diffusion of skills, for example: “Where
have you learnt your craft? What is the relationship with your trainer?
Do you provide training on production processes?” A number of questions
try to disentangle the possible shared sources of knowledge in the cluster,
such as “Are your products based to some extent on indigenous and/or
traditional knowledge?” The portability of skills and knowledge from one
job to another is also an area of enquiry (“When you move jobs, do you
keep or share the secrets of production from your previous employer?”).
The topic of knowledge flows and collaboration in the cluster, and
reasons for and against it, is also surveyed intensively. A number of
questions are particularly concerned with the determinants of cooperation, for example, underlying personal relationships such as family ties or
friendships, or factors which relate to geographical proximity or belonging to the same association, cluster, community or another social or
professional group. Care is applied when surveying collaboration
among the different potential partners (e.g. suppliers, producers and
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j acque s ch ar mes et a l .
customers). The role of private or government associations as a source of
information and knowledge is surveyed.
To conclude, significant portions of the interviews are also dedicated
to the different methods which informal sector participants might use to
appropriate their innovation efforts, ranging from lead time and secrecy
to more formal IP rights, for example: “What mechanisms do you use to
protect your innovation or innovative ideas? Are you concerned with
possible commercialization of your innovations without your knowledge
or consent? What forms of appropriation are most appropriate for your
sector (list of options indicated)?”
As Chapters 3–7 of this book show, the surveys generated rich and
interesting insights into informal sector innovation and knowledge sharing. As with the previous qualitative work described in Box 8.3, it could
be argued that the experience and results generated from these surveys
are a necessary stepping-stone toward better formulating and deploying
large-scale formal innovation surveys as well.
Conclusions and Next Steps
The suggestions in this chapter are intended to lay important groundwork for future empirical work, for the development of appropriate
indicators and to support new approaches to innovation policy in developing countries.
Two viable scenarios emerge: (i) adding a couple of innovation questions or a small survey module to existing large-scale surveys of the IE
and/or (ii) conducting ad hoc questionnaire- and interview-based sectoral studies in selected countries. As discussed in this chapter, option (i)
is only relevant for countries able to produce population estimates and
where the possibility of running combined surveys exists.
To facilitate progress on option (i), further work should be encouraged
to develop a core set of innovation-related survey questions, some from
Eurostat’s CIS and some from the informal sector surveys that we have
described. In Africa, this work could be supported by AOSTI and AU/
NEPAD.
At the outset, a short set of questions could be suggested to the
stakeholders of the mixed surveys, if they were convinced of the value
of such an approach for the understanding of the dynamics of the
informal sector in Africa. Stakeholders might, for example, include
Afristat and DIAL, Eurostat and Paris21, and the ILO. But the better
approach is combined surveys. To this end, the stakeholders to be
a g e n d a f o r me a s u r e m e nt o f i nn o v a t i o n
363
approached are the departments of economic statistics within the
national statistical offices and at the African Centre of Statistics at
UNECA, and also employers’ associations in certain countries which
are sometimes involved in the design and implementation of such surveys (for instance in Nigeria).
After experience is gained, a standardized AU survey of IE activities,
including innovation and IPR use, could be considered. The theme could
be picked up in future editions of the African Innovation Outlook.
Work in other regions should be considered too, in particular Latin
America and South East Asia.
The OECD started to revise the Oslo Manual in 2015, and there will be
consideration of new areas of interest such as public sector innovation,
user innovation and social innovation. There could also be a discussion
of where innovation happens – in the formal sector and in the informal
sector – and how guidelines for each would differ. It helps that the AU
(both AOSTI and NEPAD), South Africa, RICYT (and Chile, Colombia
and Mexico), Brazil, China, India and the Russian Federation are
involved in the revision process.
In the meantime, the second option of more ad hoc questionnaire- and
interview-based surveys in selected countries is the more promising one.
Studies and results can be obtained more quickly, and sector studies
based on more qualitative work could be more effective in helping us
develop a rich understanding of innovation in the informal sector.
In turn, this will also help formulate better questions to be included in
systematic large-scale surveys as developed under option (i). The survey
templates, experiences and results generated as part of this book, and
summarized in this chapter, could be helpful to further research.
Similarly, work will be needed to build common approaches among the
academic and statistical community on how to better run these surveys.
Ideally, AOSTI would agree to act as an archive for and coordinator of the
related discussion as this work moves forward.
Taken together, this work will be an important contribution to our
developing understanding of innovation in the informal sector.
References
African Union–New Partnership for Africa’s Development (AU–NEPAD)
2010. African Innovation Outlook 2010. Pretoria, AU-NEPAD.
African Union–New Partnership for Africa’s Development (AU–NEPAD)
2014. African Innovation Outlook II. Pretoria, AU-NEPAD.
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Arundel, A., O’Brian, K. and Torgugsa, A. 2013. “How firm managers understand innovation: implications for the design of surveys,” in Gault (ed.)
Handbook of Innovation Indicators and Measurement. Cheltenham, UK
and Northampton, MA, USA, Edward Elgar, pp. 88–108.
Bull, C., Daniels, S., Kinyanjui, M.N. and Hazeltine, B. 2014. “Country study
on innovation, intellectual property and the informal economy: the informal metalworking sector in Nairobi,” report prepared for the Committee
on Development and Intellectual Property (CDIP): Thirteenth Session,
CDIP/13/INF/3 ANNEX. Geneva, WIPO.
Charmes, J. 1978. Recueil d’interviews auprès de menuisiers et ébénistes de
Tunis et de Sfax. Tunis, Institut National de la Statistique. http://horizon
.documentation.ird.fr/exl-doc/pleins_textes/pleins_textes_7/carton03/
02833.pdf.
Charmes, J. 1979. Recueil d’interviews auprès de mécaniciens et garagistes de
Tunis. Tunis, Institut National de la Statistique. http://horizon
.documentation.ird.fr/exl-doc/pleins_textes/pleins_textes_7/carton03/
02835.pdf.
Charmes, J. 1981. Recueil d’interviews auprès de fabricants de chaussures de
Tunis et de Sfax. Tunis, Institut National de la Statistique. http://horizon
.documentation.ird.fr/exl-doc/pleins_textes/pleins_textes_7/carton03/
02834.pdf.
Charmes, J. 1982. “L’apprentissage sur le tas dans le secteur non structuré en
Tunisie,” in La politique de l’emploi-formation au Maghreb. 1970–1980,
collection Etudes de l’Annuaire de l’Afrique du Nord, Annuaire de
l’Afrique du Nord, année 1980, pp. 357–96. Also published in Cahiers
ORSTOM, série Sciences Humaines, 1985, 21(2–3), pp. 305–28. http://
horizon.documentation.ird.fr/exl-doc/pleins_textes/pleins_textes_4/sci_
hum/36878.pdf.
Charmes, J. 2014. “The Measurement of the Informal Sector and Informal
Employment in Africa and its Use in National Accounts.” Report for the
African Centre for Statistics. Addis Ababa, United Nations Economic
Commission for Africa.
de Beer, J., Armstrong, C., Oguamanam, C. and Schonwetter, T. (eds.) 2014.
Innovation and Intellectual Property: Collaborative Dynamics in Africa.
Cape Town, UCT Press.
de Beer, J., Kun, F. and Wunsch-Vincent, S. 2013. “The Informal Economy,
Innovation and Intellectual Property – Concepts, Metrics and Policy
Considerations,” WIPO Economic Research Working Papers No. 8.
Geneva: Economics and Statistics Division, World Intellectual Property
Organization.
de Jong, J.P.E. and von Hippel, E. 2013. “User innovation: business and
consumers,” in Gault, F. (ed.) Handbook of Innovation Indicators and
a g e n d a f o r me a s u r e m e nt o f i nn o v a t i o n
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Measurement. Cheltenham, UK and Northampton, MA, USA, Edward
Elgar, pp. 109–32.
Dutta, S. and Lanvin, B. (eds.) 2013. The Global Innovation Index 2013:
The Local Dynamics of Innovation. Ithaca, Fontainebleau and Geneva,
Cornell University, INSEAD and WIPO.
Essegbey, G.O., Awuni, S., Essegbey, I.T., Akuffobea, M. and Micah, B. 2014.
“Country study on innovation, intellectual property and the informal
economy: traditional herbal medicine in Ghana,” report prepared for the
Committee on Development and Intellectual Property (CDIP): Thirteenth
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Fu, X., Zanello, G., Essegbey, G., Hou, J. and Mohnen, P. 2014. Innovation in
Low-Income Countries: A Survey Report for the Diffusion of Innovation in
Low-Income Countries Project (DILIC). DFID-ESRC Growth Research
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Gault, F. 2012. “User innovation and the market,” Science and Public Policy 39
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Gault, F., Bell, M., Kahn, M., Muchie, M. and Wamae, W. 2012. “Building
capacity to develop and use science, technology and innovation indicators
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Hienerth, C., von Hippel, E. and Berg Jensen, M. 2014. “Innovation as consumption: analysis of consumers’ innovation efficiency,” Research Policy
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and Informal Employment. Geneva, ILO Department of Statistics.
Kawooya, D. 2014. “Informal–formal sector interactions in automotive engineering, Kampala,” in de Beer, J., Armstrong, C., Oguamanam, C. and
Schonwetter, T. (eds.) Innovation and Intellectual Property: Collaborative
Dynamics in Africa. Cape Town, UCT Press, pp. 59–76.
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National Bureau of Statistics 2012. The Kenya Innovation Survey Report
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Konté, A. and Ndong, M. 2012. “The informal ICT sector and innovation
processes in Senegal,” African Journal of Science, Technology and
Innovation 4(3): 61–97.
Kraemer-Mbula, E. and Tau, V. 2014. “Country study on innovation, intellectual property and the informal economy: informal manufacturers of home
and personal care products in South Africa,” prepared for the Committee
on Development and Intellectual Property (CDIP): Thirteenth Session,
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Mashelkar, R.A. 2012. “On building an inclusive innovation ecosystem,” presentation, November 21, 2012. Paris, OECD Publishing. www.oecd.org/sti/
inno/K_Mashelkar.pdf.
Muchie, M., Lundvall, B.-Å. and Gammeltoft, P. 2003. Putting Africa First:
The Making of African Innovation Systems. Aalborg, Aalborg University
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Mulgan, G., Joseph, K. and Norman, W. 2013. “Indicators for social innovation,” in Gault (ed.) Handbook of Innovation Indicators and Measurement.
Cheltenham, UK and Northampton, MA, USA, Edward Elgar, pp. 420–40.
Mutua, W. and Mbwana, A. 2012. Innovative Africa: The New Face of Africa,
Essays on the Rise of Africa’s Innovation Age. Nairobi, Afrinnivator.com.
OECD 1992. OECD Proposed Guidelines for Collecting and Interpreting
Technological Innovation Data – Oslo Manual, OCDE/GD (92)26, Paris,
OECD Publishing.
OECD/Eurostat 1997. Proposed Guidelines for Collecting and Interpreting
Technological Innovation Data, Oslo Manual. Paris, OECD Publishing.
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Innovation Data. Paris, OECD Publishing.
Radjou, N., Prabhu, J. and Ahuja, S. 2012. Jugaad Innovation: Think Frugal,
Be Flexible, Generate Breakthrough Growth. Hoboken, NJ, Jossey-Bass.
WIPO 2011. “Chapter 1: The changing nature of innovation and intellectual
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Innovation, WIPO Economics & Statistics Series. Geneva, WIPO.
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c o mmen t 8 . 1 p h i l i p p e ma woko
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COMMENT 8.1
philippe mawoko
African Observatory for Science, Technology and Innovation, African Union Commission
There is a need to measure innovation in the informal sector to support
science, technology and innovation (STI) policy development and implementation in Africa. The 21st Ordinary Session of the Assembly of Heads
of State and Government of the African Union, held in June 2013,
endorsed “Agenda 2063: the Africa We Want” as the strategic framework
for an inclusive and sustainable socio-economic development of the
continent for the next fifty years. The Agenda set STI as one of its pillars:
science, technology and innovation shall be harnessed in order to improve
the lives of Africans, whose number will reach two-and-a-half billion by
the time the Agenda comes to completion.19
As far back as the 1980s, the Lagos Plan of Action for the Economic
Development of Africa pointed out that the informal sector was intertwined with most of the “formal” socio-economic sectors in Africa, and
that it was growing to encompass the majority of the African population
as the classic job market became saturated.20 The Lagos Plan of Action
called for a special attention to be given to the informal sector in order to
achieve sustainable industrial development.
With innovation taking a central place in the development process, the
provision of data and appropriate indicators to support policy making
becomes a necessity. In this context, the newly adopted STI Strategy for
Africa (STISA-2024) recommends that the African economies be
innovation-led.21 Innovation could then become the answer to achieving
the objectives of Agenda 2063 by addressing the common challenges that
Africa faces. These include creating jobs, eradicating hunger, achieving
food security, preventing and controlling diseases, improving well-being,
protecting resource endowments and strengthening physical and institutional infrastructure.
By and large, there is a noticeable effort to measure innovation in the
“formal” economic sectors in Africa in order to understand the role it
19
20
21
Population data drawn from the World Bank at http://data.worldbank.org/data-catalog
/population-projection-tables.
See OAU (1982), chapter V.
STISA-24 was adopted by the African Union Heads of State and Government at its 23rd
Ordinary Session in June 2014, see www.hsrc.ac.za/en/events/seminars/science-tech-and
-innovation-strategy.
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jacques charmes et al.
plays in development, but the same cannot be said for innovation in the
informal sector. This holds true even though this part of the economy
contributes about 50 percent of sub-Saharan Africa’s gross domestic
product (GDP) and 80 percent of its labor force.22 Measuring innovation
needs a focus on the informal economy in the African and other
development-related contexts.
Exploring How Innovation Is Measured in the Informal Sector
Experience in implementing the African Science, Technology and
Innovation Indicators Initiative (ASTII) indicates that although the
term “innovation” is widely used among stakeholders in Africa, it
means different things to different people.23 Therefore, building innovation indicators, carrying out statistical measurement related to innovation and supporting innovation policy-making will require sufficient
knowledge of the subject matter and proficiency in the language of
discourse. Indeed, these are challenges but also opportunities to learn
more about “innovation,” especially how the knowledge acquired from
current surveys can be transferred to measuring innovation in the informal and the public sectors, and how innovation in the informal sector
impacts socio-economic goals.
In this chapter, Professor Charmes and his colleagues present several
suggestions that could serve as building blocks as the African
Observatory of Science and Technology Innovation (AOSTI) implements its program of work. AOSTI was created to serve as the continental
repository of STI data and a center of related policy analysis, including
the monitoring and evaluation of STI programs.
On the policy side, the Africa Union Commission and the United
Nations University – Maastricht Economic and Social Research
Institute on Innovation and Technology (UNU-MERIT) have entered
into an agreement for capacity development in the Design and
Evaluation of Innovation Policy (DEIP) for the AU member states (see
Iizuka, Mawoko and Gault 2015). This program examines innovation
policies as a feasible solution to economic and social challenges in Africa,
paying particular attention to measurement and national STI policies as
well as their fit with the STISA-2024. The first training session held in
Kenya in October 2013 included discussion on innovation in the
22
23
African Development Bank Group (2013); see also Chapter 1 of this book.
About a dozen African countries have conducted CIS-type innovation surveys.
The results are published as the African Innovation Outlook (AU–NEPAD 2010, 2014).
co mmen t 8 . 1 p h i l i p p e mawoko
369
informal sector. The subsequent policy brief points to thematic areas
which need further research in order to better understand innovation
and its contribution to socio-economic goals (Iizuka, Mawoko and Gault
2015). In the case of the informal sector, stakeholders identified the
following areas for further research:
(a) Research on characteristics of innovation in the informal sector
Interpretations of the term “innovation” vary, so there is a need to
conduct case studies and compare definitions for statistical purposes.
This will improve understanding of the different forms that innovation can occur and distinguish their different types. How might this
enable measurement of innovation activities in the informal sector to
inform more effective policies?
(b) Understanding the innovation dynamics between formal and informal economic activities. Formal and informal economic activities
are intertwined in terms of both actors and entities. Two questions
of interest arise: To what extent do these interactions help meet
development goals? What effects do they have on innovation
systems?
(c) Understanding how innovation takes place in the informal economy.
What are the barriers to and incentives for innovation in the informal sector? How can we better measure innovation in the informal
economy?
(d) Exploring the form and type of innovation in Africa’s response (capacities and capabilities) to emerging challenges identified in the STISA24. The following challenges were identified in the context of STISA24: low commodity yields, climate change and variability, water and
land management, efforts to eradicate hunger and achieve food and
nutrition security. How would measuring innovation in the informal
sector and developing a comprehensive STI policy framework affect
these areas and enhance policy initiatives and government
interventions?
(e) Impact on job creation. There is a need to better understand measurement of innovation in the service sector. With the high penetration rate of ICTs in both formal and informal economies, the service
sector is bound to grow. How can we take advantage of the contribution of the informal sector in reducing unemployment and
assess the impact that such growth will have on job creation and
the sustainability of these jobs?
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jacques charmes et al.
(f) Measuring innovation in the African public sector. In order to
improve domestic resource mobilization and ensure sustainability,
the process capacities and capabilities of public institutions need to
be strengthened in areas such as procurement, taxation and private
property rights. How do we measure innovation in the African
public sector?
Way Forward
The African Agenda 2063 and its STI strategy are certainly ambitious, but
they are a “must have” in view of the lessons learned from the past. This
chapter by Charmes et al. sets valuable research perspectives for STISA24, putting innovation at the center of its implementation. AOSTI supports the ongoing discussion about innovation in the informal economy
with the aim of making its measurement program more relevant to the
African community.
References
African Development Bank Group 2013. “Recognizing Africa’s Informal
Sector.” www.afdb.org/en/blogs/afdb-championing-inclusive-growthacross-africa/post/recognizing-africas-informal-sector-11645/.
African Union – New Partnership for Africa’s Development (AU–NEPAD)
2010. African Innovation Outlook 2010. Pretoria, AU-NEPAD.
African Union – New Partnership for Africa’s Development (AU–NEPAD)
2014. African Innovation Outlook II. Pretoria, AU-NEPAD.
Iizuka, M., Mawoko, P. and Gault, F. 2015. Innovation for Development in
Southern and Eastern Africa, Challenges for Promoting ST&I Policy. (Policy
Brief no. 1.) Maastricht, United Nations University – Maastricht Economic
and Social Research Institute on Innovation and Technology
(UNU–MERIT).
Organization of African Unity (OAU) 1982. Lagos Plan of Action for the
Economic Development of Africa, 1980–2000. Geneva, International
Institute for Labour Studies.
ANNEXES
Annex 1
Ad Hoc Interview Guidelines and Questionnaires
Annex 1.1 Survey on Kenyan informal metal manufacturing
CHARACTERISTICS OF THE JUA KALI OPERATORS
1
2
3
4
5 When did you join the cluster?
PRODUCTION HISTORY
6
7
8
9a.
b.
Write the code in the
unshaded box
What product do you make?
1.
Chips cutter
2.
Chips warmer
3.
Wheelbarrow
4.
Popcorn maker
5.
Other (specify)
Was this your first product?
Yes [1]
No [2]
When did you start making the product?
Is this product your original design?
Yes [1] No [2]
If “yes,” specify how you came up with design
c.
If “no,” explain where you obtained the design from?
10
How did you choose the product?
11a
Did you know whether a market for your product already existed?
Yes [1] No [2]
b
If “yes,” specify
c
If “no,” explain
12
What motivated you to begin production?
13
Where did you obtain the idea of making the product from?
14
Where did you learn the process of making the product from?
15
If you imitated the product design, what adjustments have you made to the product
since you introduced it?
Have you changed the process of producing the product?
Yes [1] No [2]
16a
Write the code in the
unshaded box
Gender: 1-Male
2- Female
What is your highest level of education?
1. No formal education
2. Pre-primary
3. Primary
4. Secondary
5. College
6. University
To which category of jua kali operator do you belong?
1. Fundi worker
2. Fundi owner who hires workers
3. Businessman/woman who contracts fundi to work for me
4. Other (specify)
What is the value of your business?
b
If “yes,” Why did you change?
c
17
If “no,” why have you not changed?
Where did you learn about the new process?
371
372
a n ne x es
18
Do you keep secrets about the changes you have made?
19
20
What benefits have you made from the recent changes in production?
How do you secure the skills of the fundi who has learnt about the changes in
production?
21
Do you keep your fundi for a long time?
22a
Do you do any research to improve on the process of production?
Yes [1]
No
[2]
If “yes,” describe the research you do to improve the process.
b
c
If “no” explain the reasons why you do not do any research to improve the process of
production.
23
What major obstacles do you face in improving the process of production?
24
What are your weakest areas in the process of production?
25
How do you overcome your production process weaknesses?
26
Whom do you seek help from in case you have production process weaknesses?
27
Have any of the following institutions assisted you in improving the process of
production?
1.
Youth polytechnic
2.
National polytechnics
3.
Institutes of technology
4.
Universities
28
Which of the following institutions would you comfortably work with to improve your
processes of production?
1.
Youth polytechnic
2.
National polytechnics
3.
Institutes of technology
4.
Universities
What are the positive and negative issues of people in the same cluster producing
the same things?
29
Positive
Negative
COLLABORATION IN PRODUCTION
30
How do you relate with people producing similar products like yours?
31
Do you collaborate with people producing the same product as you?
Yes [1]
No
[2]
Write the code in the
unshaded box
a n ne x es
32
33
34a
b
Do you feel threatened by people producing the same product as yours?
Yes [1]
No
[2]
Do you feel threatened by non-jua kali people producing the same product as
yours?
Yes [1] No [2]
Do you have an idea to stop non-jua kali people from producing similar products to
yours?
Yes [1] No [2]
If “yes,” specify
c
If “no,” explain
35a
Do you collaborate with non-jua kali people producing the same product?
Yes [1]
No
[2]
If “yes,” specify
b
373
c
If “no,” explain
36
What should be the relationship between jua kali people producing the same
product?
37
What should be the relationship between non-jua kali people and jua kali people
producing the same product?
TRAINING
Where were you trained?
Have you had to go back for training to improve the process of making your
product?
Yes [1]
No
[2]
If “yes,” specify
b
c
If “no,” explain
ACQUISITION OF INTELLECTUAL PROPERTY RIGHTS
Write the code in the
unshaded box
38
39a
Have you considered securing intellectual property rights for your product?
Yes [1]
No
[2]
41
If “no,” why have you not considered securing intellectual property rights for your
products?
42
Has the association assisted you in securing intellectual property rights?
Yes [1]
No
[2]
43
Is there government support in securing the intellectual property rights of your
products?
Yes [1]
No
[2]
44
What limitations do you face in securing the intellectual property rights of your
products?
45
How should jua kali products intellectual property rights be secured?
EMPLOYMENT AND TRAINING OF FUNDIS
Write the code in the
unshaded box
40
46
47
48
49
50a
b
c
51
52a
b
c
How do you recruit your fundi?
What employment contract do you have with your fundi?
What do you consider when hiring a fundi?
How long do you keep your fundi?
Do you provide them with further training on the production process?
Yes [1] No [2]
If “yes”, where do they go for training?
If “no”, explain
How do you prepare your fundi when introducing a new product?
Do you change your fundi often?
Yes [1]
No
[2]
If “yes,” explain
If “no,” explain
Write the code in the
unshaded box
374
53a
b
c
54
55
56
57
a nn e xe s
Do you provide incentives to your fundi to facilitate them to acquire new
production technology?
Yes [1] No [2]
If “yes,” explain
If “no,” explain
Is there enough supply of fundis with enough technological know-how?
Yes [1]
No
[2]
Where do they come from?
Do you train your own fundi?
Yes [1]
No
[2]
What role do fundis play in spreading jua kali production processes and products
to others?
SECTION II- FUNDIS
EMPLOYMENT
What is the relationship between you and the business owner?
How do you relate with the business owner?
Did you know the business owner before he/ she hired you?
Yes [1]
No
[2]
61
What do you consider when taking a job from a business owner?
62a
Do you change jobs frequently?
Yes [1]
No
[2]
b
If “yes,” explain
c
If “no,” explain
TRAINING
Write the code in the
unshaded box
58
59
60
Where did you obtain your skills from?
When did you receive training?
How long did it take?
Who trained you?
What is your relationship with the trainer?
Have you trained others?
Yes [1]
No
[2]
69
Have you attended further skill training since you started work?
Yes [1]
No
[2]
PRODUCTION PROCESS
Write the code in the
unshaded box
63
64
65
66
67
68
70
71 a
b
c
72
73
74
75
Have you originated a new product since you started working as a fundi?
Yes [1]
No
[2]
Have you changed the production process since you started working in the cluster?
Yes [1]
No
[2]
If “yes” specify
If “no” explain
Who assisted you in the origination of this product?
Where did you obtain the design from?
Have you received support from any of these institutions in technology upgrading?
1.
Youth polytechnic
2.
National polytechnic
3.
Institutes of technology
4.
University
5.
National Youth Service
6.
NGO
7.
KIDRI
If you had an idea of originating a new product, which of the following institutions
would you go to?
1.
Youth polytechnic
2.
National polytechnic
Write the code in the
unshaded box
a n ne x es
3.
Institutes of technology
4.
University
5.
National Youth Service
6.
NGO
7.
KIDRI
ACQUISITION OF INTELLECTUAL PROPERTY RIGHTS
76a
b
c
77
78
79
80
81a
b
c
375
Write the code in the
unshaded box
Have you secured intellectual property rights for your products?
Yes [1]
No
[2]
If “yes” specify
If “no” explain
What difficulties do you encounter when securing intellectual property rights?
Do government agencies assist in securing property rights?
Yes [1]
No
[2]
Does the association assist you in securing property rights?
Yes [1]
No
[2]
Do you feel you own the idea and the product you make?
Yes [1]
No
[2]
Do you allow your fellow fundi to copy your idea and product?
Yes [1]
No
[2]
If “yes,” specify
If “no,” explain
COLLABORATION IN THE CLUSTER
Do you collaborate with fundis who are making similar products?
Yes [1] No [2]
b
If “yes,” specify how you collaborate
c
If “no,” explain why you do not collaborate
83a Do you feel threatened by fundi making similar product in the cluster?
Yes [1] No [2]
b
If “yes,” explain
c
If “no,” explain
84
How do you determine which fundi to collaborate with?
85
Are they relatives, friends or people from the same village or area of residence?
86a Do you collaborate with non-jua kali fundi who make similar products?
Yes [1]
No
[2]
b
If “yes,” specify
c
If “no,” explain
87a Do you feel threatened by non-jua kali fundi?
Yes [1] No [2]
b
If “yes,” specify
c
If “no,” specify
PRODUCT DESIGN
Write the code in the
unshaded box
82a
88
89
90
91
92
How do you modify the design?
Why do you modify the design?
What factors do you consider when modifying the design?
Do you consider the function of the product in production?
Yes [1]
No
[2]
When you make a job move, do you keep or share the secrets of production from
your previous employer?
Keep [1]
Share [2]
Write the code in the
unshaded box
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Annex 1.2 Survey on South African informal manufacturing of home and
personal care products
General Information
Name of Respondent:………………………………. Gender: Male [ ] Female [ ]
Age: [____]
Educational level: Primary [ ] Secondary [ ] Tertiary [ ] No formal education [ ]
Location of practice: …………………… District: …………………
Region: …………………
I Information about the Business
1. Does your company have a name? If yes, name of business:
2. Description of your main line of products and services (specialty of the
respondent)
………………………………………………………………………………
3. Why did you start your own business? (motivation)
4. Is your business registered? Yes [ ] No [ ]
4.a. If yes, what was the motivation to register your business?
4.b. If yes, was it difficult to register your business?
Very difficult [ ] Difficult [ ] Easy [ ] Very Easy [ ]
5. Do you employ other people? Yes [ ] No [ ]
5.a. If yes, please describe the employment (temporary, permanent, seasonal)
………………………………………………………………………………
5.b. If yes, do you have formal contract with your employees? Yes [ ] No [ ]
6. How long have you had this business? [ ] years, [ ] months
6.a. What did you do before?
7. What are your main products?
7.a. Which one(s) did you start with?
7.b. Please describe how you gradually moved into new products or
services ……………………………………………………………………
8. Are all your products registered? Yes [ ] No [ ]
8.a. If yes, please indicate the institution you registered the products
with ………….……………………………………………………………
8.b. If yes, was it difficult to register your products?
Very difficult [ ] Difficult [ ] Easy [ ] Very Easy [ ]
8.c. If yes, what was the motivation to register your products?
8.d. Please explain the process and requirements for product registration.
9. How did you get the funding to start your business?
Own funds [ ] Loan [ ] Friends and family [ ] Other [ ]
Please describe ……………………………………………………………
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377
9.a. Have you ever obtained a loan from the bank for your practice? Yes [ ]
No [ ]
9.b. Have you ever received any financial assistance from government? Yes [ ]
No [ ]
10. How profitable do you find your business?
Very profitable [ ] Quite Profitable [ ] Not profitable [ ]
11. Do you get other benefits from your business beyond the financial profit?
(value)
12. Do you keep regular accounts of the business? Yes [ ] No [ ]
13. Would you be able to give us a rough estimate of your business sales over
the last year?
14. Where do you sell your products? …………………………………………
15. Who are your main customers? ……………………………………………
16. Do you produce on a large scale for people to collect and retail for you?
Yes [ ] No [ ]
17. Do you have some of your products in formal establishments or shops?
Yes [ ] No [ ]
II Sources of Knowledge
18. Where did you obtain the knowledge to manufacture your products?
Please describe:
19. Have you received any type of training? Yes [ ] No [ ]
19.a. When did you do your training [ ] year, and how long was your training?
[ ] (number of years/months/days)
19.b. Please describe the nature of your training ….…………………………
20. Have you provided training to other people?
20.a. If yes, to how many?
20.b. Please describe the nature of the training provided ….…………………
21. Are your products based to some extent on indigenous/traditional
knowledge?
Yes [ ] No [ ] Partially [ ]
21.a. If yes, how did you acquire that knowledge? Please describe:
III Innovation
22. What do you think makes your products successful?
……………………………………………………………………………
23. Please describe your main method or production process
……………………………………………………………………………
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24. Please describe the equipment you use for manufacturing/production
……………………………………………………………………………
25. Describe new technologies, machines, production techniques or innovations you adopted in the last 2–3 years
……………………………………………………………………………
26. Have you introduced new or significantly improved products in the last
2–3 years? Yes [ ] No [ ]
26.a. If yes, please describe:
……………………………………………………………………………
27. Have you introduced any new or significantly improved method of
production or production practices the last 2–3 years? Yes [ ] No [ ]
27.a. If yes, please describe
28. What exactly do you do to improve on your products or practice?
29. What/who is your inspiration to develop new products/processes?
30. What are your main challenges to come up with new products and
processes? (please describe)
IV Networking and Knowledge Flows
31. Do you belong to any association? Yes [ ] No [ ]
31.a. If yes, name of the association(s)
32. Have you interacted with any formal organizations (i.e. recognized
institution in South Africa, such as research centers, NGOs, incubators,
etc.) while seeking support for your practice?
Yes [ ] No [ ]
32.a. If yes, please name the organizations
32.b. If yes, please describe the nature of the interaction
32.c. If yes, please indicate the benefits of those interactions
33. Do you interact or collaborate with other producers? Yes [ ] No [ ]
33.a. If yes, what kind of knowledge do you exchange?
34. Do you interact or collaborate with your suppliers? Yes [ ] No [ ]
34.a. If yes, what kind of knowledge do you exchange?
35. Do you interact or collaborate with your customers? Yes [ ] No [ ]
35.a. If yes, what kind of knowledge do you exchange?
36. Do you interact or collaborate with members of your community?
Yes [ ] No [ ]
36.a. If yes, what kind of knowledge do you exchange?
37. Do you share knowledge about manufacturing with your employees?
Yes [ ] No [ ]
Please explain:
an n ex es
379
38. Would you want to team up with somebody to commercialize on a large
scale? Yes [ ] No [ ]
V Intellectual Property and Knowledge Appropriation
39. Do you have your own brand? Yes [ ] No [ ]
40. Do you feel that you own the ideas for the new products you make? Yes [ ]
No [ ]
Please explain: ………………………………………………………………
41. Are you concerned about possible commercialization of your innovations/innovative ideas without your knowledge or consent? Yes [ ] No [ ]
42. Do you protect your ideas in any way? Yes [ ] No [ ]
42.a. If yes, what mechanisms do you use to protect your innovation or
innovative ideas? (formal or informal)
43. Do you think open transfer or exchange of innovative ideas is useful in
your sector? Yes [ ] No [ ]
44. What mechanisms for the protection of knowledge (e.g. patent, trademark, secrecy) do you think are most appropriate for the manufacture of
home and personal care products? Please describe: ……………………
45. Would you like to make use of formal mechanisms of knowledge
appropriation to protect your ideas? (e.g. patents, trademarks)
Yes [ ] No [ ]
46. How do you assess South African IP legislation in connection with your
sector?
47. What are your suggestions to improve the appropriation of knowledge
of micro-producers of home and personal care products in South Africa?
Source: Kraemer-Mbula and Tau (2014).
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an n e xe s
Annex 1.3 Survey on the Ghanaian traditional, informal herbal medicine
sector
Section I General Information
1. Name of Respondent…………………………… Gender: Male [ ] Female [ ]
2. Age: [____] Marital Status: Single [ ] Married [ ] Divorced [ ] Widow [ ]
Separated [ ]
3. Educational level: Primary [ ] JHS/MSLC [ ] Secondary [ ] Tertiary [ ]
No Formal education [ ]
4. What religion do you practice? Christian [ ] Muslim [ ] Traditional [ ]
Other…………………………..
5. Location of practice ……..……………………… District …………..………
Region: …………..…………………
Section II Traditional Medical Practice (TMP)
6. Name of enterprise (if your traditional medical practice is done under the
name of a company)………………………………………………………
7. Specialty of respondent……………………………………………………
…………..…………………………………………………………………
8. Is your enterprise/practice registered? Yes [ ] No [ ].
9. How many other employees? [____]
10. Do you contribute to social security? Yes [ ] No [ ]
11. Were you able to get some loan from a bank for your practice? Yes [ ]
No [ ].
12. If yes which bank? ………………………………………………………
13. Have you ever received any financial assistance from the government?
Yes [ ] No [ ].
14. Give the name of any agency which helped you in your practice?…………
15. For how long have you been in traditional medical practice? [ ] years
16. Which year did you actually start practicing? ……………………………..
17. How did you become a Traditional Medical Practitioner (TMP)? (e.g.
apprenticeship, family business, divine call, hobby)………………………
18. If you trained to be a TMP, how long was your training? [ ] (number of
years)
19. Explain the nature of your training……….………………………………
20. What are your main herbal products?……….……………………………
21. Which one(s) did you start with?……….…………………………………
22. Are all your herbal products registered? Yes [ ] No [ ].
23. State the institution you registered the products with……….……………
24. What are the requirements to have your products registered by these
organizations?
25. Why did you register your product(s)?
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381
26. How do you assess the registration process in Ghana? Very difficult [ ]
Difficult [ ] Easy [ ] Very Easy [ ]
27. How profitable do you find the TMP? Very profitable [ ] Quite Profitable [ ]
Not profitable [ ]
28. Explain your answer above to question 22……….…………………………
Section III Innovation
29. Describe new technologies, machines, production techniques or innovations you adopted in the last five years……………..………………………
30. Describe new products and processes you developed in the last five
years …………………………
31. Have you patented or formally appropriated any of your products? Yes []
No [ ]
32. Do you know the process you go through to patent or formally appropriate a product? Yes/No
33. Where do you sell your products?…………………………………………
34. Who are your main customers?……………………………………………
35. The products you adopted, where do they come from?……………………
36. What exactly do you do to improve on your products or practice?…………………………………………………………………………
37. Do you produce on large scale for people to collect and retail for you?
Yes [ ] No [ ]
38. Do you have some of your products in chemical/pharmacy shops?
Yes [ ] No [ ]
39. Which of your products (if any) are on the Essential Drugs List (EDL) of
the Ministry of Health?
40. What do you think accounted for that (your medicine sold in pharmacy or
on the EDL)?
Section IV Networking and Knowledge Flows
41.
42.
43.
44.
45.
Do you belong to any traditional medicine association? Yes [ ] No [ ]
Give the name of the association(s)…………………………………………
State the benefits of your membership of the association(s)………………
State any training you have received in your association…………………
Have you worked with any recognized institution in Ghana before (CSIRMampong, Noguchi, KNUST, KCCR, Legon)? Yes [ ] No [ ]
46. Explain how you worked – or are still working – with these institutions.
47. What are the other institutions you worked with?…………………………
How do you work with these other institutions?
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48. Would you want to team up with somebody to commercialize on a large
scale? Yes [ ] No [ ]
Section V Intellectual Property Protection
49. Are you concerned about possible commercialization of your innovations/innovative ideas without your knowledge or consent?
Yes [ ] No [ ]
50. If yes, what mechanisms do you use to protect your innovation or innovative ideas?
51. What is the cost of appropriation?………………………….
52. Is open transfer or exchange of innovation/innovative ideas useful in
traditional medicine?
Yes [ ] No [ ]
53. What main intellectual property mechanism (e.g. patent, trademark,
secrecy) do you think is most appropriate for traditional medical products?………………………………………………………
54. How do you assess the IP policy regime in Ghana among traditional
medical practitioners?
Very high [ ] High [ ] Average [ ] Low [ ] Very low [ ] Non-existent [ ]
55. What do you suggest to improve the IP situation in the country?…………
………………………………
56. What do you suggest to improve traditional herbal practice in
Ghana?………………………….
At end of interview, switch off recorder and thank the participant.
Source: Essegbey et al. (2014).
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383
Annex 1.4 Senegalese informal ICT and trade sector
Name of Informal Production Unit (IPU) (Optional):…………………………
Address (Optional):…………………………
Telephone No.…………………………
(Optional):…………………………
1 Information on the respondent
Name – First name
Gender – Male/Female
Position in the IPU
Junior employee
Technical manager
Administration
General manager/Manager
Other (please specify):
2 Socio-demographic information on the owner/creator/manager of
the IPU
2.1 Who created the IPU?
You alone
Your Father/Mother
Your brother/sister
Your uncle/aunt
A friend
A third party
The family
Associates
A cousin
Other (please specify):
2.2 Gender – Male/Female
2.3 Matrimonial status
Married, monogamous
Married, polygamous
Single
Divorced
Widowed
Other
2.4 What is your ethnic group?
Wolof
Serer
Toucouleur
Diola
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an n e xe s
Mandingo
Other Senegalese ethnic group (please specify):
Foreigner (please specify):
2.5 Languages spoken (you can check more than one box)
Wolof
Serer
Toucouleur
Diola
Mandingo
French
English
Spanish
Chinese
Arabic
Other languages (please specify)
2.6 Place of origin:
2.7 Religion practiced or brotherhood
Tidiane
Mouride
Layenne
Catholic
Protestant
Animist
Other (please specify):
2.8 Level of Education
None
Primary
General secondary
Technical secondary
Higher
Professional training
Koranic school
Other (please specify):
2.9 Socio-professional trajectory (please number in sequence)
Unemployed
French school
Koranic school
Craftsperson
Employed in the modern sector
Other
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385
3 Nature and Structure of the IPU and its activities
3.0a. Do you have a NINEA registration number?
Yes
No
3.0b. Does your business have
Written SYSCOA-compliant accounting?
No SYSCOA-compliant accounting?
Other (please specify)?
If the business has a NINEA registration number and formal accounting to
SYSCOA standards,
3.1 How long has your IPU been in existence?
3.2 How would you categorize your activity?
Sale of recharge cards, telephones
Maintenance and servicing
Mobile telephone decoding
Computer and peripheral device assembly
Sale of computer hardware, office electronics
Sale of audiovisual equipment
Sale of CDs, VCDs, DVDs
Asset creation
Repairs
Services
Other (please specify):
3.3 What material resources does your IPU use to conduct its activities?
Computer
Printer
Scanner
Telephone
Photocopier
Repair kit
Fax
Other (please specify):
3.4 What kind of premises do you have for conducting your activities? (you can
check more than one box)
Street
Stall in the street
Vehicle
Market stall
Workshop
Shop
Kiosk
3.5 How did the idea for this activity originate?
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an n e xe s
Market demand
Social demand
Something to do
Advice from a third party
Imitation
More freedom
Fewer constraints
Other (please specify):
3.6 What are the general stages in carrying out the activity? (please number in
sequence)
Identifying targets
Financing
Equipment
Cooperation
Human resources
3.7 Are there especially favorable periods in the year for conducting your
activities?
Religious festivals
Religious events
End of year
Return to school
Weekly markets
Fairs
3.8 How do you take advantage of these favorable periods?
Investments
Pricing strategy
New product
Work organization
Special offers
3.9 How did this happen?
3.10 What problems have you had to face in conducting a new activity? (you
can check more than one box)
Technical
Financial
Human
Organizational
Institutional
Other (please specify)
3.11 How have you overcome these problems?
Technical
Financial
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387
Human
Organizational
Institutional
Other (please specify)
3.12 Over the last few years, has your business invested in the following
activities?
Acquiring a machine
Acquiring outside knowledge
Training
Buying software
Other (please specify):
3.13 What sources of information have you used for setting up your activities?
The family
Market
State and State departments
Religious associations
Business culture
Community living conditions
Internet
3.14 Which types of financing do you use for keeping your activities going?
Own resources
Family resources
Tontines
Mutual savings and loan associations
Bank
Religious associations
Other (please specify)
3.15 Which of the following social values have helped you to increase turnover?
Solidarity (Ndimbaleunté)
Sharing (seddo)
Honesty (djoub ak ngor)
Dialogue (disso)
Hospitality (teranga)
Courage (diom)
Reserve (mandou)
Perseverance (goorgolou)
3.16 Give an explanation for each value checked?
Solidarity
Sharing
Honesty
Dialogue
Hospitality
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Courage
Reserve
Perseverance
4 Work Organization
4.1 How many people work in the IPU?
4.2 How is the work distributed?
Based on skill
Based on kinship
Based on friendship
Based on age
4.3 How are employees paid?
Monthly
Weekly
Daily
Hourly
Irregularly
4.5 What are the methods of remuneration?
Commission (sales)
Quotas
Wages
5 Commerce and Marketing
5.1 What is your main strategy for market occupancy?
Social network
Advertising
Price
Accessibility
Other (please specify):
5.2 Do your product prices vary according to:
Market
Customer
Place
Time
Other (please specify):
5.3 What is your main pricing mechanism?
Bargaining
Fixed price
5.4 What are your customer relations based on?
Trust Work Family Religion Place of origin
5.5 Who are your main suppliers?
Wholesalers
Outside partners
an n ex es
Retailers (traders)
Formal businesses
5.6 What are your supplier relations based on?
Trust
Work
Family
Religion
Place of origin
5.7 How would you assess the competition in your field of activity?
Very strong
Strong
Average
Weak
Very weak
5.8 Who are your main competitors?
Formal sector
Participants in the same sector
Foreign participants
5.9 What do you think is the most important factor in being competitive?
Proximity
Product quality
Affordable price
Capital
Other (please specify):
5.10 What innovative strategies do you adopt for facing this competition?
Cutting prices
Using new sales
Improving product quality
Other (please specify)
Techniques (packaging, etc.)
6 Partnership and Cooperation
Does your IPU belong to a group or network?
Yes
No
If yes, please specify the group:
Who are your IPU’s partners in implementing an activity?
Informal sector
Modern sector
State
NGO
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an n e xe s
Religious association
Other
What links does your business have with the so-called modern sector? (you can
check more than one box)
Customer
Supplier
Competitor
Associate
What relations does your business have with the State and State departments?
Business tax
Tax
Subsidy
No problem
3.14 Has your business benefited from public financial support for new
activities?
Yes
No
If yes
Local authorities
Government
Other
Source: Konté and Ndong (2012).
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391
Annex 1.5 The diffusion and transfer of IP-related innovation between
formal and informal sectors in Uganda
Background Information:
Name_____________________
Workplace_________________
Work specialty______________
Education: (a) Formal___ (b) Informal___
Section I Questions about work (for researchers the questions will focus on
education and research work):
1. What exactly do you do?
2. How and when did you learn about the work you do?
3. What “experience” do you have for this work? (In local language this means
how long respondent has been at this work)
4. How has this work changed over the years and why?
5. What are the benefits you have realized through this work?
6. What are the main challenges?
Section II Questions on networks [linkage below refers to formal–informal
(F–I), informal–informal (I–I), informal–formal (I–F) exchanges]:
7. Looking at your work [as a researcher/artisan/farmer], do you have
linkages with people in [formal/informal] sector?
8. What kinds of linkages do you have and of what benefit to you/them?
9. If you don’t have linkages in [formal/informal] sector, is that something
you would consider establishing? If yes/no, why/why not? If yes, how can
they be established and/or enhanced? If yes, will the linkage benefit from
formalized mechanisms for the diffusion, transfer or exchange of innovation or are informal mechanisms ideal?
10. Which areas [will] benefit most from linkages between you/your work and
[formal and informal] sector actors working in the same area as yours?
11. What are the challenges of the linkages between you and [formal and
informal] sector actors?
12. What are your main concerns about the linkages?
Section III Linkages, innovation exchange and intellectual property:
13. Do the linkages involve the diffusion, transfer or exchange of innovation/
innovative ideas between you and [formal/informal] collaborators/actors?
14. Are the innovations/innovative ideas applied by the recipient party – applied
meaning translated into commercialization or non-commercial application?
15. Are you concerned about possible commercialization of innovations/innovative ideas?
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16. If, yes to (15), does this often lead to secrecy, restricted access or lack of sharing
of innovation/innovative ideas?
17. Is open transfer or exchange of innovation/innovative ideas possible?
18. Do you think about intellectual property/intellectual property laws or ownership of innovations in instances of exchange of innovation/innovative ideas
with your collaborators?
19. If yes to (18), is that due to the potential for commercialization of some or all
of the innovation by the other party/parties?
20. If no to (18), is IP/IP laws something on your horizon?
21. Any instance where IP/IP laws have affected your work in any way (negative or
positive)?
22. Any instance where IP/IP laws have hindered or slowed down the exchange of
innovation/innovative ideas?
23. Any government policies you know of to encourage linkages and/or exchange
of innovation between you and the [formal and informal sector]?
24. If no policies exist, will the formation of such policies facilitate or deepen the
linkages and exchange of innovation/innovative ideas between you and [formal and informal] sectors?
Source: Kawooya (2014).
Annex 2
Extract 1 from the Generic Questionnaire of Stage 2 of
the 1-2-3 Survey
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an n e xe s
Annex 3
Kenya 2014 MSME Survey
1. The module on business income and seasonal variations includes a section
on Product, Process and Marketing Innovation with four questions:
a. During the period 2009 to 2013, did you introduce new or significantly
improved goods or services? Yes/No
b. During the period 2009 to 2013, did you introduce new or significantly
improved methods of manufacturing or producing goods or services?
c. During the period 2009 to 2013, did you implement a new marketing
method involving significant changes in product design or packaging,
product placement, promotion or pricing?
d. Please estimate the total turnover in 2013 of goods and services innovations introduced in 2013 (Kenyan Shilling).
2. The module on capital and technology comprises six questions on ICT,
besides the amount and sources of initial and additional capital and the
types of equipment:
a. What other type of support did you receive?
1 = Marketing information
2 = Accounting
3 = Legal
4 = Training
5 = Business planning
6 = Stock layout
7 = None
8 = Other (specify)
b. Indicate source of technological advice if any received.
1 = Government institutions
2 = Research institutions
3 = NGO
4 = Contracting MSME
5 = Contracting non-MSME
6 = Salesmen
7 = Publications
8 = Other (specify)
9 = N/A
c. Does the business use any type of ICT? Yes/No
395
396
an n e xe s
d. Specify the types of ICT used
1 = Mobile phone
2 = Fax
3 = Computer
4 = Email/website
5 = Internet
6 = Other (specify)
e. What is the purpose of using ICT?
1 = Ordering supplies
2 = Marketing
3 = Getting general information
4 = Other (specify)
f. Why does the business not use ICT?
1 = Too costly
2 = Not needed
3 = No electricity
4 = Not accessible
5 = Other (specify)
3. The module on business organization and marketing comprises seven
specific questions on marketing
a. How are prices set?
1 = Independently
2 = In consultation with others
3 = Buyers
4 = Suppliers
5 = Others (specify)
b. Main source of inputs or agency
1 = MSMEs
2 = Non-MSMEs
3 = Farmers
4 = Direct imports
5 = Individual suppliers
6 = Government
7 = Other (specify)
c. Main buyer of products or services
1 = MSMEs
2 = Non-MSMEs
3 = Direct exports
4 = Individual consumers
5 = Government
6 = Other (specify)
annexes
397
d. Indicate any sub-contracting arrangements for inputs or orders received
from clients
1 = None
2 = MSMEs
3 = Non-MSMEs
4 = Middlemen
5 = Government
6 = Other (specify)
e. Indicate any sub-contracted arrangement for your products or services
1 = None
2 = MSMEs
3 = Non-MSMEs
4 = Middlemen
5 = Government
6 = Other (specify)
f. Main method of advertisement of products and services
1 = None
2 = Electronic media
3 = Print media
4 = Trade exhibition
5 = Posters/fliers/brochures
6 = Public marketing/promotion bodies
7 = Private market/promotion bodies
8 = Quality of products/clientele satisfaction
9 = Other (specify)
g. What are your customer feedback mechanisms?
Source: The Kenya MSME Survey is a repetition of the 1999 Baseline Survey of
Micro and Small Enterprises (see CBS-ICEG-K-Rep (1999) National Micro
and Small Enterprise Baseline Survey 1999, Survey Results, Nairobi, Central
Bureau of Statistics, International Centre for Economic Growth and K-Rep
Holdings Ltd). It was planned for 2014 by the Kenya National Bureau of
Statistics (KNBS), but was postponed to end of 2015 for budgetary reasons.
INDEX
actors in informal economy, 5, 328
Advancing Kenyan Industry through
Local Innovation (AKILI), 121
Africa. See also home and personal care
products in South Africa;
metalworking sector in Nairobi;
South Africa; Sub-Saharan Africa;
traditional herbal medicine in
Ghana
informal economy, 268–75
informal innovations and incentives,
284–89
Northern Africa, 24t, 24–25, 34–35
small- and medium-sized
enterprises, 268–70
Africa Regional Intellectual Property
Organisation (ARIPO), 217,
268–75
African Centre of Statistics at
UNECA, 363
African Innovation Outlook, 337,
341, 363
African Intellectual Property
Organization (OAPI), 269
African Observatory for Science,
Technology and Innovation
(AOSTI), 11, 354, 367–70
African Science, Technology and
Innovation Indicators (ASTII),
340, 341, 368
African Union Commission, 367–70
Africa’s Ministry of Science and
Technology, 7
agricultural extension officer
(AEO), 279
agricultural extension services
(AESs), 279
agricultural innovations, 283
Agricultural Policy Action Plan
(APAP), 191
Algeria, 24
apprenticeships, 80
appropriation mechanisms, 3, 232
accessibility, 180–81
alternate strategies for, 178–79, 179t
awareness of attitudes toward IPRs,
177–78, 178t, 178f
country study observations, 245,
246t–47t
defined, 232–36, 235f
empirical findings, 236–38
formal economy, 127–28, 234, 236,
240–42
home and personal care products in
South Africa, 175–77, 176t
Honey Bee Network, 240, 241
implications for policy, 182–84
indigenous/local communities,
243–45
in informal economy, 129, 237,
238–40, 242–43, 259
intellectual property rights, 170–75,
174t
metalworking sector in Nairobi,
127–29, 128t, 132, 248–49
patents, 251
semi-formal, 128–29, 179–80, 236,
239, 242–43
technology in innovation, 98
traditional herbal medicine in
Ghana, 216–20, 218t
Uganda automotive artisans, 249–51
wider use of, 181–82
Asia, 26–27, 28t, 40
association as rights owner, 132
automotive artisans in Uganda, 67
backward linkages, 73
“base-of-the-pyramid” (BoP)
innovation, 56
398
in de x
benefit-sharing in surveys, 359
Biodiversity Act, India, 288
biopiracy, 287
“bottom of the pyramid”
consumers, 102
brands/branding, 2, 134, 175
Brazil, 58, 217
Broad-Based Black Economic
Empowerment Act (2003), South
Africa, 328
capability in micro-firms, 71–72
capital needs, 61, 71–72, 133–34, 148
Center for Intellectual Property and
Information Technology
(CIPIT), 121
Central African Economic and
Monetary Union (CEMAC), 269
Centre for Research in Transportation
Technologies (CRTT), 280
Centre for Scientific Research into
Plant Medicine (CSRPM), 195,
207, 222
China, 211, 217, 224
chip cutter manufacturing, 114,
115f
cluster organization, 101–2
co-creation hubs, 320
collaborative innovations, 80
collective arrangements and policy
dialogue, 301–2
collective saving schemes, 318
College of Engineering, Design, Art,
and Technology (CEDAT),
250, 280
combined surveys, 348–54
Committee on Herbal Medicine
Research and Intellectual Property
Rights Protection, 223, 310
communities as agents of
innovation, 72
Community Innovation Survey (CIS),
338, 339, 343, 362
Companies and Intellectual Property
Commission (CIPC), South
Africa, 173
“constrained gazelles,” 65
constraint-based innovations, 80
399
Consumer Affairs Act (2008), South
Africa, 173
contractual agreements, 176
Convention on Biological Diversity
(CBD), 220, 288
conventional approaches to informal
economy, 297–311, 306t, 316,
328–29
Convergence Meetings on Traditional
Medicine Development, 228
copying and innovation, 140
Copyright Act (1978), South
Africa, 173
Copyright Act (2005), Ghana, 216–17
Copyright Regulations (2010), Ghana,
216–17
Cosmetic, Toiletry and Fragrance
Association of South Africa
(CTFA), 153, 191
Council for Scientific and Industrial
Research, 307
Counterfeit Goods Act (1997), South
Africa, 173, 175
creative credits, 319
Decent Work Agenda, 298
degrees of informality, 152–53, 153t
Delhi Group, 18
Department of Micro and Small
Enterprise Development
(DMSED), Kenya, 138, 301
Department of Science and Technology
(DST), South Africa, 192
Department of Small Business
Development, South Africa, 301
Department of Technology Assessment
for Social Demand, Argentina, 334
Department of Trade and Industry
(DTI), South Africa, 183
Designs Act (1993), South Africa, 173
developing countries. See also informal
economy; innovation in the
informal economy; specific
countries
economic development
resources, 299
innovation in the informal economy,
55–57, 64
400
in dex
developing countries (cont.)
marginal communities, 302–3
treatment of innovation, 297–303
Development Bank of Southern Africa
(DBSA), 184
diffusion of innovation in low-income
countries (DILIC), 97–99
distributive logic of innovation
policies, 296
Doing, Using and Interacting (DUI)
mode, 304
economic development resources, 299
economic domains in South Africa, 146
economic growth objectives, 321–23
economic surveys, 349
economically viable innovations, 81
economies of scale, 72
educational constraints, 79
Egypt, 24–25, 34–35, 338, 352
emerging markets, 56
employment, 3
female employment trends, 31,
50–51
formal worker requirements, 51
self-employment, 31, 41, 88
skilled labor, 61, 317
in South African informal
economy, 146
trends, 21–31, 22t, 24t, 26t, 27t, 28t,
29t, 30t
unemployment, 146, 149, 308–9
unskilled labor, 61
vulnerable employment, 50–51
entrepreneurship
development of, 299, 302
risk-taking entrepreneurs, 319
skilled employment match
between, 317
South Africa, 148–49, 185, 186
Essential Drugs List (EDL), 206,
212, 213
establishment surveys, 349–52
European Commission, 337
Eurostat, 337
Eurostat Community Innovation
Survey (CIS), 338, 339, 343, 362
evidence-based policy-making, 300
Extension Unit, Universidad de la
República, Uruguay, 332
fast-track pilot program, 140
fertility challenges, 212
Fifteenth International Conference of
Labour Statisticians, 18, 20, 45–48
firm typology in informal economy,
64–66, 65t
Food and Drugs Authority (FDA),
Ghana, 195, 206
“for the poor by the poor”
innovation, 56
formal economy. See also informal
economy vs. formal economy
appropriation mechanisms, 127–28,
234, 236, 240–42
intellectual property rights and,
233–34, 262
interactions with, 167, 169f
Latin America, 51
legal protections, 257
problem-solving within, 69–70
transition to, 298
unemployment in, 146, 149
forward linkages, 73
“frugal” innovation, 56
Gatsby Garage, 249, 279–80, 281
Gauteng Employment Growth and
Development Strategy
(GEGDS), 182
Gauteng Innovation Strategy, 182
geographical indications (GIs), 288
Ghana. See traditional herbal medicine
in Ghana
Ghana Federation of Traditional
Medicine Practitioners
Associations (GHAFTRAM), 200,
208, 223, 225
Ghana Health Service, 206, 208
Ghana Living Standards Survey
(GLSS), 352
Ghana Patent Act (2003), 219
Ghana Shared Growth and
Development Agenda
(GSGDA), 195
globalization, 18
in de x
good manufacturing practices
(GMPs), 229
“grassroots” innovation, 56
Grassroots Innovation Augmentation
Network (GIAN), India, 241
Grassroots Technological Innovation
Acquisition Fund (GTIAF),
India, 241
Greenwood, Adriana Mata, 45–48
gross domestic product (GDP), 3–4
informal sector contribution, 101
labor force, 368
measuring contribution to, 20, 21,
31–36, 33t, 34t
gross value added (GVA), 32, 36
Herbal Medicine Centers, 220, 222
herbal medicine in Ghana. See
traditional herbal medicine in
Ghana
hidden enterprise culture, 88
hierarchical binary mode of thinking,
89, 90
high growth firms, 94
Hirschman, Albert, 17
home and personal care products in
South Africa, 6, 7, 146–48, 184–87.
See also appropriation
mechanisms
appropriation mechanisms, 175–77,
176t
equipment needs, 164–65
equipment out of found materials, 71
essential role of, 149–51
informal economy in context of,
148–49
innovation profile of, 154–62, 159t,
160f, 161f, 162t
intellectual property rights, 251–52
knowledge and technical profile of,
164–67, 166t, 168f, 169f, 169t, 170t
linkages to formal sector, 72–74,
75t–78t
mapping innovation system, 168–70,
171f, 172t
obstacles to innovation and
scalability, 163t, 163
profile of, 151–58, 152t, 153t, 154f, 158f
401
quality importance in, 70
sub-sectoral definitions of, 150
survey on, 376–79
technical knowledge required, 154
Honey Bee Network, 56, 240, 241,
258, 261
Housemark case study, 121–22,
130, 135
Human Development Report for
Southern Africa, 327
improvements to products, 156,
157–61, 159t, 160f
inclusive innovation, 56, 329, 345
income inequality, 297
incremental innovations, 80
India
informal sector in, 35, 36
intellectual property debates, 283–93
medicinal products from, 211
national strategy for herbal
products, 224
passing on skills, 67
patent applications, 217
Indian Council of Scientific and
Industrial Research (CSIR), 287
Indigenisation and Economic
Empowerment Act (2007),
Zimbabwe, 328
indigenous and local communities
(ILCs), 273
Indigenous Knowledge Systems (IKS)
Policy, South Africa, 173
Industrial Designs Act (2003), Ghana,
216–17
industrial development in South
Africa, 148
Industrial Policy Action Plan (IPAP),
South Africa, 191
Industrial Policy Action Plan (IPAP2),
South Africa, 147
informal economy. See also home and
personal care products in South
Africa; metalworking sector in
Nairobi; micro-firms in the
informal economy; traditional
herbal medicine in Ghana
actors and stakeholders in, 5, 328
402
in de x
informal economy (cont.)
in Africa, 268–75, 284–89
appropriation mechanisms, 129, 237,
238–40, 242–43, 259
case studies and arguments, 254–56
conceptualization and definitions,
15–17
conclusion, 40–41, 293
contribution to GDP, 31–36, 33–34t
conventional approaches to,
297–311, 306t, 316, 328–29
degrees of informality, 152–53, 153t
diversity of, 63
economic growth and, 49–50
employment trends, 21–31, 22t, 24t,
26t, 27t, 28t, 29t, 30t
entrepreneurship, 88
evolving understanding of, 61
firm typology, 64–66, 65t
identifying types of, 51–52
ILO definitions of, 45–48
innovations and incentives, 284–89,
367–70
intellectual property rights, 234
interactions with, 167, 169f
introduction, 1–12, 13–15
Jua kali concept, 14
Latin America, 35
legal protections, 257
literature in, 5–6
motivation for innovation in, 278–81
multi-criteria definitions, 16
non-agricultural informal
economy, 46
open knowledge flows, 289–90
role in economic development,
199–201, 200t, 201t
social importance, 37–40, 38f, 39f
statistical definitions, 17–20
Sub-Saharan Africa, 34, 36
urban informal entrepreneurs, 56
vulnerable employment in, 50–51
women/youth and vulnerable
employment in, 50–51
informal economy vs. formal economy,
5, 46, 51, 60
education, training and knowledge,
67–68
innovation dynamics, 369
innovation surveys, 341–47
juxtaposition of, 62t
linkages between, 72–74, 75–78t,
290–92
motivation of, 94
relevance of, 97–99
research and development
(R&D), 191
vertical integration between,
279–80
Informal Trading Policy,
Johannesburg, South Africa,
182–83
information and communication
technologies (ICTs), 281, 309,
383–90
information sharing, 176
infrastructure constraints, 79
innovation in the informal economy.
See also policy approaches to
innovation
analysis of, 57–60, 59f, 61–64
barriers to, 74–79
challenges, 11–12
communities as agents of, 72
conclusion, 79–81, 262–64
defined, 54
in developing countries, 55–57, 64
first known attempt, 88–90
growth, 1–12
home and personal care products in
South Africa, 154–62, 159t, 160f,
161f, 162t
innovator characteristics, 93–95
introduction, 8–9, 53
measurement of, 11
metalworking sector in Nairobi,
116–21, 118f, 119f, 120f, 122–26,
123f, 124f, 125f
obstacles, 163t, 213–16, 215t
research and development, 54,
55, 57
science and technology, 55, 57, 58
sophistication of, 69–71
traditional herbal medicine in
Ghana, 194, 202–7, 203f, 204t,
205t, 252–54, 276
in de x
innovation surveys
ad hoc interview-based approaches,
355–62, 363, 371–75t
combined surveys, 348–54
conclcusion, 362–63
extent of content coverage, 349–54
formal vs. informal economy,
341–47
generic questionnaire, 393t, 393–94t
introduction, 336–37
measurement in informal sector,
367–70
methodological challenges, 343
mixed surveys, 348, 349–52
review of, 347–49, 350t, 351f
sequence of questions, 360–61
Tunisia, 357
types, 337–41, 340t, 351t
innovator characteristics, 93–95
Institute of Development Studies at the
University of Nairobi, 16
institutional constraints, 79
institutional weakness, 303
Intellectual Property and Innovations
Desks, Ghana, 229
intellectual property rights (IPRs), 140
Africa, 268–75
appropriation mechanisms, 170–75,
174t
awareness of attitudes toward,
177–78, 178t, 178f
cost of protection, 272
formal economy, 233–34, 262
home and personal care products in
South Africa, 251–52
hurdles in accessing, 260–62
India, 283–93
informal economy, 234
innovation and, 2, 329
lack of awareness, 271
metalworking sector in Nairobi, 100,
108, 114, 129–30, 131
micro-firms in the informal
economy, 177–78
need for qualified personnel, 272
needs assessments and suitability,
257–60
403
overlong pending period in
registration, 272–73
practical challenges, 257
relevance, accessibility and
supportiveness, 271–72
semi-formal IP rights, 234
South Africa, 170–75, 174t
streamlining of process, 132–33
traditional herbal medicine in
Ghana, 194, 202–7, 203f, 204–5t,
252–54, 276
Uganda automotive artisans, 249–51,
260, 391–92
Intellectual Property Rights from
Publicly Financed Research and
Development Act (2008), South
Africa, 173
interactions with formal/semi-formal
organizations, 167, 169f
International Conference of Labour
Statisticians (ICLS), 13, 17, 45–48
international knowledge, 98
International Labour Organization
(ILO), 13
jiko manufacturing, 127
job creation and innovation, 369
Jobs and Skills Programme for Africa
(JASPA), 15
jua kali concept, 14, 21, 100, 143–45,
248–49
collective interests of
metalworkers, 302
Jua Kali Development Programme, 14
“jugaad” innovation, 56
Kamukunji Jua Kali Association,
72–73, 102, 120, 122, 124, 249, 290
Kashmiri Pashmina Shawls, 67
Kenya. See also metalworking sector in
Nairobi
combined surveys, 352, 353
conventional policy approaches, 307
metal manufacturers, 248–49
public procurement, 308, 329
Kenya Industrial Property Institute
(KIPI), 121, 130–31
404
in de x
Kenya Micro and Small Enterprise Act
(2012), 118
Kenya Micro Small and Medium
Enterprise (MSME) Survey,
353–54
Kenya National Innovation
Agency, 138
Kiji Kenda communities, 253
knowledge
flows, 254–55
intensive production, 61
“ownership” of, 175
technical profiles and, 164–67, 166t,
168f, 169f, 169t, 170t
technology support systems, 216
traditional knowledge (TK) systems,
166–67, 243–44
Korea, 211
Kukula Healers, 252–53
Kwame Nkrumah University of Science
and Technology (KNUST),
Ghana, 195, 207, 220, 222
labor-capital distributions in South
Africa, 148
labor-intensive production, 61
labor-market policies, 51
Lagos Plan of Action for the Economic
Development of Africa, 367
Latin America, 25–26, 27t, 35, 51
Latouche, Serge, 13
Lautier, Bruno, 13
Legislative Instrument (1616), 216–17
Libya, 338
literature in the informal
economy, 5–6
low-income countries, 52, 56, 97, 99,
185, 189–92
low-income households, 151
low-productivity activities, 51
lower-tier entrepreneurs, 64–66, 65t
Maasai communities, 253
Makerere University’s College of
Engineering, Design, Art and
Technology (CEDAT),
Uganda, 280
Mallesham, Chintakindi, 291
Manual on Informality (ILO), 45
marginal communities, 302–3
market-context measure of
innovation, 345
Marxist theory of the labor reserve/
surplus, 16
mechanical innovations, 283
medicinal innovations, 283
medicinal plant resources, 230
Merchandise Marks Act (1941), South
Africa, 173
metalworking sector in Nairobi, 6, 71,
100–1, 140–41
appropriation mechanisms, 127–29,
128t, 132, 248–49
art objects, 114–16, 117f
association as rights owner, 132
branding strategies, 134
capital to fund filings, 133–34
construction sectors and, 69
demographic profile, 104–7
Housemark case study, 121–22,
130, 135
industrial designs/copying, 133
informal economy of, 101–2
informal innovations and incentives,
285–86
innovation system in, 116–21, 118f,
119f, 120f, 122–26, 123f, 124f, 125f
intellectual property rights, 100, 108,
114, 129–30, 131
jua kali concept, 14, 21, 100, 143–45
metal manufacturing in, 70
Moses Metalwork case study, 121
obstacles to innovation, 126
open-source design, 127
policy considerations, 134–39, 136t
products manufactured, 107f,
107–14, 110f, 113f, 115f
role of, 102–4, 103f, 105t, 106f
streamlined IP rights process,
132–33
survey/interview indications,
129–31, 395–97
Micro, Small and Medium Enterprises
(MSMEs), 139
Micro and Small Enterprise Act of 2012
(MSEA 2012), Kenya, 135–38
in de x
Micro and Small Enterprise
Technology Project in Kenya, 317
“micro and small enterprises”
(MSEs), 118
micro-entrepreneurs, 260
micro-firms in the informal economy
education, training and knowledge,
67–68
exchanging of ideas, 179
innovative capacity among, 67
intellectual property rights and,
177–78
overview, 5, 23
pro-/countercyclical trends, 41
South Africa, 66, 151–52
technology, capital and capability,
71–72
Micro Venture and Innovation Fund,
India, 241
middle-tier entrepreneurs, 64–66, 65t
Ministry of Health (MOH), Ghana,
203, 208
Ministry of Industrialization and
Enterprise Development, Kenya, 6
Ministry of Labor, Kenya, 301
mixed surveys, 348, 349–52
Morgan, Anneline, 327–30
Morocco, 24–25
Moses Metalwork case study, 121
Muriuki, Lawi, 121–22, 130
Nairobi. See metalworking sector in
Nairobi
Nairobi sofa-makers in, 70, 104
National Board for Small Scale
Industries (NBSSI), Ghana,
201, 301
National Cultural Policy, Ghana, 231
National Development Agenda,
Ghana, 231
National Development Plan, South
Africa, 190
National Economy Policy, Senegal, 300
National Health Insurance Scheme
(NHIS), Ghana, 215
National Informal Business Upliftment
Strategy (Nibus), South
Africa, 303
405
National Innovation Foundation (NIF),
India, 241, 243
National Research Fund, Kenya, 307
National Science, Technology and
Innovation Policy (2010),
Ghana, 307
National Science and Technology
Innovations Strategy, Ghana, 231
National System of Innovation (NSI),
South Africa, 190, 192
natural phenomena and patenting, 292
Neem plant, medicinal, 287
NEPAD (The New Partnership For
Africa’s Development), 340
Nigeria, 352, 353
non-agricultural informal economy, 46
non-agricultural jobs, 49, 101
non-governmental organizations
(NGOs), 332, 358
non-profit organizations, 302
Northern Africa, 24t, 24–25, 34–35
obstacles to innovation and scalability,
163t, 163
on-the-job learning, 80
Open AIR project, 67, 232, 252
open knowledge flows, 289–90
open-source design, 127
open transfer of innovative ideas, 252
operational definitions of informal
economy, 45
Organisation for Economic Cooperation and Development
(OECD), 4, 47
inclusive innovation, 329
informal economy, 47, 49–52, 202
innovation policy approaches, 305
surveys for measuring innovation, 337
Oslo Manual, 345, 346, 363
owner perception of products, 156, 159t
“ownership” of knowledge, 175
Patent Cooperation Treaty (PCT), 173
patents. See also trademarks
applications, 217, 234, 238
appropriation of, 251
natural phenomena and, 292
protection, 249
406
in dex
Patents Act (1978), South Africa, 173
Patents Act (2003), Ghana, 216–17
Personal Digital Assistants (PDA), 359
Plan Senegal Emergent, 300
policy approaches to innovation,
10–11, 296–97, 321–23, 330
co-creation hubs, 320
conventional approaches, 303–11,
306t, 316, 328–29
developing countries, treatment of
innovation, 297–303
evidence-based policy-making, 300
“inclusive” innovation, 56, 329, 345
integration considerations, 311–21,
312–15t
traditional science parks, 319–20
universality of, 332–35
policy balance, 327
postgraduate programs in traditional
medicine, 230
price-sensitive consumers, 151
problem-solving in formal/informal
economy, 69–70, 93
process innovations, 207
producer-based groups/
associations, 310
product innovations, 207
proprietary legal rights, 278
public procurement, 308, 329
Public Procurement Act, 139
public-sector innovation, 94–95
purposive sampling technique, 356
push/pull effect of value chains, 208,
209f, 225
quota sampling technique, 358
radical innovations, 80
Regional Programme on Employment
for Latin America and the
Caribbean (PREALC), 15
Registrar General’s Department
(RGD), Ghana, 195, 207, 216–17
regulatory environment, 300
research and development (R&D), 54,
55, 57
conventional policy approaches,
304, 307
expenditures, 98
informal vs. formal domains, 191
innovation-driven growth, 1, 80
survey questions, 344
traditional medicine, 222
Research Network on Local Productive
and Innovative Systems
(RedeSist), 58
reverse knowledge flow, 68
RICYT (Red Iberoamericana de
Indicadores de Ciencia
y Tecnología), 338
risk-taking entrepreneurs, 319
rotating credit unions, 318
Rwanda, 269
Sackey, Emmanuel, 268–75
scalability obstacles, 213–16, 215t
Science, Technology and Innovation
Act of 2013, Kenya, 138, 307
science and technology (S&T), 55,
57, 58
African Observatory for STI, 367–70
challenges to, 327
characteristics of, 334
conventional policy approaches, 304
in innovation system of low-income
country, 189–92
institutionalization of, 332
Science and Technology Research
Endowment Fund (STREFund),
Ghana, 307
secondhand products, 145
sector-specific fieldwork, 69
self-construction of tools, 70
self-employment, 31, 41, 88
semi-formal appropriation
mechanisms, 128–29, 179–80, 236,
239, 242–43
semi-formal industry associations,
179–80
semi-formal IP rights, 234
Senegalese Ministry of Trade,
Entrepreneurs and the Informal
Sector, 301
Sengalese ICT and trade sector, 383–90
Seventeenth International Conference
of Labour Statisticians, 18–19
in de x
Shared Economic Infrastructure
Facility (SEIF), South Africa, 301
Simply Logic organization, Kenya, 120,
130–31
skilled labor, 61, 317
skills constraints, 79
skills in the informal economy, 5
small, medium and micro enterprises
(SMMEs), 147, 300, 301, 319
small-and medium-sized enterprises
(SMEs), 268–70, 341
Small and Micro Enterprise Authority
(SME Authority), Kenya, 137
Small Enterprise Development Agency
(SEDA), South Africa, 183
Small Enterprise Finance Agency
(SEFA), South Africa, 184
“small-scale innovation sector,” 119
snowball sampling technique, 356–58
social constraints, 79
socially influential innovations, 81
Society for Research and Initiatives for
Sustainable Technologies and
Institutions (SRISTI), India, 241
sofa-makers in Nairobi, 70
South Africa. See also home and
personal care products in South
Africa
apartheid regime, 148–49, 189
business transitions in, 189–92
challenges to growth and
development, 327–30
conventional policy approaches, 307
development and innovation
agenda, 308
economic domains, 146
employment, 146
entrepreneurship, 148–49, 185, 186
industrial development in, 148
intellectual property rights, 170–75,
174t
micro-enterprises, 66, 151–52
open knowledge flows, 289–90
regulatory environment, 300
technology transfer
organizations, 309
South African Bureau of Standards
(SABS), 153
407
South African Department of Small
Business Development, 170, 184
South African Local Government
Association, 184
South African National Informal
Economy Forum (SANIEF), 180,
180n18
South African Patent Act (1978), 173
South Asia, 40, 49
South-East Asia, 40
Southern African Development
Community (SADC), 327–30
SpicyIP, India, 283–93
stokvels, 243
sub-national governments, 299
Sub-Saharan Africa
employment trends, 25, 26t
informal sector in, 34, 36
innovation surveys, 338
labor force, 40
non-agricultural jobs, 49
sui generis system, 225, 286
supply-and-demand interactions, 68
supply-side approaches to
innovation, 296
survivalist entrepreneurs, 65
System of National Accounts (SNA),
13, 18, 20, 31, 35
talim system, 244
Tanzania, 269
tax tariffs, 145
technological dualism, 68
technological innovation, 69–72, 81, 97
Technology Innovation Agency (TIA),
South Africa, 307
technology transfer organizations,
165–66, 168f, 309
top-performer firms, 65
Trade Marks Act (1993), South
Africa, 173
Trade Marks Act (2004), Ghana, 216–17
trademarks. See also patents
absence of protection, 255
appropriation of, 251
as branding baseline, 140
statistics on, 175, 218t, 218–19
usefulness of, 177–78, 249
408
in de x
Traditional and Alternative Medicine
Directorate (TAMD), Ghana, 8,
195, 205, 208
traditional healers, 60
traditional herbal medicine in Ghana,
6, 7, 194–95, 224–25
appropriation mechanisms in,
216–20, 218t
conventional policy approaches, 307
economic development, 199–201,
200t, 201t
formal-informal linkages, 73–74
herbal medicine, 198–99, 210f,
214f
in informal economy, 194, 202–7,
203f, 204t, 205t, 252–54, 276
as informal enterprises, 66
innovation system in, 202–13, 203f,
204t, 205t, 209f, 210f, 212t,
214f, 285
intellectual property rights, 194,
202–7, 203f, 204t, 205t,
252–54, 276
obstacles to innovation and
scalability, 213–16, 215t
policy options, 220–24
postgraduate programs in, 230
significance to health sector, 195–99,
196t, 197t
sub-sector development, 228–31
sui generis system, 225, 286
survey on, 380–82
Traditional Knowledge Digital Library
(TKDL), India, 287
traditional knowledge (TK) systems,
166–67, 243–44, 273–75
Traditional Medicine Practice Act 595
of Ghana (2000), 199
Traditional Medicine Practice Council
(TMPC), Ghana, 195, 200, 208,
223, 356
Traditional Medicine Practitioners
(TMPs), 66, 194, 195, 206
traditional science parks, 319–20
training and education
organizations, 60
training by suppliers, 165, 166t
transition countries, 27–29t, 29t
Tunisia, 21, 338, 357
Uganda automotive artisans
appropriation mechanisms, 249–51
formal-informal linkages, 74
intellectual property rights and,
249–51, 260, 391–92
overview, 67
under-5 mortality rates, 196
unemployment, 146, 149, 308–9
UNESCO Institute for Statistics, 338
United Nations University-Maastricht
Economic and Social Research
Institute on Innovation and
Technology (UNU-MERIT), 368
Universidad de la República, Uruguay,
332–35
University Research Council,
Uruguay, 334
unskilled labor, 61
upper-tier entrepreneurs, 64–66, 65t
urban informal entrepreneurs, 56
value chains, 81, 208, 209f
vertical integration, 279–80
vocational training, 67
voice in policy development and
implementation, 328
voucher training program, 317
vulnerable employment in informal
economy, 50–51
web-based surveys, 343
Williams, Colin C., 88–90
women, vulnerable employment, 50–51
World Employment Programme, 16
World Health Organization (WHO),
196, 197–99
youth, vulnerable employment, 50–51
Youth Enterprise Development
Strategy, South Africa, 184
Youth Technology Innovation Fund,
South Africa, 307