Measuring Innovation through the Eyes of the Informal Economy: lessons from some African countries

By Oluseye Jegede, PhD

Honorary Research Fellow, Centre for Science, Technology and Innovation Indicators (CeSTII)

I am one the beneficiaries of the Africalics Seedfunding Grant of 2014. I worked together with colleagues from different African countries to understand the dynamics of innovation in microenterprises in Africa. A route less travel by most innovation scholars. The team attempted to understand if standard indicators will be appropriate for capturing innovation in microenterprises in Africa or not. Hence, we set out to the field to capture original data from microenterprises in the agro-processing, clothing and textiles, metalworkers, ICT, waste recycling, repairs and maintenance services, furniture industries in South Africa, Uganda, Tanzania and Nigeria. Our goal was to gather information that could inform us of how daily work organization help microenterprises to build competence and how these competences translates into innovations. This study involved one hundred and forty-four interviews with employers and one hundred and fifty-two interviews with employees in microenterprises in the four African countries. From the study we had very interesting results, but I was curious to know more. Hence, after receiving a grant from the Open African Innovation Research Network, I carried out a follow-up study in 2016 this time focusing specifically on the ICT industry in Nigeria using the Otigba Computer Village in Lagos, Nigeria. Two hundred interviews were further carried out on business owners at the Otigba cluster focusing this time on informal businesses. The Otigba cluster which is in Lagos, Nigeria is the ICT hub for West Africa and represents the largest ICT market in Africa owing to the volume of daily business transactions that takes place in the cluster.

From the two studies, I advance four stylized facts:

1. Size versus State: One quick observation from the first study was that most of the microbusiness were informal and from the second study I observed that most of the informal business operate mostly on the micro level. Hence, I observed a strong positive correlation between microbusinesses and informal businesses in Africa. However, being micro should not be confused with being informal. While the former is a size parameter (having employee size less than ten and turnover less than five million naira [approximately 14, 000 USD]), the latter is a legal parameter (being outside government regulation in terms of incorporation and taxation).
2. Degree of informality: I observed from my studies that no business is completely formal while none is completely informal at same time. I had previously set out to capture “informality in businesses” as businesses that were not incorporated nor registered for taxation. While this definition holds, it only represents a narrow view of the concept of informality. From the two sets of fieldwork, I found this definition not to be completely true while other unpopular definitions of informality I found be true. For instance, some businesses weren’t incorporated but some still pay taxes to the local authorities, they all pay value added tax on purchase of machinery, equipment and tools, most are registered and legalized under their different trade associations and through their various trade associations they are recognized by different provincial/state governments and are subtly regulated by government. Hence, some of these trade associations issue certificates to their apprentices which is seemingly recognized and backed by the state/provincial government in Nigeria. On the other hand, there were a lot of incorporated businesses whose employees don’t have working contracts, hence, don’t have job security or good welfare conditions. Hence, they fall within the informal economy. My final thought on this was that formality or informality cannot be measured on a binary code of “yes” or “no” instead, “degrees of (in)formality” will be a more appropriate way to measure (in)formality. However, it remains challenging to implement now as there are many components to factor in to create the instrument to measure from absolute informal to absolute formal.
3. Innovation activities follows a soft approach: It became obvious from the two studies that the main innovation activities in the informal sector are largely dominated by what literature calls the “Doing, Using and Interacting” (DUI) approach. Conventional metrics for innovation like R&D expenditure and personnel didn’t hold for the informal sector businesses as well as the microbusinesses. On the contrary, these businesses innovated through alternative means such as learning. The learning involves: “learning by doing”, “learning by using”, “learning by interacting”, “learning by imitating”, “learning by producing” and “learning by searching”. It remains interesting to note that innovation activities in the informal sector is fluid and happens through alternative means as against the conventional backdrop of variables provided in the standard manual for measuring innovation.
4. Skills and knowledge indicators are peculiar: Patents, publications, number of PhDs, amongst others are conventional metrics for measuring knowledge as provided by the standard manuals. These patterns do hold not for the very small businesses. As observed, the channels for acquiring knowledge were traditional apprenticeship system, on-the-job learning, indigenous knowledge systems, flashes of insights, happy accidents, vagaries of realities, intuition/inspiration, amongst others. While the employees in the informal sector businesses develop their skills by encouraging apprentices to solve problems on their own, working with new equipment at workplace, working closely under supervision and with other colleagues, through autonomy by allowing apprentices implement their own ideas in running the business, amongst others.

In conclusion, I thought Africa needs its own instrument for capturing innovation on the continent. First hand information from field studies have shown that the instruments provided by the countries of the North are not adequate to capture the details of innovation dynamism on the African continent. Scholars interested in carrying out studies on innovation in Africa must broaden their horizon and factor in the peculiarity of the African continent while developing and administering their research instruments. Since it is only what is measured that receives policy attention, it is advised that scholars in Africa must ensure that the indicators feeding the policy process are true and represents interest of the business sector. This is more important given that literature posits that 75% of economic activities in Africa lies in the informal sector and this accounts for about half of Africa’s countries GDP. Thankfully, The South African government through the Centre for Science, Technology and Innovation Indicators domiciled at Human Science Research Council is taking the lead in exploring innovation in the informal economy on a national scale for South Africa, through a pilot study. To address the inadequacies of the Oslo manual for measuring innovation of the Africa continent especially as it concerns very small businesses, the pilot study involved development of  (i) a conceptual framework for mapping actors and stakeholders for innovation in the informal economy, (ii) indicators and metrics for measuring information in the informal economy, and (iii) alternative methodologies for capturing innovation in the informal economy other than surveys and interviews.