Namibia Economist (Windhoek)

17 May 2013

Namibia: How Many Billions Can the Mattress Hold?

editorial

My views on the informal economy are regularly sought by policy makers and entrepreneurs alike. The reason is rather straightforward: by all observations there is a remarkable amount of cash in circulation but it is hardly captured in the conventional channels, and most important, it is also largely unreflected by the commercial banking sector.

Over the past decade attempts to analyse and measure the extent of the informal economy usually lead to disappointment. At some point, (more than ten years ago), the finance ministry was very interested to try and form some picture of the size and the tempo of the informal economy, mostly as part of its endeavour then, to expand the fiscal net. If I go by policy development of the last seven years, I get the impression these ideals have been abandoned.

Another tell-tale sign of the furtive nature of the informal economy is the absence of literature. Several studies I consulted refers mostly to methodology of intended data capturing systems, but there is little hard fact on the extent, and more importantly, on any value of this elusive economy.

Most of the available references comprises either opinion or anecdotal evidence, reflecting again that the informal economy operates outside conventional channels of transaction.

The informal economy, while every person with two eyes know it exists and can see its effects in a myriad of small private transactions, is an off-the-radar activity. By definition it does not enter the formal, conventional, measured, known economy. And this is what makes it so hard to capture. It is also a cash-based activity and the cash in circulation amongst its participants, often stay in circulation for years, before entering the formal economy again. Evidence for this can be found in the value of bank notes that must be retired but it is a thin argument to say, or speculate, that this is only the result of circulating through the informal economy. Bank bills, unfortunately, do not bear a sign earmarking them for either formal or informal usage. Any banknote can circulate in the formal economy for a while, then enter the informal economy where it will probably circulate for a longer period, but at some point, usually a retail transaction returns that note to the conventional channels.

When an individual who operated in the informal economy grows in means to the extent where he or she needs a savings account with a financial institutions, they exit the informal economy as such, and start out on the first steps of joining the larger economy that is on the radar. But efforts to try and reconstruct a theory of informal economic activity by measuring the success rate of new, small entrants, are tenuous at best.

The informal economy is informal because it is driven by people who find themselves outside mainstream economic activity. Complicating matters more is the fact that its participants typically have the ability to operate in both environments. The informal economy is not defined by its participants but by the nature and value of its transaction. The fact that these are mostly transacted in cash or sometimes by barter, provides it an anonymity that endlessly frustrate researchers.

It also does not keep records. Its trail is only reflected in the fact that so many thousands of individuals more than are formally employed, make a living, and survive, and not necessarily only on the fringes of society. The informal economy is vibrant, visible and real to hundreds of thousands of people typically defined as subject to varying degrees of poverty, yet these same people live, eat, sleep and entertain themselves on a massive scale. And it is only when shebeen owners or similar players order beer for one hundred thousand dollars, and pay for it in cash, that its enormous power becomes visible.

Perhaps the informal economy only becomes visible (if you are not part of it) where its accumulated resources make the jump into the formal arena. I am always amazed to see the statistics on stokvels in South Africa. In Soweto alone, an estimated 800,000 people belong to thousands of smaller and bigger stokvels, dumping an average of R12 billion (that is with a B) annually into the South African economy. And some of the more established stokvels have successfully transformed into BEE investment vehicles, now even owning shares in many listed companies.

So for all the hopeful sales people that ask me what the magic trick is to gain some point of access into the informal economy, I can only tell them: I don't know - actually nobody knows. You simply have to be patient and wait for it to make that transition from informal to formal. In the meantime, if you want to tap into it, go set up a shebeen in a shanty town.

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