Skip to main content

Cannibalizing the Informal Economy: Frugal Innovation and Economic Inclusion in Africa

Abstract

This paper argues that, far from collaborating with informal economic systems and actors, frugal innovation tends to treat informal economies as a pool of workers and organizational resources to be tapped for the benefit of corporate actors. I will examine how frugal innovation models selectively transform informal economic and institutional systems around formal economic interests, reconfiguring informal opportunities and the distribution of gains in ways that promote adverse incorporation of informal actors rather than mutual benefit. I will examine four mechanisms of adverse incorporation operating within frugal innovation models: copying, free-riding, bypassing nodes of accumulation and shifting risk. Drawing on case studies of M-Pesa and micro-insurance, I will illustrate the often selective and disempowering effects of frugal innovation, which operate to reconfigure informal economic systems in ways that divert profits and control away from informal operators.

Cet article fait valoir que, loin de collaborer avec les systèmes et les acteurs économiques informels, l’innovation frugale tend à traiter les économies informelles comme une source de main d’oeuvre et de ressources organisationnelles à exploiter au profit des entreprises. Je vais étudier comment les modèles d’innovation frugale transforment de façon sélective les systèmes économiques et institutionnels informels en faveur des intérêts économiques formels; ces modèles transforment des opportunités informelles et la répartition des gains de manière à favoriser l’intégration négative des acteurs informels (à leurs dépens) plutôt que de promouvoir des avantages mutuels. Je vais examiner quatre mécanismes d’intégration négative qui sont à l’oeuvre dans les modèles d’innovation frugale: la copie, le parasitisme, le contournement des noeuds d’accumulation et le déplacement du risque. En s’appuyant sur des études de cas de M-Pesa et de la micro-assurance, je vais illustrer les effets souvent sélectifs et paralysants de l’innovation frugale, qui sont à l’oeuvre pour reconfigurer les systèmes économiques informels de manière à éloigner les profits et le contrôle des opérateurs informels.

This is a preview of subscription content, access via your institution.

References

  1. Anderson, J.L., Markides, C. and Kupp, M. (2010) The last frontier: Market creation in conflict zones, deep rural areas, and urban slums. California Management Review 52(4): 6–28.

    Article  Google Scholar 

  2. Ansari, S., Munir, K. and Gregg, T. (2012) Impact at the ‘bottom of the pyramid’: The role of social capital in capability development and community empowerment. Journal of Management Studies 49(4): 813–842.

    Article  Google Scholar 

  3. Arora, S. and Romijn, H. (2011) The empty rhetoric of poverty reduction at the base of the pyramid. Organization 19(4): 481–505.

    Article  Google Scholar 

  4. Austen, R.A. (1987) African Economic History: Internal Development and External Dependency. London: James Currey.

    Google Scholar 

  5. Bahre, E. (2012) The janus face of insurance in South Africa: From costs to risks, from networks to bureaucracies. Africa 82(1): 150–167.

    Article  Google Scholar 

  6. Bateman, M. (2010) Why Microfinance Doesn’t Work? The Destructive Rise of Local Neoliberalism. New York: Zed Books.

    Google Scholar 

  7. Bauer, P. and Yamey, B. (1951) Economic progress and occupational distribution. The Economic Journal 61(244): 741–755.

    Article  Google Scholar 

  8. Beuving, J. Joost. (2006) Nigerien second-hand car traders in Cotonou: A socio-cultural analysis of economic decision-making. African Affairs 105(420): 353–373.

    Article  Google Scholar 

  9. Bush, R. and Szeftel, M. (1995) Commentary: Taking leave of the twentieth century. Review of African Political Economy 65: 201–300.

    Google Scholar 

  10. Callon, M. (1998) An essay on framing and overflowing: Economic externalities revisited by sociology. The Sociological Review 46(1): 244–269.

    Article  Google Scholar 

  11. Chelekis, J. and Mudambi, S.M. (2010) MNCs and micro-entrepreneurship in emerging economies: The case of Avon in the Amazon. Journal of International Management 16: 412–424.

    Article  Google Scholar 

  12. Cozzens, S. and Sutz, J. (2012) Innovation in Informal Settings: A Research Agenda. Ottawa: IDRC.

    Google Scholar 

  13. Cross, J. (2013) The 100th object: Solar lighting technology and humanitarian goods. Journal of Material Culture 18(4): 367–387.

    Article  Google Scholar 

  14. Cross, J. and Street, A. (2009) Anthropology at the bottom of the pyramid. Anthropology Today 25(4): 4–9.

    Article  Google Scholar 

  15. Da Costa, D. (2013) The ‘rule of experts’ in making a dynamic micro-insurance industry in India. The Journal of Peasant Studies 40(5): 845–865.

    Article  Google Scholar 

  16. Dafuleya, G. and Gondo, T. (2010) Deficits of microfinance institutions and informal responses under rapid urban growth: A funeral insurance perspective. American Journal of Entrepreneurship 3: 52–65.

    Google Scholar 

  17. Dawson, J. (1992) The relevance of the flexible specialisation paradigm for small-scale industrial restructuring in Ghana. IDS Bulletin 23(3): 34–38.

    Article  Google Scholar 

  18. Dercon, S., De Weerdt, J., Bold, T. and Pankhurst, A. (2006) Group-based funeral insurance in Ethiopia and Tanzania. World Development 34(4): 685–703.

    Article  Google Scholar 

  19. Dixit, A. (2004) Lawlessness and Economics: Alternative Modes of Governance. Princeton: Princeton University Press.

    Google Scholar 

  20. Dolan, C. and Rajak, D. (2016) Remaking Africa’s informal economies: Youth, entrepreneurship and the promise of inclusion at the bottom of the pyramid. Journal of Development Studies 52(4): 514–529.

    Article  Google Scholar 

  21. Dolan, C. and Roll, K. (2013) Capital’s new frontier: From “unusable” economies to bottom-of-the-pyramid markets in Africa. African Studies Review 56(3): 123–146.

    Article  Google Scholar 

  22. Dolan, C. and Scott, L. (2009) Lipstick Evangelism: Avon trading circles and gender empowerment in South Africa. Gender and Development 17(2): 203–218.

    Article  Google Scholar 

  23. Du Toit, A. (2004) Forgotten by the highway: Globalisation, adverse incorporation and chronic poverty in a commercial farming district of South Africa. Chronic Poverty Working Paper 49.

  24. Ebin, V. (1993) Les commercants mourides a Marseille et a New York: regards sur les strategies d’implantation. In: E. Gregoire and P. Labazee (eds.) Grands commercants d’Afrique de l’Ouest. Paris: ORSTOM-Karthala.

    Google Scholar 

  25. Economist (2006) Business in Africa: The Flicker of a Brighter Future. 7 September.

  26. Egg, J. and Herrera, J. (1998) Echanges transfrontaliers et integration regionale en Afrique subsaharienne: Introduction. Autrepart 6: 5–27.

    Google Scholar 

  27. Elyachar, J. (2012) Next practices: Knowledge, infrastructure, and public goods at the bottom of the pyramid. Public Culture 24(1 66): 109–129.

    Article  Google Scholar 

  28. Ferguson, J. (2006) Global Shadows: Africa in the Neo-liberal World Order. Durham: Duke University Press.

    Book  Google Scholar 

  29. Foster, C. and Heeks, R. (2013) Innovation and scaling of ICT for the bottom-of-the-pyramid. Journal of Information Technology 28: 296–315.

    Article  Google Scholar 

  30. Fressoli, M., Arond, E., Abrol, D., Smith, A., Ely, A. and Dias, R. (2014) When grassroots innovation movements encounter mainstream institutions: implications for models of inclusive innovation. Innovation and Development 4(2): 277–292.

    Article  Google Scholar 

  31. Gregoire, E. and Labazee, P. (eds.) (1993) Grands commercants d’Afrique de l’Ouest. Logiques et pratiques d’un groupe d’hommes d’affaires contemporains. Paris: Karthala-ORSTOM.

    Google Scholar 

  32. Hart, S.L. (2005) Innovation, creative destruction and sustainability. Research-Technology Management 48(5): 21–27.

    Article  Google Scholar 

  33. Hart, S.L. and London, T. (2005) ‘Developing Native Capability’ Stanford Social Innovation Review. Summer 3(2): 28–33.

  34. Hietelahti, J. and Nygren, A. (2011) Microcredit as a socio-political institution in South Africa: The complexity of rules, logic and power. In: F. Hossain, C. Rees and T. Knight-Millar (eds.) Microcredit and International Development: Contexts, Achievements and Challenges. Abingdon: Routledge.

    Google Scholar 

  35. IFAD (2009) Sending Money Home: Worldwide Remittance Flows to Developing and Transition Countries. http://www.ifad.org/remittances/maps/brochure.pdf.

  36. ILO (2013) Women and Men in the Informal Economy: A Statistical Picture. Geneva: ILO.

    Google Scholar 

  37. Jack, W. and Suri, T. (2011) Mobile Money: The Economics of M-PESA. Working Paper No. 16721 National Bureau of Economic Research.

  38. Julius, E. (2015) Frugal innovations in Africa: solving problems Silicon Valley neglects. Africa Times 5 October. http://africatimes.com/2015/10/05/frugal-innovations-in-africa-solving-problems-silicon-valley-neglects/.

  39. Karamchandani, A., Kubzansky, M. and Frandano, P. (2009) “Emerging Markets, Emerging Models: Market-Based Solutions to the Challenges of Global Poverty.” Cambridge, Mass: Monitor Group.

    Google Scholar 

  40. Karamchandani, A., Kubzansky, M. and Lalwani, N. (2011) Is the Bottom of the pyramid really for you? Harvard Business Review 89(3): 107–111.

    Google Scholar 

  41. Knorringa, P., Pesa, I., Leliveld, A. and van Beers, C. (2016) Frugal innovation and development: Aides or adversaries? European Journal of Development Research 28: 143–153.

    Article  Google Scholar 

  42. Lindley, A. (2009) Between ‘dirty money’ and ‘development capital’: Somali money transfer infrastructure under global scrutiny. African Affairs 108(433): 519–539.

    Article  Google Scholar 

  43. Lindley, A. (2010) The Early Morning Phone Call: Somali Refugees’ Remittances. New York: Berghahn Books.

    Google Scholar 

  44. Little, P. (2003) Somalia: Economy Without State. Oxford: International African Institute and James Currey.

    Google Scholar 

  45. London, T. and Hart, S. (eds.) (2011) Next Generation Business Strategies for the Base of the Pyramid: New Approaches for Building Mutual Value. Uper Saddle River: Financial Times Press.

    Google Scholar 

  46. London, T., Anuindi, R. and Sheth, S. (2010) Creating mutual value: Lessons learned from ventures serving base of the pyramid producers. Journal of Business Research 63; 582–594.

    Article  Google Scholar 

  47. Lourenco-Lindell, I. (2004) Trade and the politics of informalisation in Bissau, Guinea Bissau. In: K.T. Hansen and M. Vaa (eds.) Reconsidering Informality Perspectives from Urban Africa. Nordiska Afrikainstitutet: Uppsala, pp. 84–98.

    Google Scholar 

  48. MacGaffey, J. and Bazenguissa-Ganga, R. (2000) Congo-Paris : Transnational Traders on the Margins of the Law. Oxford: James Currey.

    Google Scholar 

  49. Maimbo, S. and Ratha, D. (2005) Remittances: Development Impacts and Future Prospects. Washington, D.C.: World Bank.

    Book  Google Scholar 

  50. Mair, J., Marti, I. and Ventresca, M.J. (2012) Building inclusive markets in rural Bangladesh: How intermediaries work institutional voids. Academy of Management Journal 55(4): 819–850.

    Article  Google Scholar 

  51. Maurer, B. (2012) Mobile money: Communication, consumption and change in the payments space. Journal of Development Studies 48(5): 589–604.

    Article  Google Scholar 

  52. McKemey, K., Scott, N., Souter, D., Afullo, T., Kibombo, R. and Sakyi-Dawson, O. (2003) Innovative Demand Models for Telecommunications Services. UK: CTO and Gamos.

    Google Scholar 

  53. Meagher, K. (2003) A back door to globalisation? Structural adjustment, globalisation and transborder trade in West Africa. Review of African Political Economy 39(95): 57–75.

    Article  Google Scholar 

  54. Meagher, K. (2007) Manufacturing disorder: Liberalization, informal enterprise and economic `ungovernance’ in African small firm clusters. Development and Change 38(3): 473–503.

    Article  Google Scholar 

  55. Meagher, K. (2010) Identity Economics: Social Networks and the Informal Economy in Africa. Oxford: James Currey.

    Google Scholar 

  56. Meagher, K. (2015) Leaving no-one behind?: Informal economies, economic inclusion and islamic extremism in Nigeria. Journal of International Development 27(6): 835–855.

    Article  Google Scholar 

  57. Meagher, K. (2016) The scramble for Africans: Demography, globalisation and Africa’s informal labour markets. Journal of Development Studies 52(4): 483–497.

    Article  Google Scholar 

  58. Meagher, K., Mann, L. and Bolt, M. (2016) Introduction: Global economic inclusion and African workers. Journal of Development Studies 52(4): 471–482.

    Article  Google Scholar 

  59. Mendoza, R. and Thelen, N. (2008) Innovations to make markets more inclusive for the poor. Development Policy Review 26(4): 427–458.

    Article  Google Scholar 

  60. Metzger, M.D., Ickis, J., Leguizamon, F. and Flores, J. (2010) Inclusion of low income sectors in Latin American agribusiness. International Food and Agrubusiness Management Review 13(1): 1–14.

    Google Scholar 

  61. Midgley, J. (2012) Social protection and the elderly in the developing world: Mutual aid, micro-insurance, and the state. Journal of Comparative Social Welfare 28(2): 153–163.

    Article  Google Scholar 

  62. Mustapha, A.R. (1992) Structural Adjustment and Multiple Modes of Livelihood in Nigeria. In: P. Gibbon, Y. Bangura and A. Ofstad (eds.) Authoritarianism, Democracy and Adjustment: The Politics of Economic Reform in Africa. Uppsala: SIAS.

    Google Scholar 

  63. Neuwirth, R. (2012) The Global Rise of the Informal Economy. New York: Anchor.

    Google Scholar 

  64. Onsongo, E.K. (2013) A Multi-level Perspective on Inclusive Innovation: Reflections on Mobile Money in Kenya. https://prezi.com/cwd-vxd5iy-m/a-multi-level-perspective-on-inclusive-innovation/.

  65. Oyelaran-Oyeyinka, B. and McCormick, D. (2007) Industrial clusters and innovation systems in Africa. Tokyo: United Nations University Press.

    Google Scholar 

  66. Paunov, C. (2013) Innovation and Inclusive Development: A Discussion of the Main Policy Issues. OECD Science, Technology and Industry Working Papers 2013/01, OECD Publishing.

  67. Pieke, F.N., Van Hear, N. and Lindley, A. (2007) Beyond control? The mechanics and dynamics of ‘informal’ remittances between Europe and Africa. Global Networks 7(3): 348–366.

    Article  Google Scholar 

  68. Pieterse, E. (2011) Rethinking African urbanism from the slum. LSE Cities Blog November. https://lsecities.net/media/objects/articles/rethinking-african-urbanism-from-the-slum/en-gb/.

  69. Portes, A., Castells, M. and Benton, L.A. (eds.) (1989) The Informal Economy : Studies in Advanced and Less Developed Countries. Baltimore: Johns Hopkins University Press.

    Google Scholar 

  70. Prag, E. (2013) Mama Benz in trouble: Networks, the state, and fashion wars in the Beninese Textile Market. African Studies Review 56(3): 101–121.

    Article  Google Scholar 

  71. Prahalad, C.K. and Hart, S.L. (2002) The fortune at the bottom of the pyramid. Strategy and Business 26: 1–14.

    Google Scholar 

  72. Prud’homme, R. (1992) Informal local taxation in developing countries. Environment and Planning C: Government and Policy 10: 1–17.

    Article  Google Scholar 

  73. Radjou, N. and Prabhu, J. (2014) 4 CEOs who are making frugal innovation work. Harvard Business Review, November 28. https://hbr.org/2014/11/4-ceos-who-are-making-frugal-innovation-work.

  74. Raeymaekers, T., Menkhaus, K. and Vlassenroot, K. (2008) State and non-state regulation in African protracted crises: Governance without government? Afrika Focus 21(2): 7–21.

    Google Scholar 

  75. Rivera-Santos, M. and Rufin, C.R. (2010) Global village vs. small town: Understanding networks at the Base of the Pyramid. International Business Review 19(2): 126–139.

    Article  Google Scholar 

  76. Robbins, B. (2007) The smell of infrastructure. Boundary 234(1): 25–33.

    Article  Google Scholar 

  77. Rodrik, D. (2008) Second best institutions. American Economic Review 98(2): 100–104.

    Article  Google Scholar 

  78. Roth, J. (2001) Informal microinsurance schemes-the case of funeral insurance in South Africa. Small Enterprise Development 21(1): 39–50.

    Article  Google Scholar 

  79. Safaricom (2016) M-Pesa Timeline. http://www.safaricom.co.ke/mpesa_timeline/timeline.html.

  80. Sanchez, P. and Ricart, J.E. (2010) Business model innovation and sources of value creation in low-income markets. European Management Review 7: 136–154.

    Article  Google Scholar 

  81. Seyfang, G. and Smith, A. (2007) grassroots innovations for sustainable development: Towards a new research and policy agenda. Environmental Politics 16(4): 584–603.

    Article  Google Scholar 

  82. Simanis, E. and Hart, S.L. (2009) Innovation from the Inside Out. MIT Sloan Management Review 50(4): 77–86.

    Google Scholar 

  83. Tadesse, M. and Brans, M.V. (2012) Risk, coping mechanisms, and factors in the demand for micro-insurance in Ethiopia. Journal of Economics and International Finance 4(4): 79–91.

    Google Scholar 

  84. UNDP (2008) Creating Value for All: Strategies for Doing Business with the Poor. UNDP.

  85. van der Boor, P., Oliveira, P. and Veloso, F. (2014) Users as innovators in developing countries: The global sources of innovation and diffusion in mobile banking services. Research Policy 43(9): 1594–1607.

    Article  Google Scholar 

  86. Vandemoortele, J. (1991) Labour market informalization in Sub-Saharan Africa. In: G. Standing and V. Tokman (eds.), Toward Social Adjustment: Labour Market Issues in Structural Adjustment. Geneva: ILO.

    Google Scholar 

  87. Vanek, J., Chen, M.A., Carré, F., Heintz, J. and Hussmanns, R. 2014. Statistics on the Informal Economy: Definitions, Regional Estimates and Challeneges. Working Paper No. 2, WIEGO, Cambridge, MA.

  88. Véron, R. and Majumdar, A. (2011) Micro-insurance through corporate–NGO partnerships in West Bengal: opportunities and constraints. Development in Practice 21(1): 122–129.

    Article  Google Scholar 

  89. Webb, J.W., Kistruck, G.M., Ireland, R.D. and Ketchen, D.J. (2010) The entrepreneurship process in base of the pyramid markets: The case of multinational enterprise/nongovernment organization alliances. Entrepreneurship: Theory and Practice 34(3): 555–581.

  90. World Resources Institute (2007) The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid. New York: World Resources Institute.

    Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Kate Meagher.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Meagher, K. Cannibalizing the Informal Economy: Frugal Innovation and Economic Inclusion in Africa. Eur J Dev Res 30, 17–33 (2018). https://doi.org/10.1057/s41287-017-0113-4

Download citation

Keywords

  • Africa
  • informal economy
  • frugal innovation
  • bottom of the pyramid
  • mobile money
  • micro-insurance