Guest post by Hassan Massoud, vice president at a regional private equity firm
One of Egypt’s persistent public policy debates is “What to do about the street vendor problem?”
One of the last Ganzoury government’s last policy achievements is a hilarious solution to the “street vendor problem”: creating centralized markets for the roaming vendors. The whole point of street vendors is that they can set up shop anywhere, anytime without being chained to one place. Hilarity aside, it is worth asking first: “Is there a street vendor problem?” Perhaps not; there’s actually a good chance the only problem with street vendors is that there aren’t more of them.
Some economists estimate that Egypt’s five million street vendors sell about $5 billion worth of goods a year. To put this in perspective; an industry that employs 5 million people is just a million short of the country’s largest employer; the Egyptian government with six million employees. In a time where Egypt’s unemployment rate is at its highest in a decade (according to official government statistics 3.4 million people are now out of work), the country’s street vendors ply a hard trade that keeps the economy ticking.
Here is how our street vendors help our economy:
1 – Street vendors fight inflation.
Since they don’t pay shop rentals, trucking costs, employee salaries, utilities or taxes, street vendors can offer products at a very small mark up to their wholesale price. Say everyday a street vendor buys 20 pairs of high quality flip flops from the wholesale market at 10 Egyptian pounds ($1.6) each. All he needs is a 2 pound mark up to make a decent daily profit, and that’s assuming he sells nothing else. How much do you think a shoe store owner would charge for the same high quality flip flops? Street vendors make products available to the Egyptian public at a lower price than they otherwise would’ve had to pay.
2 – Street vendors improve traffic.
The basic premise of a street vendor’s business model is that he or she sets up shop in an area where lots of people are coming are going. If it weren’t for the flip flop street vendor, maybe 10 of his 20 customers per day would have made a special trip (or a special diversion from their daily commute) to acquire a pair of flip flops. So by making one trip to the wholesale market and retailing the flip flops downtown, we’ve saved the city’s traffic system 9 trips that would have otherwise been necessary. Imagine all the extra fuel saved, and avoided pollution.
3 – Street vendors save the government money.
In Egypt, diesel (the fuel used in most public transport vehicles) is heavily subsidized by the government; selling at about 20% of its global market price. It is one of the cheapest countries in the world to buy fuel (It comes second after Venezuela). At a microbus ticket price of 2 Egyptian pound (round trip) I estimate that the government is probably indirectly subsidizing each 2 pound trip by at least 4 pounds worth of diesel. By helping avert 9 trips every day, the street vendor has directly saved the Egyptian government 36 pounds, more than his own daily profit.
So, as a new government, unencumbered by the legacy of policies past, finds its footing, I hope they challenge the assumptions and biases of policy makers past and not view the informal sector as a problem to be eradicated.
Egypt’s thriving informal sector supports millions and is estimated to be worth about $250 billion. Instead of fighting it, perhaps policy makers should encourage and develop the informal market, let it prosper; these are tomorrow’s – formal – Small and Medium Enterprises.