Anyone who aims to maximise their business opportunities in Africa will have to capture the informal trade.
Even in nations like South Africa, the informal sector makes up a large portion of the economy – involving 2.9 million people (well over 17% of total employment in the country).
Although road-side traders, open-air markets and hawkers may not sound particularly important to large, well-established companies, these tiny local vendors are how the large majority of consumers in Africa acquire their goods.
And while consumer habits may be changing with rapid industrialisation and income growth, informal markets will remain an economic pillar for many years to come. But how do you understand informal markets when they are so often ‘invisible;—poorly documented, unregulated and sometimes difficult to access?
The sheer scale of the informal sector in Africa inevitably makes it a vital concern for commerce.
A 2017 IMF paper found that sub-Saharan Africa’s informal economy remains among the largest in the world, with informal borrowing and trade accounting, on average, for 40% of total economic output. In countries like Benin, Tanzania and Nigeria, the informal sector accounts for more than half of the national economy.
In urban centres, micro-businesses exist shoulder-to-shoulder with large formal enterprises like supermarkets and shopping malls. But the informal market dominates in secondary cities, towns and villages. Consumer product companies should not see these places as dead zones—but rather as under-served markets with significant (if previously unknown) potential.
The issue for these companies, though, is knowing where (and to whom) they could be selling via the informal sector. Typically, they have a strong understanding of where their distributors are already taking products in Africa, and how many units they are placing at the end of the supply chain.
However, these same companies struggle to know who would be buying their product if they had the opportunity. Africa’s consumer class is swelling, including in rural areas. The companies that can identify this latent demand and capture these emerging consumers will achieve the greatest growth in Africa.
Geospatial data analytics is one way to bring these ‘blind-spots’ into focus and help consumer-focused companies maximise their potential. A data-driven approach should jettison vague assumptions about consumers in Africa and rely on a combination of robust information to produce accurate, sought-after insights about very specific areas.
For example, Fraym would begin by establishing an ideal consumer profile through the use of several datasets on family size, age, employment status, disposable income and, crucially, spending habits in relation to particular goods categories. Then we would combine this comprehensive data with satellite imagery to further enrich the picture of the target area, and its inhabitants. With such an approach, we can bring together a sense of what consumers look like, how much they spend, and where they move and concentrate—providing more precise, local-level insight into an informal market than has ever previously been feasible.
Even in inaccessible areas where information is sparse, proven reliable forecasting can be achieved through the application of sophisticated machine learning models to the existing data, drawing on similar case studies to produce dependable estimates of where people are and how they behave as consumers.
Africa is a vast continent with space for both formal and informal trade. To really seize the opportunity, though, a well-rounded understanding of local markets is necessary. The granular data and insights achieved through geospatial data analytics provide consumer-focused companies with the nuanced and hyper-local knowledge that they need. With that knowledge, companies can optimise their distribution, set appropriate targets, unlock new areas, and overcome early barriers to entry. Those who lean forward on these data-driven approaches will see outsized growth in Africa in the years to come.
The writer is CEO of Fraym
Fraym is a geospatial data company that delivers hyper-local insights for 50+ African countries. Its platform helps fast-growing companies, development organisations, and government agencies answer high-priority questions about where to focus and how to reach specific populations. The company’s leadership has focused on the African continent for decades, holding senior positions in The White House, the African Development Bank, the Centre for Global Development, and the ONE Campaign. From offices in Lagos, Nigeria, Nairobi, Kenya and Washington, D.C., Fraym is committed to empowering African businesses and communities through precise, localised data.