Oct. 10 (Bloomberg) -- Ogun Dairo put a match to the pile of wood chips she had carried from a nearby sawmill. The chips were soggy and didn’t burn. Instead, they smoldered, and the smoky fire fueled an unlikely global exchange that has supported her family of five for three decades.
Here, in the squatter community of Makoko, one of the waterside shantytowns of Lagos, Nigeria, Ogun Dairo smokes fish. Without a license, on land that she doesn’t own, she has created her economic future. The fish is imported from afar, caught in the North Sea, frozen and shipped to the cacophonous port city on the Nigerian coast.
After several hours in the concentrated smoke of her scorched sawdust --- the strong fumes have stained her wax-print dress, dulling the extravagant colors -- she packs the fish in boxes, readying them to be retailed for a tiny profit on the roadsides of this West African megacity.
Economic development in Africa can be found all over, hidden in plain sight. It evades our gaze because our notions of growth and development are conditioned by Western rules. We expect development to be highly organized and regulated, to involve government, and to be anchored by big corporations. In Makoko, as in most of the developing world, the great engine of economic progress is different. It is unstructured, unofficial and, to most people, unfathomable.
Academics call this sub-rosa sphere the informal economy, an attempt at objectivity that unfortunately links unlicensed markets with drug dealers and gun runners. But Ogun Dairo and the billions of other unlicensed businesspeople around the world are not criminals. So I propose a new name.
Sculpted From French
In French, people who are particularly effective and self-motivated are known as “debrouillards.” Former French colonies have sculpted this word to their economic reality. People doing business on their own, without registering or paying taxes, are part of “l’economie de la debrouillardise” -- or, sweetened for street use, System D.
This translates as the ingenuity economy, or the economy of improvisation and self-reliance. In much of the developing world, System D is growing faster than any other part of the economy. It has become a global powerhouse: In 2009, the Organization for Economic Cooperation and Development concluded that more than half the workers of the world -- 1.8 billion people --- made their living in this parallel economic universe. Friedrich Schneider, chair of the economics department at Johannes Kepler University in Linz, Austria, has spent decades calculating the dollar value of this shadow arena. Using his percentages, a back-of the-envelope calculation shows that the tiny transactions made by Ogun Dairo and all other unlicensed merchants around the world combine to generate almost $10 trillion of economic output a year.
If System D were an independent nation united in a single political structure -- call it the United Street Sellers Republic, or perhaps, Bazaaristan -- it would be the second-largest economy in the world. If the U.S. doesn’t snap out of its current funk, the USSR/Bazaaristan could overtake it sometime this century.
Rebranding the informal economy as System D may be cosmetic surgery, but it offers the opportunity to strip away layers of preconceptions and consider this massive economic arena anew. System D turns out to be entrenched in the West, too. Ancient Rome was a System D city; so was London from the 1300s to the 1800s.
Even in the U.S., System D has a notable history. Sears Roebuck, Stanley Tools and Van Heusen Shirts all started as unlicensed peddling operations. Until the spread of credit cards put most transactions on the books, it was common for mom-and-pop businesses to hide cash from Uncle Sam. “We shouldn’t feel that much moral superiority to Nigeria,” the Nobel Prize-winning economist Joseph Stiglitz told me. “Our small businesses did it, too.”
Lagos is a striking example of System D in action. It is one of the world’s fastest-growing cities, home to between 9 million and 17 million people, depending on where you draw the lines and who does the counting. Now the city has outstripped its ancient infrastructure and most governmental attempts at control. There’s no water system, and often no electricity. Urban ills here seem supersized -- traffic jams are worse than anywhere else, pollution thicker, poverty more glaring.
When you have stayed put long enough, you gain a new perspective. A woman retails French lace from a table in a local restaurant. A man on a rush-hour bus peddles copies of “Think and Grow Rich” and “Rich Dad, Poor Dad,” pocketing $180 in a single journey.
In a traffic jam near the Sheraton Hotel, vendors hawk steering wheels, cookbooks, candy and toilet seats. Lagos is the world’s largest street market, a self-made place where barefoot guys working out of mud-and-brick kiosks may be leaders of networks that have already found the next big thing.
Yusef Musa, for instance, has found the future in motorcycle taxis. An immigrant from Bauchi, in Nigeria’s north, he now owns four bikes: “okada” in local parlance. Yusef and the drivers who lease from him have no licenses, no registrations and no insurance. Their motorcycles --- estimates show there may be a million of them in the city --- clog the roads and are big contributors to pollution.
Even so, the “okada” are immensely popular. Riders use them for all sorts of practical purposes: toting 10-foot strands of rebar, carrying massive sacks of cassava, dashing to a business meeting, roaring off to church in their Sunday finery. “If you stop okada in Nigeria today, people will suffer,” Yusef said. “With this business, we are helping people.”
Despite its lack of reliable electricity, Lagos isn’t a low-tech city. Even in the most disreputable neighborhoods, Internet cafes are flourishing, powered by lawnmower-sized diesel generators. With innards assembled from various sources, USB ports that may not work, monitors that may flicker or fade, the computers look unreliable. But you can browse, chat, update your Facebook page or check on your favorite star’s latest tweet.
In one Internet center I frequented, many of my fellow browsers were carefully copying and pasting the same letter into hundreds of e-mails. They were foot soldiers of Nigeria’s famous e-mail scams, firing off missives that promised a huge payout from a frozen bank account if you forwarded your financial information to a complete stranger.
If I didn’t dump the cache and reset the memory protocols of the machine after each browsing session, these savvy Nigerian netizens could ensure that I would receive new spam messages almost immediately after leaving the cafe.
The garbage dump may seem the least likely place for economic growth. But, for some, the trucks that carry loads of trash are the Pied Piper of economic empowerment. Andrew Saboru started as a scavenger at age 16. Now in his mid-30s, he has moved up the ladder and become a dealer at Lagos’s biggest dump, Olusosun.
He resells plastic to the Chinese, rubber to the Muslims and scrap iron to whoever will give him the best price. Andrew earns a 20 percent profit. In a month, he brings in almost three times the government-mandated minimum wage. Though some waste pickers live inside the dump, Andrew has vaulted into the middle class. In his tidy one-room apartment, a 10-minute walk from Olusosun, his comforts include a ceiling fan, a stereo, a compact-disc player and a flat-screen television.
Andrew has an account at the local branch of Intercontinental Bank, and he would like to get a loan to expand his business. But he knows that no matter how much he saves, the bank will never lend him any money. His firm isn’t big enough and isn’t registered. Even if he could jump those hurdles, the likely interest rate of more than 20 percent would make the cash infusion far too expensive. Micro-credit, meanwhile, wouldn’t provide enough money to impact the bottom line.
Despite the impediments, Andrew refused to be despondent. He fished in his pocket and handed me his card. The name emblazoned on it symbolizes his hopes and dreams. His firm is called Right Time Investments.
“Lagos is a city for hustling,” he said before he headed back to the dump. “If you have an idea and are serious and are ready to work, you can make money here. I believe the future is bright.”
(Robert Neuwirth is the author of “Shadow Cities.” This is an excerpt of his new book, “Stealth of Nations: The Global Rise of the Informal Economy,” to be published by Pantheon Books on Oct. 18.)
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