Street trading, also known as street hawking or vending, is one example of the sort of enterprise that thrives in developing countries. Though it is rarely seen in the West today, this kind of entrepreneurial activity is very prevalent in countries like Nigeria. However, in recent years, the government has become increasingly adamant about eliminating this market institution.

Lives Depend on Street Trading

Street trading accounts for more than 70% of the urban employment in Nigeria.

In 2003, the state government overseeing both Nigeria and Africa’s largest city, Lagos, took regulatory measures to prohibit street trading without factoring in the significant impact it would have on a vast population of people whose sole income depend on this form of private enterprise.

In fact, street trading accounts for more than 70% of the urban employment in Nigeria, an indication of the informal institution’s value to the economy and to the livelihood of citizens. Many Nigerians, especially those living in large cities, depend on the income generated from entrepreneurial ventures. A sizeable portion of those activities just happen to take place on the roadside, sometimes in the midst of traffic.

So why restrict street trading? Some of the several complaints issued against street trading are the disruption, overcrowding, as well as congestion caused on main roadways. Instances of road-related accidents are also prevalent in areas with a higher concentration of street trade. Additionally, the institution comprises a large share of child laborers. However, despite the justifications perpetuated by regulators to restrict street trading, regulating the sector may do more harm than good for both the welfare and economy of the city.

Vast literature attests to the importance of free-market practices. A common theme reiterated by classical liberal theorists such as Mises, Kirzner, and Rothbard is the value of entrepreneurial activity and the role it plays in the economic growth process of any country. With this premise, one might be led to assume that countries which are slow to grow lack significant entrepreneurialism. We may also assume that underdeveloped countries remain poor because of a weak desire among the citizens to seek profit or a lack of work ethic. Not so.

Regulatory measures to curtail street trading may have more devastating consequences than anticipated.

The prevalence of entrepreneurial activities such as street trading in developing countries testifies to the truth of entrepreneurialism among the citizens. The reality is that these people, as much as in any developed country, remain alert about profit opportunities and act in accordance. The question to then ask is, if there are no disparities in entrepreneurial activities in both developed and underdeveloped countries, and the premise of a weak work ethic is void, what then makes it so that developing countries are not able to enjoy the same growth effects as their developed counterparts?

Something is distorting the effects of market activities within developing countries. Overregulation is one major factor. The rationale for implementing regulations is usually to the effect of solving problems prone to the market. However, the persistent attempts by governments to overregulate the market far too often proves counterintuitive. In developing nations, regulatory measures to curtail informal market institutions such as street trading may have more devastating consequences than anticipated.

No Other Choice

Street trading appears to be a major characteristic of urbanization in many emerging cities. Its prevalence may be attributed to one of the issues expounded upon in Hernando De Soto’s book, Mystery of Capital.

Developing institutions face obstacles which make it difficult for countries to capitalize on their assets. One of the institutional properties pertains to the formal property system. Inadequate and poor institutional characteristics, coupled with heavy bureaucracy, tremendous red tape, and strenuous registration processes for acquiring titles or permits, make it difficult and costly for entrepreneurs to own formal and legal enterprises.

A key problem is that overregulation promotes undercapitalization of people and resources. According to Hernando De Soto’s book, Mystery of Capital:

In Haiti, one way an ordinary citizen can settle legally on government land is first to lease it from the government for five years and then buy it. Working with associates in Haiti, our researchers found that to obtain such a lease took 65 bureaucratic steps – requiring on average, a little more than two years – all for the privilege of merely leasing the land for five years. To buy the land required another 111 bureaucratic hurdles – and twelve more years. Total time to gain lawful land in Haiti: nineteen years. Yet even this long ordeal will not ensure that the property remains legal.

This speaks to why street vending is persistent despite continual attempts to restrict it in urban cities. The continuous failure of the government to bridge the gap between informal and formal institutions on the path towards development makes for feeble outcomes. When the government undertakes actions that make it more difficult for individuals to secure a living, it becomes a big problem. Lagos is no different.

Regulation Doesn’t Work

The Lagos State Street Trading and Illegal Market Prohibition Law which was passed in 2003 and reimplemented in 2016 prohibits street trading activity in the metropolis area of Lagos. The repercussions for violating the mandate are a fine of 90,000 Nigerian Naira (or USD$250) or a 6-month jail sentence. Law enforcement officers are also authorized to seize goods from street hawkers and vendors upon citation.

Traders who bribe police officers will continue to trade on the open street. Those who do not may be forced into abject poverty or illicit activities.

As steep as the regulations seem, they are loosely abided by and street trade is still quite pervasive, perhaps due to the lack of employment opportunities or as a result of weak enforcement by authorities.

The implementation of such regulations places a great deal of discretion on law enforcement agents. However, due to the aberrant attitudes of law enforcers in developing countries like Nigeria, the street traders who are willing and able to pay bribes to police officers will continue to trade on the open street. Those who are not may be forced into abject poverty or illicit activities. As a consequence of government restriction, increased instances of crimes in the city area are imminent.

Around “half of the Lagos population live below the poverty line despite having an economy of about $50 billion and accounting for about 20% of Nigeria’s GDP.” A huge portion of those living under the poverty line is able to make ends meet and live just above the subsistence level because of the profit opportunities of street trading.

Additionally, regulation cannot minimize instances of child labor because those school-age children that are involved in street trade are there out of necessity. The absence of street trading opportunities may leave them worse off as they become vulnerable to other, rather disagreeable sectors, such as petty crime and trafficking.

A Better Solution

As opposed to abruptly prohibiting street trade entirely, a gradual process needs to take place to minimize shocks to the economic actors involved in this market. The best outcome can only be realized when the government takes a market-based approach in addressing street trading. One way would be to create incentives for traders to migrate away from the streets. By cutting down the extensive bureaucratic processes involved in securing business permits and property titles, regulators should invest in easing entry into the formal market sector.