My old boss used to say that "wisdom begins with the definition of terms".

It's a piece of advice that has stuck with me as I moved across the world and across industries. It applies in the entirely different environment I've found myself in for the past few years. And, it's a phrase I keep coming back to in the African context.

I've been thinking about how wisdom begins with the definition of terms, or why *we* should talk about African markets differently.

A phrase that I've found particularly bothersome recently is "informal economy", or some version thereof. Informal markets. Informal merchants. Informal retail. Informal supply chains.

I'm guilty of using these phrases too, but I'm finding them increasingly problematic.

Here's what I don't understand - if the majority of an economy is what we would describe as informal, does that make it an informal economy, or just the economy?

It's not the informal economy. It's just the economy, stupid.

Now, you might be asking why this matters. Two reasons, which I will discuss in turn:

1. Calling something "informal" juxtaposes it against "the formal", which implies that the informal needs to ultimately evolve into the formal. It does not.
2. If you look closely, the properties of new trends in, e.g., the future of work, are quite similar to the "informal economy", but with better branding.

Why "informal" is a problem

I have recently interviewed several founders in the B2B commerce space, for this upcoming season of The Flip podcast (commencing October 7th; subscribe here). It's a hot model - with the likes of Twiga Foods, TradeDepot, MaxAB, Sokowatch, Omnibiz, Capiter, and Zumi having garnered sizable valuations building platforms that "digitize informal retail".

These models aggregate fragmented demand at the last-mile and connect to supply, typically reducing the number of players in the middle of the value chain. In some cases, suppliers on the production end of the value chain are then able to scale up their operations on the back of more predictable and greater demand.

One question I found myself asking these entrepreneurs is if we can similarly expect retailers to scale up through consolidation at the consumer end of the supply chain. My mental model was that of the US, where I grew up, and where I understood that big box stores like Costco or Walmart drive prices down further through economies of scale. Would that happen in African cities, I wondered.

In hindsight, what I was asking is if formalizing "informal retail" meant ultimately that these markets would start to look like my own mental model of what "formal retail" looks like. But what we know from Shoprite's exit from East and West African markets is that this kind of retail doesn't work for the markets in question.

Big retail stores assume availability of transportation, ample refrigeration space, and the purchasing power to buy things in bulk. "Informal" retail, on the other hand, serves customers and their needs adequately.

So what does "informal" mean, anyway?

Does informal mean inefficient? Sure, informal markets might be inefficient, but that's not true all of the time. In an environment of high fees or poor infrastructure, for example, cash is more efficient than digital payments. So, too, is selling airtime pre-paid or foodstuffs in small quantities or extending credit socially to a small network of people you trust. Just because it looks inefficient doesn't mean that it is; there are systems in place and they are working for the customers.

Does informal mean analog? Maybe. But, if so, this would also imply that formal markets are wholly efficient and digital which, of course, they are not.

Does informal mean fragmented? It's true, but as B2B commerce players are showing, there's more than one way to solve for fragmentation.

The goal can't be to formalize if formalization means attempting to make African markets look like our mental models of a formal market. Maybe it's just me - my western biases are the whole reason why I started The Flip in the first place - but I suspect I'm not the only one using the wrong mental models here.

By the way, if Safaricom tried to "formalize" the peer-to-peer airtime trading that was happening organically in Kenya at the time, by making it look like more formal banking, M-Pesa would have failed. Instead, what they built was something uniquely African, made possible by USSD and agent networks, not apps or cards or bank branches.

And to say that Safaricom "digitized informal peer-to-peer airtime trading" is true, but it undersells what actually happened. They invented mobile money and ignited a global revolution around the goal of financial inclusion. The language we use matters, which brings me to my second point...

Informal is the new formal

A few months back, I became increasingly intrigued by the global tech's increasing penchant for decentralization and peer-to-peer ecosystems, made possible by crypto and Web3 technology.

But peer-to-peer markets proliferate in the Global South!, I exclaimed in my head. It's all the same!

What about the future of work? The gig economy, the creator economy and the passion economy all signal a shift in how we work, with individuals choosing (or being forced to choose) flexible work, in which money may come from in fits and spurts, and from a multitude of different sources.

These individuals have specific needs that "regular", salaried individuals don't have. Perhaps they will benefit from a financial institution offering lending products to people with irregular incomes (in the US it's can be hard to get a mortgage without a paycheck), or perhaps they need specific tooling to help manage their micro-business, that sits somewhere between enterprise software and pen and paper.

In a podcast episode on the passion economy, Li Jin, the creator of the term, said this,

But I think in the passion economy, the end-users, the creators, or solopreneurs, or whatever you want to call them, the users of these platforms, they’re sitting somewhere between a consumer and an enterprise. They’re like micro SMBs.

Peer-to-peer, flexibility, micro-entrepreneurs - the future of work or the future of finance is going to look a lot like… African markets today!

Last year, I wrote about the avant-garde, and their role in advancing technology forward.¹

In order for society to comprehend and assimilate the innovations of the vanguard, a group that is larger than the avant-garde, but smaller than the public, must engage with (and hence judge) the art… they act as an intermediary between the bleeding edge of a movement and the broader public.

Tech - and indeed every movement - needs translators, who push ideas into the mainstream. Li Jin has been a great one for creators and the future of work and, in general, the crypto economy has many thought leaders pushing their narratives forward too.

And that's the point - they are branded narratives about what the future will look like, inspiring others to invest in or build towards creating the future they wish to see.

So what terms should we use? That's not for me to answer individually, but I think it starts by using terminology without negative connotations.

Digitizing informal supply chains is building a wholesale platform for retailers.

Remittance payments are cross-border payments.

Informal merchants are small business owners.

The informal economy is just the economy.

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✌️ Justin

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