How to unlock dead capital in Africa

Peruvian economist Hernando De Soto researches third world's lack of legal titles and systematic property law that condemns some 1.3 billion poorest to live on under a dollar a day. In his book, The Mystery of Capital he advocates that capitalism triumphs in the West because of property rights. In theory, there are millions of squatters illegally occupying untitled land, that cannot ever use their houses for collateral. Most of the land in the third world is owned by governments, which in theory are elected by the people; so if we want to help spur home ownership in the third world we need to look to standardize ways to register squatters for property ownership.

It is a fact, property title spurs entrepreneurship, the west grew in the 1800's by industrialization and by property ownership. If we could figure a way to register millions of squatters in Africa and around the world; they could then use their property to obtain business loans to build a sustainable business to feed themselves and their families. Hernando De Soto to his credit has used his Peruvian registry to register over a million buildings and over 300 businesses from 1991 to 1994. Throughout the world other extralegal organizations have mimicked De Soto and formed their own property registries.

Hernando De Soto has done a great service by demonstrating that the poor people do have property and can accumulate capital. But the poor cannot realize their potential because of the conflict between their real but extralegal claims and the unreal but legal property systems.

I suggest reading Hernando De Soto's book, The Mystery of Capital. This book demonstrates that property rights must never be taken for granted.

Ideas to grow the informal sector in Africa

In every civilization there has always been two kinds of markets with some small variations of the markets. The formal market is comprised of educated and professional workers who usually work in cities, whereas the informal market are considered not to have a formal education, but are skilled workers who live and work in the rural areas, and they grow, make and produce societies goods. The informal market is where the real wealth lies in any society, but often times this wealth is dead wealth or unlocked wealth because the impoverished have no means to land title or financing.

We can solve this dilemma several ways. First of, this is really a business opportunity then a dilemma, if you can think of it that way. Most workers who work in the informal sector have close ties to agriculture; picking fruit, tilting land, tending cattle, milking cows, and etc. Also, there are the craft industries; making mask, beads, bracelets, clothing, and etc. What if we instituted cooperatives (co-ops) for different industries in Africa that would act as a corporation on behalf of the workers in the informal sector?

The most famous co-ops are the citrus co-ops in Florida. The Florida's Natural Growers cooperative is one of the largest citrus juice sellers in the US behind Pepsico's Tropicana and Coca-Cola's Minute Maid brands. It counts 1,000 farmers as members who harvest from more than 50,000 acres of citrus groves to make juice. The cooperative produces frozen concentrated and not-from-concentrate juices (orange, apple, grapefruit, lemonade, and fruit blends) under the Florida's Natural, Growers Pride, Bluebird, Texsun, Donald Duck, and Ruby Red brand names. The company was founded in 1933 by a group of citrus growers in order to process grapefruit.

Co-ops are a great way to share resources, build a brand, maintain a sustainable income, and employ millions of workers in the informal economy. There should be co-ops in every major informal sector in Africa, take dairy production for example. It costs millions of dollars to get processing equipment to process milk to make into cheese, chocolate, and other dairy derivatives. The only businesses that have the capital to make the purchases are corporations, and co-ops. Farmers who own thousands of plots of land in Mali, Kenya, Ghana, Madagascar, or Tanzania may not have the capital to process milk, or harvest produce. Imagine thousands of farmers owning thousands of plots of land, what if they had a co-op, and got capital from a venture capital, bank or another institution? This would enable these farmers to have a sustainable income by selling their produce to local and international markets.

Take any other sector and get cooperation from textile workers, artisans, craftsman, ranchers, and harvesters and infuse some international business knowledge. Africa can produce it's own goods and not look for handouts from international organizations; World Bank, European Union, or the United States!

The private equity fund I'm involved with is looking at co-ops and how they can enable the informal market to be sustainable.


I welcome other suggestions on how to grow the informal market.