A FEW weeks ago, the Kenyan government announced it would issue the country’s first-ever infrastructure bond that would be offered exclusively via mobile phones.
The $50m five-year infrastructure bond is based on Kenya’s innovative M-Pesa mobile money platform.
Named M-Akiba, it’s the latest product from Safaricom, Kenya’s leading mobile operator. It leverages on M-Pesa – the company’s golden goose – which is now eight years old, with over 19 million customers in Kenya.
M-Pesa’s phenomenal growth has been the subject of countless talk shops, seminars, conferences, theses and dissertations all around the world.
Kui Kinyanjui, the company’s Corporate Communications head, once told me that the company receives on average two international media queries a week on M-Pesa; the previous week, they had hosted journalists from as far away as Japan and the US.
Even though M-Pesa is almost now as ubiquitous as breathing in Kenya, journalists across the globe are still besotted by the story, and it’s one of the first things that any non-African I meet mentions about Kenya when you first meet them.
Much of the talk around M-Pesa is why it worked so well in Kenya, and not so well in some other places - at least initially. Various reasons have been advanced; Kenya had a huge unbanked population, a fairly progressive regulator, and a culture of sending money to relatives and friends.
The post-election violence of December 2007 – January 2008 has also been seen as the spark that was M-Pesa’s “proof of concept”, proving its utility to customers, because those who were signed on could send money to bail out stranded friends and relatives, as banks were closed and roads blocked.
But there’s another aspect to the M-Pesa story that is rarely considered which was key to its success – and can be a lesson for other African governments.
The M-Pesa model is based on having a massive network of agents –today, there are 85,000 agents spread all over the country, perhaps for more than has even been for any other product in the country.
Analogous to bank branches, you deposit and withdraw hard cash from the agent, though your transactions are electronic. The agents earn a small commission on every transaction.
It was initially envisaged that agents would bolt on to already-existing businesses, like pharmacies, kiosks and convenience stores, which would then just do the M-Pesa transactions in a corner somewhere.
But what surprised Safaricom is how there was a whole cohort of people willing to be M-Pesa agents as a stand-alone job. There are now M-Pesa outlets that look and feel very much like a bank.
But being an M-Pesa agent is nothing glamourous, and it consists of little more than entering transaction data on a very basic phone and then manually entering the transaction in a record book.
The agents are not on Safaricom’s payroll, in fact, it is better to think of them as independent contractors, like the arrangement that Uber has with its drivers.
The rapid rollout of the agent network was possible because of the very high informality in the Kenyan economy – and with this there was no longer baggage over what a “real job” was.
Chased out of town
If you tried to offer people in some countries a job like this, where you were basically self-employed, sitting in a small stall, with no salary, benefits, or retirement package, earning just a small percentage of every transaction, you’d be chased out of town with your shirt torn – like Uber has found out in places like France, where the notion that employers ought to “take care” of their employees is very strong indeed.
African governments like to hound street sellers and market women whom they see as illegal tax-evaders. Development types also argue that informality traps people into a cycle of low productivity and poverty, and to help businesses and the economy “develop”, it is necessary to regulate and formalise them.
The supposed benefits from formalisation are said to be accessing loans, enforcing contracts, bankruptcy protection, and getting services like electricity or water connections.
But in a continent where public systems are dysfunctional for everyone, sometimes there’s really no benefit in being a registered, formal company. If the courts are corrupt or take forever to enforce a contract, if banks don’t listen or care and charge extortionate interest rates, it’s unlikely that there will be any real benefit in formalising. In fact, it could be more detrimental because of onerous taxes and regulations.
Despite low wages, unpredictable terms and almost no benefits, the informal sector employs more than three out of four workers in many African countries, including Cameroon (73%) Ethiopia (85%), Sierra Leone (88%), Zimbabwe (84%) and accounts for up to 80% of the new jobs created in economies such as Kenya, Nigeria, and Uganda.
Staying informal helps your business stay agile, respond quickly to market conditions, and avoid the heavy hand of the government in your affairs.
So how did the surge of informality happen? It goes back to a population surge in the 1980s, when a country like Kenya had the highest population growth rate in the world.
Those children came of age in the early 2000s, only to find no jobs waiting for them, unlike the generation of their parents.
It was a result of the much-hated Structural Adjustment Programmes (SAPs) in the 1990s, by which donors made African governments embark on economic reform that resulted in the contraction of the formal sector – in Kenya, for example the share of the informal sector in employment grew from 4% in 1972 to over 50% in 1994.
It didn’t help that the government of then-President Daniel arap Moi presided over the most brazen plunder of public funds that the country had ever seen, by the time Moi was leaving office, GDP was shrinking at the rate of -0.2% a year; with nary a “proper” job in sight.
So you might not think it, but a company like Safaricom might owe its success to former President Moi – they should thank him for “ruining” the economy.
A few months ago, Zimbabwean retailers were complaining that the country’s economic spiral was creating a generation that may “never know formal jobs”, as everyone from redundant workers to college graduates takes to street vending.
You never know, in a few years time, this dismal state of affairs could be the very seed for Zimbabwe’s success.