22 September 2012

Ethiopia: Street Vending Compromising Legal Business

The youth in Ethiopia especially in urban areas expand income generating means organizing themselves at various levels.

Many are even turned into high profile investors taking the advantage of the existing youth inviting environment. As witnessed so far, a number of problems emanate from unemployment and poverty could be effectively smashed out, among other means, with the expansion of small and micro-businesses, youth loan provision, helping the youth run a range of private businesses. As micro-businesses and entrepreneurial activities are widely emerging in Ethiopia, they are providing unparalleled opportunities to many people particularly to the youth not only to combat unemployment, but also to reduce poverty in substantial proportions.

Innovations in production and distribution channels characterize markets. Supported by propitious policy instruments, of which micro-financing and the TVET programme are conspicuous examples, small and micro-business are showing a progressive boom. Hence, the expansion of business and the rise in the number of entrants has encouraged competition based on innovation. Competition thus built the capacity of existing businesses and paves the way for emerging ones.

At the time of promising developments in business as well as markets and innovation are expanding, the rising trend of illegal street vending overshadows all these achievements. Despite several attempts to clear illegal street vendors off the streets, street vending, in its different forms, is on the outgrowth. What was traditionally the market share of mainly women who retail home-made food and food items, spices, vegetables, green grass, flowers and so on has now turned into a full-fledged business operation challenging the survival of legal business people and eroding into the robust growth of our economy.

The violation of legal trading procedure as evidenced by people who hunt every market niche to sell food items and other related commodities is an illustrative example of how illegal street vending is staining the smooth operation and growth of our market. Dealers of illegal commodities may think, and still be satisfied with the profits they are making, but they are not either aware of, or indifferent to the damages the illegal ones are incurring to the public.

Indeed, illegal street vendors are sure to expand their market size for some reasons. They are selling their materials not on fixed prices but on bargaining terms which helps them adjust their prices based on the needs of customers and the demand for their goods. Customers who are willing to pay will buy their goods with better prices. If the contact tends to be frequent, such customers benefit from better quality things at lower prices. Buyers who are not willing to pay high quality materials often get those goods at lower prices. For the street vendor, there is no cost and time spent to segment his/her customers based on their ability and willingness to pay. They did this on the spot, and through experience they hone their skills of customer segmentation and price negotiations. In this way, the vendors are increasing their profits by turning available consumer surplus into their own benefits.

It is crystal clear that a street vendor will not sell his/her goods for no marginal profits---droplets from each additional good sold. Therefore, they are in a better position compared to many legal business people who keep their own shops. Unlike the street vendors, the latter cannot benefit from selling their goods to the customer on the spot where the goods are needed. Instead, they have to wait for their customers to buy them the goods from their shops. And the largest portion of their market is due to the fact that customers want to avoid taking risk from buying unwarranted products from the street vendors. More or less, the shopkeepers are held accountable and responsible for the products they sell as they provide their customers with guarantees against problems emanating from defective products and expiry dates, for example. Cognizant of building customer confidence by avoiding or sharing the risks, street vendors are now developing sophisticated ways to widen their market shares. Using various mechanisms and related customer alluring techniques, illegal street vendors are growing to be competitive with the legal business people.

Moreover, illegal street vendors do not pay taxes. While tax evasion is a perturbing problem in our fledgling free market system, it is not hard to imagine how illegal businesses which do not pay taxes can even further exacerbate the trouble. As the market itself is an illegal, underground economy, street vendors are obviously not paying taxes. As stated earlier, they are sharing a significant portion of the market, significant chiefly because they are almost collecting the benefits from demand hotspots. Street vendors who sell books in front of school gates or colleges and university entrances are basically targeting demand hotspots too. Where there is considerable illegal vending nearby eroding the market shares of the legal vendor, and where not enough legal protection against marketing is provided, the legal business man is in his interest, and in fact is obliged, to eschew paying taxes properly.

Many business persons are complaining about illegal vendors for no trivial reasons. Unsubstantiated rumors are circulating that some small shopkeepers and even larger dealers are also using illegal sales channels such as hiring illegal pushers who can sell their products, often of poor quality and near-expiry, in the streets. Sometimes, especially those who work in small rows of shops, are out in the streets late in the evenings retailing some of their goods. While they are widening their markets and stepping up the volume of their sales, these 'legal' business people are displaying few goods into heir stock as a showcase for tax requirements.

Therefore, illegal street vending is encouraging and engendering tax evasion. By itself, it contributes nothing to national revenue. Even if it is legal, street vending poses enormous challenges to govern it with our existing legal tools and provisions_ providing protection for sellers and their property, controlling the quality and quality of products they deal with, enforcing regulations of consumer care are some of the insoluble hurdles to be dealt with. Many of us are witnesses that not few tourists are often badgered by incessant requests of peddlers who are keen on selling their goodies.

Illegal street vending also encourages smuggling. As a matter of fact, many buyers are attracted not only by low price offers but also by the variety of products, and product designs they may not easily come by in the legal markets. A good example is smuggled electronic gadgets such as batteries, watches, heaters, and the like.

One may also find products of equal, or even better quality, in the hands of illegal street dealers. The question then remains that if some of those goods are not found in stocks by the legal dealers, where do they come from? Smuggling is the major channel that provides goods into these illegal markets. Mechanisms which discourage street vending are in more than one way strong means to fight smuggling. No doubt that smuggling damages the economic performance of a country. It also consolidates attempts to prosperity through illegal short cuts.

Illegal street vending in general triggers inordinate problems of immediate and remote consequences which further exacerbate the problem.

Cracking down on those who sell goods in the streets is one way of tackling the growing problem of copyright violation and burgeoning illegal markets. Nevertheless, street vending is merely the tip of the iceberg. How the goods in the illegal market are imported, produced, duplicated, stored, distributed and the whole supply chain reveals another panorama of trouble spots. After all, we cannot eliminate a bunch of destructive moles from our gardens by blocking the openings of their burrows. This complicated task is not to be left to the responsibility of either to the government or the public alone, concreted efforts and joint action by both concerned produces better and reliable outcomes.

Deviating from a logical conclusion, we may finally consider symptomatic nature of illegal street vending. So far so much about the immediate and distant consequences of illegal street vending. Yet, the unabated expansion of illegal vending amidst all crack downs and other control mechanisms points out to the fact that there is an unmet demand somewhere, or demand that is better served, in this case lower prices. If the price of second hand cloths and other things taken through contraband shows a huge gap between the legal and illegal markets, expecting people to buy these products at substantially higher prices in the legal market may remain to be a naïve attempt. Should the price differences are higher than the risks to be taken, consumers are willing to buy the product and incur the risks, if any. Hence, while the price disparity between the legal and illegal markets maintains a yawning gap, efforts to keep the latter at bay are bound to remain of little fruition.

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