[Column] Daniel Monehin: Shedding light on the African shadow economy
06-04-2017 13:36:00 | by: Bob Koigi | hits: 7097 | Tags:

The Informal Economy, or if you have a penchant for the more colourful descriptor, the “Shadow” or “Grey” Economy, is typically the term used to refer to the portion of a country’s economy that transact exclusively in cash, thus making it infinitely more difficult to include these economic activities in any form of official statistics, oversight, taxation and regulation.

According to the OECD, two-thirds of the world’s workers will be employed in the Grey Economy by 2020. The issue is compounded when you consider the significant contribution the Grey Economy makes to any emerging market’s GDP.

By and large, it’s an issue created by the lack of inclusion, and the lack of access to formal financial infrastructure, especially in economies where wealth and assets are not distributed equitably. Folding the informal sector in with the formal sector is probably one of the most significant policy-making challenges 21st century governments face.

First coined in the 1970s, the Grey Economy was thought to be a temporary phenomenon which would shrink, even disappear, once countries achieved sufficient levels of economic growth, and modern industrial development.

Today, more than 40 years after its characterization, the Grey Economy can no longer be considered a “temporary phenomenon”; if economic growth is not accompanied by equitable income distribution, or an equal rise in employment levels, then we see an increase in the growth of the Grey Economy.

In fact, in Sub-Saharan Africa, informal employment accounts for a significant share of total non-agricultural employment, ranging from 33 percent in South Africa to 82 percent in Mali. Admittedly, by the very virtue of the nature of the Grey Economy, it is impossible to provide anything more than estimates in this regard.

Most citizens in emerging economies don’t join the informal economy by choice – it is very much a byproduct of the citizenry’s need for survival, providing for themselves and their families; it is essential for any human being to be able to have access to basic income generating activities.

Therein lies our opportunity – bringing this informal economy into the fold, by affording previously-excluded individuals access to basic financial services. While we don’t believe that the Grey Economy will ever be completely eliminated, we can certainly reduce the shadow-cash it generates by continuously building the tools that drive financial inclusion in all markets, not just the developing markets.

Mastercard has made tremendous inroads in several African markets, by equipping governments, local entrepreneurs, merchants, traders and the like with the tools to formalize payments through digitization and generate sustainable growth.

Our role at Mastercard is trying to lower, or even eliminate, the barrier to entry to the formal economy, and our spirits are buoyed by some of the successes we’ve had in the last few short months.

Consider a service like 2KUZE, launched in Kenya in January, or eKilimo, launched in Tanzania earlier in March – services that are connecting several thousand farmers, merchants, agents and large buyers in their respective markets to basic services for them to conduct their business, empower themselves and their employees, and providing for their families, transitioning from the informal to formal economy seemingly overnight.

By its very nature, the characteristics of a shadow/grey economy is largely negative – it can easily trap employees and enterprises alike in a spiral of low productivity and poverty. By working with our various governmental partners, Mastercard stands firm in its commitment to empower 100-million Africans to join the formal economy by 2020.

Daniel Monehin, is the Division President for Sub-Saharan Africa and Head of Financial Inclusion Pillar for International Markets at Mastercard.