Why does the informal economy not generate employment? Shouldn't policy empower the informal economy?
It is well known that the informal sector in South Africa is relatively small. Some years ago, the informal sector was a hot topic in economic policy discussions. Later, the related concept of the second economy was in vogue. Recently both these topics seem to have disappeared from the economic policy radar. In both the New Growth Path and the National Development Plan the informal economy is hardly mentioned, and most attention is focused on formal sector growth (albeit including SMMEs as an important job-creating sector in the NDP). The question is why the informal sector still is not growing much, and why the obstacles to informal sector employment and self-employment are not tackled by appropriate policies?
The layout of the township economy: the surprising spatial distribution of informal township enterprises
A small-area census of micro-enterprises in Cape Town townships reveals that informal enterprises are located throughout the township, including in the residential areas. Three-quarters of the enterprises are located beyond the ‘high-street’. The most common enterprises (liquor and spaza shops) are not situated in what one would expect to be the prime business area with its considerable pedestrian traffic, but are in residential areas. Policies to promote the township economy need to come to terms with this reality.
While everybody seems to favour the pursuit of inclusive growth, this concept is rarely clearly defined in the policy debate. Inclusive growth is often confused or conflated with pro-poor growth or broad-based growth. A recent definition from researchers at the UNDP integrates the latter two concepts to include employment, poverty and inequality. A derivative Inclusiveness Index shows that South Africa has a very low degree of inclusiveness compared to other developing countries and that its growth since 1996 has not been inclusive.
Cape Town is the urban centrepiece of a globally unique and highly diverse natural environment which should take priority in conservation management. But these biological assets also directly serve a local market of over 5 100 traditional healers and herbalists. The author discusses this important informal economy, business and cultural activity in the face of the broadening threats to conservation in the region, and the growing potential tension this presents in terms of policy and management.
This article examines the contrasting business models in the spaza shop sector, and compares foreign-run businesses with South African businesses. We argue that foreign shop keepers are more successful than South Africans because of the strength of their social networks, which provide them with access to labour and capital and enable collective purchasing and market domination. The article argues for a two-pronged policy that would formalise larger shops whilst permitting and encouraging informal micro and survivalist businesses.
Marginalised businesses provide livelihood and income opportunities for a large section of the population. However, these businesses are not able to capture growth opportunities because of several constraints; they continue to operate on the periphery of the mainstream economy. Yet they could become a major source of employment growth. Efforts to unlock this potential must concentrate on exploiting value chains and making government policy more responsive to the unique needs and challenges of marginalised businesses.
In trying to reduce unemployment in South Africa, the pursuit of higher economic growth is the single most agreed-upon policy strategy. The consensus on this ‘obvious solution’ may blind us to the fact that economic growth, though important, may only be half of the solution. Attempts to fine-tune and turbo-boost the formal-economy ‘engine of growth’ to absorb more labour are fundamentally constrained. Economic policy makers must look at other options for generating employment and self-employment for unemployed people.
The debate on unemployment is fragmented into at least three sub-discourses, i.e. those of macroeconomists, labour economists and poverty analysts. This results in inconclusive analyses and narrow, flawed proposals to address the problem. This fragmentation feeds into the policy field. Sustainable and consistent remedies for unemployment and poverty will require an integrated analysis that covers the formal sector, the informal economy and survivalist activities – and especially linkages and barriers between these segments.
How structural inequality limits employment and self-employment in poor areas (or: Why South Africa’s informal sector is so small)
Given South Africa’s high levels of unemployment, the relatively small size of the micro-enterprise sector is a conundrum. This article argues that structural inequality is the reason for this – in particular, inequality in the structure of the economy, the legacies of spatial inequality and the continued inequalities in human development. Their combined effect is to limit the scope for poor people to escape poverty via self-employment. This explains the limited extent and small range of informal employment.
Government’s vision for the development of informal business is that, with the right support, these enterprises will achieve formal status, contribute to economic growth and create jobs. However, few informal businesses produce goods for which the formal economy has any a demand. Moreover, informal producers are structurally prevented from accessing the formal economy without the facilitation of intermediaries. This implies the need for an enabling institutional and legal environment which (a) supports intermediaries that assist informal producers to access formal markets and (b) provides incentives for formal-sector retailers to enter into contracts with intermediaries on more equitable terms. BEE is a possible way to provide such incentives.
The South African government continues to pursue efforts to 'migrate' informal enterprises to the formal sector. This article examines the impact of regulations and law enforcement on the 'lived' economy of informal micro-entrepreneurs. Spatial analysis shows how the scope and distribution of informal economic activities are directly affected by regulation, land use planning and other controls. Such controls that effectively disallow informality are poor-unfriendly and harm livelihoods, self-employment and employment.