“
BEHIND
-
THE
-
BORDER
” CONSTRAINTS ON AFRICAN
-
ASIAN
TRADE AND INVESTMENT FLOWS211
BOX 4.1
Informal-Sector Competition and Chinese and Indian Firms inAfricaThe informal sector in West Africa is geared almost exclusively toward producing final consumer goods. Even in manufacturing,
final consumption products, such as garments, leather products,
furniture, and foodstuffs are by far the most important. Some manufacturing firms in Senegal are selling their products to distributors working in the informal sector.
As such, there is a high volume of cash-based transactions, without formal contracts with their distributors. There is a high rotation of distributors for these firms. This is in part due to the low survival rate of firms in the informal sector. One manufacturing firm that participated in the WBAATI
business case studies reported that 25 percent of new dealings with distributors in one year do not continue the next year. There is no repetition of future sales with bad informal distributors.
In South Africa, the informal sector is not highly representative, as it is in West Africa. However, informal firms are present in the manufacturing sector, such as textiles and the food and beverages sectors.
The WBAATI business case studies provide some evidence that Chinese and Indian businesses operating in Africa interact with the informal sector in various ways. The informal sector is a significant competitor for Chinese and Indian firms. For example, the biggest agenda for an Indian beverage company in South Africa (sorghum beer) is how to gain the share of the market currently served by the informal sector producing a competing product (household backyard production of sorghum beer. They try this by influencing both the supply and the demand sides.
For the supply side, they try to absorb the informal sector by providing them production licenses for their branded sorghum beer. For the demand side, they lobby the government on the negative health impact of informally brewed sorghum beer due to sanitary and health quality conditions.
Source: World Bank staff.
04-Chap4:04-Chap4 10/8/06 11:24 AM Page 211
