Innovation Policy Approach for the Informal Economy: Towards a New Policy Framework Erika Kraemer-Mbula, Institute for Economic Research on Innovation,

Innovation Policy Approach for the Informal Economy: Towards a

New Policy Framework

Erika Kraemer-Mbula, Institute for Economic Research on Innovation, Tshwane University of Technology, Centre of Excellence in Scientometrics and STI policy, South Africa

Almamy Konte, African Observatory for Science, Technology and Innovation (AOSTI), Malabo, Equatorial Guinea

Outline

• Background to the study• Conventional policy approaches to the informal economy and their

effect on innovation• Conventional approaches to innovation policy and their effect on the

informal economy• Evidence from the case studies: Ghana, Kenya and South Africa• Insights for an integrated innovation policy framework: inclusive of

the informal economy

Background to the study (1)

• Study commissioned by WIPO• Comparison between 3 African countries: Ghana, Kenya and South Africa • Objective: better understanding of how innovation occurs in the informal economy in

developing countries and how it can be fostered. • Key research questions:

• 1. What is the role of the informal sector in economic development? • 2. How does innovation occur in the informal economy, how is it diffused, who are its actors and what

are associated innovation impacts? • 3. How do inventors and entrepreneurs in the informal economy reap the benefits of their

innovations? • To what extent does the absence of appropriation harm the scalability and impact of innovation in the

informal economy? • 4. What is needed by the statistical community to more accurately capture and survey informal sector

innovation in developing countries? • 5. What are suggested policy recommendations to improve innovation impacts in the informal

economy?

Background to the study (1)

• Methodology• Three sectors in three countries:

• Ghana: informal manufacturers of traditional medicines• Kenya: metalworkers• South Africa: informal manufacturers of personal and homecare products

• Review of literature and policy approaches to the informal economy in developing countries

• First-hand data collection: interviews to actors in the innovation system (informal entrepreneurs, government agencies, intermediary organizations, training and education organizations, suppliers, customers, etc)

• Mapping of key actors in the innovation system surrounding informal manufacturing

Conventional policy approaches to the informal economy and effect on innovation(1)

• IE thrives in contexts characterised by:• High unemployment• Severe income inequalities• Deep-rooted social exclusion

• IE provides income opportunities to: • Vulnerable segments of society (e.g. women, migrants, low levels of education, rural

communities, etc)

• Persisting tensions between the IE and policy-makers• Policy-makers main interest on increasing compliance with rules and regulations in business

registration, taxation, labour, health and safety, environment, consumer protection, IP protection or sector-specific laws

• IE agents’ main interest on generating an income where neither labour markets nor the welfare state are able to cover the essential needs

Conventional policy approaches to the informal economy and effect on innovation(2)

• Lack of uniformly agreed policy framework for the informal economy• Traditionally focused on:

• Formalization or regulation of the IE: reducing administrative burden to formalize

• Enforcement of labour rights and the social protection of informal workers• Foster the productivity of the IE and the quantity & quality of the

employment it generates• Facilitating market access

• Innovation is not within the scope of policy approaches to the informal economy.

Conventional policy approaches to the informal economy and effect on innovation(3)

• Conventional policies affecting growth and innovation in the IE:a) Providing functioning institutions

Broad social and economic legislation Existence of a national policy for the IE Legislations regulating MSMEs : including business registration

b) Improving the infrastructure and providing urban spaces Access to electricity, water and waste disposal are fundamental for informal economic activities Access to production sites and allocating dedicated spaces for informal traders in urban areas

c) Facilitating intermediary organizations Policies providing support to cooperatives, self-help groups, business and workers associations in creating

organizational capacity, cooperation, clustering and political representation can have tangible impacts on the articulation of the needs of the IE

d) Improving education and skills, including entrepreneurship capacity Ensuring basic literacy and numeracy Developing skills of informal workers through education, training, including basic skills as well as more

advanced business and financial skills, and language skills Facilitating start-ups

Examples of policy approaches to IEBrazil • Combined approach of supporting formalization and direct support to IE agents

• Informal operators encouraged to register: enables access to state social security benefits such as maternity leave, sick leave and retirement benefits.

• Direct support to informal economic through direct financial assistance, renting of warehouses, subsidization of security services, water and electricity, etc.

India • In 1999, the National Commission on Labour in India formulated an ‘umbrella’ legislation for the sector: improving social security, occupational health and safety measures, as well as minimum wages.

• In 2006: informal economy policy for the development of skills, to facilitate technology upgrading, to provide marketing assistance, to improve infrastructure and to facilitate access to easy credit.

Kenya • In 1986: initial steps to incorporate the IE into national economic policy.• Direct assistance to individuals and small businesses:flexible credit schemes, encouragement to produce cheap

alternatives to imported items, promotion of cooperatives to access credit, group purchasing and marketing, information and assistance on new technologies.

• Government subcontracted the Jua Kali for various assignments.• In 1992: establishment of a national IE policy

Papua New Guinea

• National Informal Economy Policy 2011-2015

South Africa • Since 2000: Municipal policies to foster the IE• 2014: The National Informal Business Upliftment Strategy (Nibus), aiming to assist informal businesses with

infrastructure and training.

Senegal * 2012: Ministry of Trade, Entrepreneurs and the Informal Sector. * National Economy Policy named “Plan Senegal Emergent”, with an explicit programme on extension of social protection to the informal economy.

Conventional approaches to innovation policy and their effect on the informal economy

• Innovation policy is becoming common practice in Africa - currently the majority of African countries have formulated policies guiding the performance and improvement of innovation activities

• Key question: Do innovation policies does take into consideration the informal economy?

• if not, what are the main gaps and opportunities and how can they be addressed?

• Conventional innovation policy instruments• Policies to develop the research system• Policies to support overall investments in innovation• Policies to stimulate public demand for innovative solutions and products• Policies to enhance innovation competencies in firms• Policies to strengthen linkages within innovation systems• Policies for knowledge appropriation

Type of intervention Main actors Potential benefits for the IE

Potential negative effects for the IE

Policies to develop the research system

Research infrastructures, international research cooperation, etc

Research organizations

Knowledge transfer, participatory research, research targeting the needs of marginalized communities

Exclusive focus on research-based innovation

Policies to support overall investments in innovation

Direct subsidies, innovation grants, fiscal incentives

Large formal enterprises, SMMEs

Stimulating particular innovations targeted at the special needs of the poor

Concentration of resources in formal enterprises

Policies to stimulate public demand for innovativesolutions and products

Public procurement of STI PROs, private sector, general public

Collaboration with formal enterprises – integration in formal value chains

Without incentives there are small chances for formal-informal collaboration

Policies to enhance innovation competencies in firms

Innovation awards/prizes, Training, Technology development support, incubators, science parks

Innovative firms, tech-intensive firms, SMMEs

Access to knowledge and technology if inclusive of IE firms

Marginalization if not explicitly target IE firms – broader inequality gap

Policies to strengthen linkages within innovation systems

Technology transfer, support of innovation networks, clusters

PROs, Innovative firms, tech-intensive firms, SMMEs

Enhance forward and backward linkages, access to knowledge and technology

Marginalization if not explicitly target IE firms – broader inequality gap

Policies for knowledge appropriation

Support services for copyrights, trademarks, industrial designs, patents

SMMEs, Formal enterprises

Higher income from knowledge appropriation

Social impact in informal communities with strong tradition of networking

Evidence from the case studies: Ghana, Kenya and South Africa (1) • Common interest in micro, small and medium enterprises (MSMEs) as engines for

socio-economic development• All three countries have dedicated agencies dedicated to support the MSME sector

• Informal economy acknowledged as a relevant economic activity• Lack of national strategy to guide the informal economy – exception of the recently launched

• Focus on formalization and modernization of the IE

• Informal enterprises partially lumped within the MSMEs – but without explicit definitions

• Contradiction between broad national objectives and operationalization at the municipal level

• Innovation recognized as a national priority and engine for economic development• National innovation policies dominated by science and technology perspectives or institutionalized and formalized

Research and Development (R&D).

• National innovation strategies silent about the informal economy – social innovation and inclusion objectives do not materialise in specific programmes to engage in informal sector innovation

• IP protection remains largely out of reach for MSMEs and informal enterprises

Evidence from the case studies: Ghana, Kenya and South Africa (2)• Innovation

• Numerous examples of incremental innovation; process and product innovation; Technology adoption

• Innovation linked to upscaling, access to new markets and new business models – improved livelihoods

• Knowledge appropriation• Widespread use of informal and semi-formal mechanisms for knowledge

appropriation (e.g. secrecy, division of duties, • Copying is sometimes characterized as disincentive to innovation but it also

makes new technologies diffuse easily.• Cost of securing intellectual property rights exceeds the perceived benefit to

the owner• Limited awareness and knowledge about the IP system

Insights for an innovation policy framework inclusive of the informal economy

• Innovation policies• Currently almost exclusively linked to economic objectives (growth and

increased profit) – distributive impact of innovation is not in the policy agenda

• Important to assess the impact & effect of current innovation policy instruments in the informal economy

• Important to introduce new instruments that explicitly address the needs of innovators in the informal economy

• Larger attention to demand-side measures – current imbalance towards the supply side of innovation

• Need to review the existing IP policy regimes to address the limitations and needs of innovators in the informal economy

Thank [email protected]