1/16/2012 7:57 PM ET|
Informal economy: Huge and growing
The global street economy may be the world's second biggest, after the United States, and it employs half the planet's workers. Investors can play the system for profit.
A $10 trillion underground street economy that will employ two-thirds of the world's workers by 2020 has been uncovered.
Robert Neuwirth, in his book "Stealth of Nations: The Global Rise of the Informal Economy," treks through the developing world and finds small, informal -- sometimes illegal -- enterprises are changing the shape of the global economy.
I believe him because I have seen it myself. And if you have ever traveled in developing nations, you have too. Those kiosks and small stores selling the basics, where you can find pretty much everything and anything from cigarettes to pirated DVDs, employ a large chunk of the world's population -- half at the present time, according to Neuwirth -- and outsell Wal-Mart Stores (WMT, news). Indeed, big brands know this.
He cites numerous brands, including Procter & Gamble (PG, news), Colgate-Palmolive (CL, news) and Unilever (UL, news), among providers that distribute their products via this network -- sometimes knowingly and sometimes not.
Neuwirth calls this network of small enterprises "System D" -- taken and shortened from a French term.
"System D is growing faster than any other part of the economy, and it is an increasing force in world trade," Neuwirth writes. "What's more, after the financial crisis of 2008/2009, System D was revealed to be an important financial coping mechanism. A study by Deutsche Bank, the huge German commercial lender, suggested that people in the European countries with the largest portions of their economies that were unlicensed and unregulated -- in other words, citizens of the countries with the most robust System D -- fared better in the economic meltdown of 2008 than folks living in centrally planned and tightly regulated nations."
Moreover, given that the population of the developing world is growing right along with those nations' economies, it makes sense that the sales outlets people are used to shopping in would grow, too. And smart brands, such as those mentioned, should benefit. It's easy enough to spot big brands even in remote places. U.S. soda producers, snack makers and bathroom product distributors are seemingly omnipresent the world over.
This should give investors pause as to which companies to invest in for the future. Small growth companies don't have the distribution systems that big, old-school consumer brands do.
To be sure, big brands often don't want the association with street stalls and the like, especially if these outlets are selling illegal items, which many do. Neuwirth points this out as well and explains that third-party distributors are often involved.
In any event, the power of the street economy should be taken seriously.
If you need a prepaid phone card in Addis Ababa, you won't find a pleasantly lit convenience store chain; you'll likely end up shopping at a muddied hut near the Merkato, Africa's largest market.
Neuwirth describes that market in "Stealth of Nations." Alien perhaps to us, with items strewn along tables and on the ground to be bartered over, but common enough to most people in the world. Such commerce is the future.
From micro-loans that support these street vendors to big brands that stock the shelves, such as they are, there are many ways for investors to play System D for profit.
It's well worth reading about and investigating these shadow markets. They will add up to what Neuwirth alludes to in his book's title: the wealth of nations to come.
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This is a great example of how taking government and Wall Street out of the equation our economy would recover. All rules and regulations are made to line the pocket of the "legal" criminals.
I wonder if the cost of their products have tripled in the last 2 years like ours (U.S.) has. Can you believe a 6 oz package of pepperoni is $4.99. That would be $13.30 per lb. I said to he** with that and paid $6.99 per lb for steak.
But remember, the all knowing government say their is no inflation.
By some estimates, even the US underground economy is in the stratosphere of a trillion dollars annually - all of it cash based and all of it untaxed.
This includes the $20.00 you pay the neighborhood kid to mow your lawn to the neighborhood drug dealer who sells crack to the neighborhood kid who mowed your lawn.
This has not gone unnoticed by the government. With cash being the only form of exchange that doesn't require two forms of ID, in the future, look for more and more restrictions on cash transactions. Er, for your convenience and security of course.
Those of us that have been overseas and lived all over (not the tourist trips mind you but getting nitty gritty so to speak) have know this for years.
And made ALOTTTTTT of money:)
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