Innovation Occurs In Informal Economy, Needs Policy Framework, Panellists Say

Findings of a World Intellectual Property Organization Committee on Development and Intellectual Property (CDIP) project show that innovation occurs in the informal sector, and generates employment and development. Panellists at a recent side event to the CDIP called on policymakers to be mindful of this sector and implement policy frameworks, in particular in developing countries.

Recommendation 34 of the 2007 WIPO Development Agenda requested WIPO “to conduct a study on constraints to intellectual property protection in the informal economy, including the tangible costs and benefits of intellectual property protection in particular in relation to generation of employment.” WIPO developed a general study on the link between informal economy and intellectual property and three country studies, in Ghana, Kenya and South Africa.

Final results of this project were presented at WIPO in a 20 May side event to the CDIP entitled “The Informal Economy in Developing Countries: Hidden Engine of Innovation and Source of Intellectual Property?” Three panels presented, respectively, an introduction to and an overview of the project, a presentation of two country studies, and recommendations to policymakers.

The general study has become a working paper of the WIPO Economics and Statistics Division entitled, “Economic Research Working Paper No. 10: The informal economy, innovation and intellectual property – Concepts, metrics and policy considerations.” Two of the three country studies on innovation, intellectual property and the informal economy were also presented, respectively on Informal Manufacturers of Home and Personal Care Products in South Africa and on Traditional Herbal Medicine in Ghana.

Sacha Wunsch-Vincent, senior economic officer in the WIPO Economics and Statistics Division, said little is known about how innovation is taking place in the informal sector. Specialists on informal economy and IP experts do not communicate sufficiently, he said. This study was conducted to answer questions like how innovation occurs in the informal economy and how inventors benefit from their innovations, he added.

As this project opens a new facet of innovation, Wunsch-Vincent said it is a starting point for the future, envisioning other “comprehensive cross-cutting studies in other countries.”

Definition of Informal Economy and its Importance for Development

Jacques Charmes, emeritus research director of the Scientific Research Institute for Development (IRD) in France, gave the definition of informal economy, provided by the International Labour Organisation (ILO) International Conference of Labour Statisticians (ICLS).

ILO made a distinction between the informal sector which is ”comprised of all unincorporated economic units not registered and/or not registering their employees and/or under a size threshold of five permanent paid employees” (ICLS 15 session) and informal employment, defined as “all occupied persons, not affiliated to social security or without written contract” (ICLS 17 session), Charmes explained.

Charmes also underlined the importance of the informal sector in developing countries. At the end of 2010, informal employment as a portion of total non-agricultural employment was 70 percent in sub-Saharan Africa, 53 percent in North Africa and 57 percent in Latin America. At the same time, the contribution of the informal economy to the Gross Domestic Product (GDP), agriculture excluded, was about 50 percent in sub-Saharan Africa, 45 percent in India, 30 percent in the Middle East and North Africa, and 25 percent in Latin America.

“Those figures give you an idea of the size and contribution of the informalsector and the informal economy to total employment, non-agricultural employment and total and non-agricultural GDP,” said Charmes.

Informal Economy as Rich Reservoir of Innovation

Research demonstrates that there is a lot of innovation occurring in the informal sector, several panellists said.

Wunsch-Vincent explained this is “constraint-based innovation often under conditions of scarcity and constraints.” This innovation is also rarely driven by research and development, but mostly consists of adapting, applying and improving existing knowledge. “Solving problems, sometimes even overcoming the lack of solutions from the formal sector is really the driver of innovation in the informal sector”, he said, addressing mostly needs of the poorest parts of the society with solutions to day-to-day problems. He also stated that innovation in the informal economy operates in clusters, such as in formal sectors in developed countries, but emphasised the impressive size of clusters. “Supply and demand interaction plays an important role,” he added.

Erika Kraemer-Mbula, senior lecturer and research fellow at the Institute for Economic Research on Innovation of the University of Technology of Pretoria, explained that the country study in South Africa showed that 32 percent of products developed constitute an improved formulation, and 16 percent improved packaging and brand. One third of inventors interviewed had a tertiary education, some are also training by technology transfer, but the “learning-by-doing” apprenticeship is also an important source of knowledge.

Jeremy de Beer, associate professor at the Faculty of Law, University of Ottawa, explained that innovation occurring in the informal economy “is for the largest part invisible for us because we do not use the right metrics,” as the main IP metrics such as patent registration do not really apply to informal economy.

Continuum between Formal and Informal Economy

Several panellists stated that formal and informal economies are interconnected, forming a continuum. Kraemer-Mbula said there are different degrees of formalities and informalities, and that some obstacles and advantages encountered by informal micro-enterprises are the same faced by formal micro-enterprises.

Herman Ntchatcho, senior director of the Department for Africa and Special Projects of the WIPO Development Sector, said that recognising interactions between formal and informal economies, at some stage of the journey many of the entrepreneurs need to move to the more formal spheres of activity, particularly where IP and innovation are concerned.

Knowledge Appropriation

Also, de Beer said that appropriation strategies include more than formal IP and also include trade secrets, sometimes through semi-formal contracts, or informally. “

Results showed that inventors often find normal that innovation diffuses so rapidly, and pay less attention to appropriate innovation, Wunsch-Vincent added. Kraemer-Mbula underlined that 76 percent of South African informal inventors interviewed did not consider that they own the ideas they used. This is a “very interesting hint about the importance of interaction in informal institutions and how knowledge is exchanged and appropriated,” she said. A respondent told her it is an “understanding of how knowledge is exchanged and what you have to give back to the community that gives that knowledge to you,” she said.

Branding is also a common form of appropriation of knowledge. Although only 4 percent of respondents declared using a trademark, 80 percent created their own brand, Kraemer-Mbula emphasised.

“Even open exchange can be considered as a strategic form of appropriation,” as sharing knowledge among the community can bring valuable rewarding like trust and reputation, de Beer said.

Wunsch-Vincent also said that studies showed some forms of appropriation of knowledge (codes of transmitted knowledge, tacit knowledge system, indigenous knowledge systems) that “we were not aware about in the formal sector.” The importance of linking those studies with studies on indigenous traditional knowledge and access and benefit sharing mechanisms, was emphasised by de Beer.

Some informal inventors are interested in protecting their idea through the formal IP system. Some 32 percent of respondent expressed this view in the South African study, Kraemer-Mbula said.

George Owusu Essegbey, director of the Science and Technology Policy Research Institute (STEPRI), Council for Scientific and Industrial Research (CSIR) in Ghana, also emphasised that traditional medicine practitioners in Ghana are open to other forms of IP, e.g., trademarks, some of them getting one to register their enterprise.

The CDIP study on the informal metalworking sector in Kenya showed different appropriation strategies and different attitudes on IP, de Beer stated.

A Need to Address IE in Policy Frameworks

Wunsch-Vincent said there were no uniformly agreed policy frameworks targeted on informal economy. Recalling the dominant thinking of just suppressing the informal economy and transferring it into the formal sector, he hoped that results of the project might shift policy attention toward developing policy frameworks and implement it in developing countries.

Kraemer-Mbula underlined the importance of policy as a driver for innovation, and said policymakers “have to be mindful of informal institutions.” She also raised the importance of intermediary organisations, which build connections across innovation systems, among them technology transfer organisations, trade associations, and NGOs. Considering the diversity of sectors and products, the informal economy can no longer be seen as one bloc, she added.

Owusu Essegbey highlighted the importance of some policy initiatives in Ghana to positively impact the traditional medicines sector. Policy, regulation and competition are the drivers of innovation, he said.

“IP can facilitate innovation and create market opportunities”, but modern IP systems have to be configured if we really want to reach out to the majority of traditional medical practitioners, he said.

There is the concept that only the formal sector can bring the best returns for the country, “but definitely in the informal sector there is value” he stressed. The concept of informal economy must be accommodated to build a modern economy, he said.

Prof. de Beer asked policymakers to legitimise the informal sector, noting that the project raised awareness about the importance of informal economy for innovation and its benefits such as building cohesive social network and becoming a source of sustainable and stable employment. He also recommended that they identify the source of engagement with the informal sector and think forward about issues and scenarios 10-20 years into the future.

Ntchatcho underlined the need to deepen the understanding of the relevance of non-traditional IP rights as appropriate mechanisms for knowledge appropriation.

As the informal economy is generating innovation, there are some ways of protection, through sui generis protection, trade secrets or contracts, he said, but in some cases it is possible to protect innovations through typical means of protection such as trademarks, geographical indications or utility models, in particular with low-intensity innovations.

The video of the event can be watched here.