Sorry Blockchain, the Nigerian informal economy will not embrace you.
Optimists of the blockchain believe that the informal markets would benefit a lot from the technology. Some even use it as their opening keynote speeches to sell the blockchain dream. While I believe that the blockchain presents a lot of benefits to informal markets, I’m yet to see anyone even consider why informal markets exist in the first place and if they even want the services and perceived benefits the blockchain brings. The simple definition of the informal economy is “that it is that part of a market that is not taxed, monitored or reported on by any form of government” This is not entirely true, they pay dues, they have to comply to some market and land laws. They might not be included when calculating gross national product and gross domestic product, but it’s naivety to think that they do not contribute to the economy. Yet, why do they want to stay informal?
We can point out lack of infrastructure to support very small scale businesses in the unreported market. We can also point to lack of policy and every other factor we conjure up. However, from what I’ve observed, it comes down to two core factors Trust & Cost. Why should they pay taxes to the government if the government hasn’t shown any incline on knowing how to appropriate funds for the benefits of these markets? Why should they declare or allow themselves be monitored: so the government can levy higher taxes on them that gulps up their margins? It really comes down to who they trust and what it will cost them. Therefore, for blockchain ideas and projects to work for the informal markets, two core factors have to be considered, Trust & Cost.
Therefore, for blockchain ideas and projects to work for the informal markets, two core factors have to be considered, Trust & Cost.
Trust
The blockchain with its consensus algorithm and the ability to ensure trust in a trustless system seems like it would just fit perfectly like a glove for the informal economy. However looking at what trust actually means in the informal sector a lot of challenges begin to emerge. The best way to look at trust in the informal economy is to first look at who/what the traders don’t trust and who/what they trust.
Who/what they don’t trust
Governments: This goes by saying, they do not trust the government and see them as wasteful, adversaries and a necessary evil. They don’t even want to report earnings even when their business is doing well, because of the fear of gentrification.
Authorities: Tax/rent collectors, landlords and security agencies are one group that these traders dread but have to deal with. The mere mention of tax force can give these traders a heart attack.
Banks: They actually see them as grifters aiming for their margins with charges.
Politicians: Well, this is self-explanatory, no one really likes politicians. They are full of promises and are very fickle.
What they trust
Co-operatives: Esusu, chamas. These are collective saving schemes with monthly payouts of all savings to one of the participating members. You would think is very insecure, however, the idea of shame acts as a major deterrent to bad actors in these systems.
Suppliers/Wholesalers: Suppliers and wholesalers in these markets play many roles including extending a credit line to traders. This is a big part of the informal market ecosystem. Traders who cant afford capital can take goods on credit and remit the principal to the suppliers while keeping the profit. The suppliers, in turn, can expose their products faster and make money on turn over. This builds a strong trust system between the two parties.
Microfinance banks: The irony. They hate banks but can deal with microfinance banks even with higher interest on loans. Quick access to loans plays a major part in this.
Chat groups: Normal group gatherings, and for the ones that use smartphones, Whatsapp.
Radio: This surprised me, but radio is still a big deal and huge in some of these informal markets.
Cost
The blockchain is just costly. If these traders were to use blockchain to manage their ledgers or trust between debtors, they would need some basic things, internet, smartphone. There is also an underlying issue of cost to learn whatever the new technology brings to the table.
What makes this hard and almost irrelevant to these traders is what you are competing against, A calculator and a notebook. They have mastered these tools and with little, to no academic training, they can use them very effectively. It’s also less than 2,000 naira. It doesn’t need light or internet. You buy it once and that’s it.
Now with the scalability issue of the blockchain, the fact that the anonymity which is supposed to be a feature exposes to these traders that nobody is really in charge of this system has the tendency to create more doubt about the technology, but then again people trusted MMM (A Ponzi leaderless system). Also if you know how blockchains work, you will understand that the gas needed to settle transactions are just too expensive for these traders.
Devils Advocate
Now I’m not saying that there is no role for the blockchain in the Nigerian informal economy, of course, there is. I’m just pointing out that blockchain in its current form would have a challenge gaining adoption if it doesn’t approach these markets through the context of trust and cost. If you are looking to start a blockchain project in the Nigerian informal market, please look at the places where the traders actually trust some sort of system. That should be your entry point.
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