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How street traders drive economic growth in emerging markets

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It is easy for governments in emerging nations to focus policy on helping or attracting big business, but small family-owned businesses are usually the greatest creator of new jobs, partly because there are so many of them. 

If a million businesses with an average of 10 employees, each manage to employ an average of just one extra person each, that’s a million new jobs.  But most of these businesses will have started out informally and very small.

Emerging markets - hundreds of millions of entrepreneurs

Consider this:  in a nation like India with relatively little social security, most poor people either have to work or go hungry.  And one of the commonest ways to work is to trade.  It does not matter if you are seven years old or seventy.  You either sell, or beg, or get someone to pay you to work for them.

There are hundreds of millions of small entrepreneurs in India.  Even hungry children who beg are entrepreneurs – those that are not put to work the streets by adults.  Each child quickly learns the best places to go, how and when to make a pitch, which car windows are best to tap and for how long, whether to smile or look sad.

Street trader in India - tomorrow's retailer

Take a women who has recently arrived in Hyderabad, from a remote rural area. She goes to the busy market to buy a large bag of rice and some paper bags. She carries it to a quieter street corner some distance away, squats down on a clean blanket by some offices and shops and waits for people to come.  And they do come.

She has become a retailer, an informal business owner, an entrepreneur, a street vendor.   How else is she to feed herself and her children, in a city where she had no formal job, and is no longer able to grow her own food?

If she does well, she will increase the range and value of her stock, and maybe one day own a stall, then a covered stall and eventually a small shop.

Street food-seller in Vietnam - tomorrow's restaurant

You see the same on the streets of Hanoi in Vietnam.  As you walk around the enchanting Old City at night, at every turn, squatting on the pavement are food retailers, selling excellent hot noodles, charcoal-cooked meats, stewed vegetables and soft drinks. The streets are alive with the aroma, with friendly laughter and family life. Clients sit on plastic stools which can be stacked and stored away together with all kitchen equipment, and carried off on a bike.  Each vendor is a business.

There are around 700,000 officially registered business owners in Vietnam, but perhaps 7 million informal owners.

It can take less than $5 to start a new business – enough to buy the first bag of charcoal or rice or the first few cans of Coke, or the first five pre-pay SIM cards.  That is the secret of success of microfinance.

Informal street traders drive growth of local economies

Some nations are very strict about street traders – almost unknown in Belarus for example, but informal traders are the oxygen on which the future of the economy will breathe.  How else can millions of people climb their own economic ladders? 

Informal traders are constantly probing for small price differences, and have an inbuilt advantage of almost zero overheads, so usually provide excellent value to those who buy from them.

Communities of informal traders are often the first to notice new trends, the first on the street with the latest must-have item, and the first to imitate if a product takes off.

Starting new markets and specialty groups

In groups, informal street traders create lively markets, which are often highly specialized, as like attracts like.  The rules of competition are paradoxical: every market works on the basis that the more competition and choice there is, the more customers arrive.  Meat markets, flower markets, jewelry markets, furniture markets.

Informal traders meet transient needs – servicing crowds efficiently at short notice, feeding workers on building sites, first to arrive in a crisis or after a natural disaster.

More choices and interest for citizens and tourists

Informal traders also provide life and atmosphere in cities, often connecting inhabitants with life in rural areas. 

Street markets are often high on tourist lists to visit, and add colour to city visits.  You will learn more about a national culture in an hour of wandering around a large, relatively informal market, than in a hundred hours of guided museum tours.

Actions for governments of emerging markets

So how can governments help fan the flames of these informal businesses?

1) Be tolerant of unlicensed street traders of all kinds unless they are selling illegal products eg drugs or counterfeit or stolen goods
2) Create large open spaces where daily markets can form
3) Invest rapidly in infrastructure as daily markets mature eg electricity, water taps, public sanitation and rentable covered areas
4) Encourage or help fund microfinance initiatives to help informal traders become established
5) Provide low cost storage where traders can secure their stock at night

What do YOU think about street traders?  Do comment below - I will reply.

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