Measuring innovation in the informal economy – formulating an agenda for Africa

The purpose of this paper is to review options for measuring innovation in the informal sector and proposes an agenda for future work.

It starts with a review of surveys of innovation in the formal business sector, and related definitions, as sources of questions and definitions which could be applied to the informal sector. Then, labor force surveys, and those that are combined with establishment surveys to measure informal sector activities, are examined with a view to adding questions, or modules, on the measurement of innovation in the informal sector. In addition, the advantages of using semi-structured interviews and ad hoc questionnaires in specific sub-sectors of the informal sector are explored.

The discussion leads to a possible agenda for future work on the development of policy relevant indicators of innovation in the informal economy. Two viable scenarios emerge: first, adding innovation questions to existing large-scale surveys of the informal economy; and/or second, conducting ad hoc questionnaire- and interview-based sectoral studies in selected countries.

The proposed course of actions suffers from a few shortcomings: first, amending existing surveys as proposed here is always a challenging undertaking. A new survey questions have to be tested (cognitive and other testing); their deployment also depends on the willingness of countries to include new questions. Second, surveying the informal economy and applying proper sampling will remain an issue, no matter how good the survey design, and not matter how sincere the effort. Third, and finally, conducting these new survey techniques will require substantial resources over time.

In the coming years, new efforts are planned to gather data and better measure innovation in developing countries, such as the third edition of the African Innovation Outlook. This will widen the scope of reporting and analysis to include coverage of innovations in the informal sector (AU-NEPAD 2014). The suggestions in this chapter are intended to lay important groundwork for future empirical work, to help develop appropriate indicators and support new approaches to innovation policy in developing countries. Pragmatic suggestions are formulated, pointing to potential opportunities and challenges.

The informal economy is a hugely important contributor to economic growth and social well-being in Africa and other developing countries. Better measurement and contributing to a better understanding of innovation in the informal economy will be important progress.

The contribution of the paper lies in the novel combination of tested approaches in informal sector surveys, on the one hand, and innovation surveys in the formal sector, on the other hand. The approaches provide ways forward to gain better understanding of the innovation in the informal economy, and to support innovation policy in African countries and beyond.