We analyse the emphasis in informal-sector and informal-economy policy, highlighting who runs the risk of being missed. We then interrogate assumptions on which policy objectives are based – notably that the informal sector acts as a ‘shock absorber’ in times of recession and, given the emphasis on the township economy, the spatial dimensions of informal-sector employment. We argue that policy makers should pay attention to harmful regulations, the infrastructure needed and where informal activities fit in value chains.
This extract from a new REDI3x3 book proposes a constructive way to approach the possible ‘formalisation’ of the informal sector. A common impulse is to reduce formalisation to regulating and taxing informal enterprises – two blunt instruments that can be destructive. Formalisation must rather be seen as a means to aid the quest for better livelihoods for more people and stronger, more self-standing informal enterprises. Smart formalisation can be pursued with a ‘formalisation menu’.
In this extract from a new REDI3x3 book, the employment-creating behaviour of informal enterprises is analysed – in particular, enterprises with employees. Almost half of those working in the informal sector work in such multi-person firms – which provide paid work to about 850 000 people (owner-operators plus paid employees). There is a growing employment orientation and employment intensity. Jobs are created via new-firm entry as well as employment expansion – also by one-person enterprises. Entrant firms are vulnerable, though.
Creating jobs, reducing poverty I: Why the informal sector should be taken seriously and enabled properly
In the first extract from a new REDI3x3 book on the role of the informal sector in job creation and poverty reduction, a compact picture of the size, texture and impact of the sector is provided. One in every six South Africans who work, work in the informal sector. Several policy-relevant features are highlighted, such as industry, spatial and gender dimensions. This provides the backdrop for the second extract on the employment-creating performance of the informal sector.
Enterprises in the informal sector are known to have a precarious existence. The economic value and survival of an informal enterprise depend on the preparedness and motivation of the owner, inter alia. This article analyses the relevance of the work experience of a new, or entering, enterprise owner. It finds that prior work experience predicts informal enterprises that are larger, are more profitable, have more employees and are more likely to have their finances and premises separate from the household.
In the aggregate, earnings from jobs in the informal sector play a small role in reducing national poverty rates, especially because there are relatively few informal-sector jobs. However, if we compare on a per-job basis, the poverty reduction associated with one informal-sector job is generally between 50 to 100% of the poverty reduction associated with one formal-sector job. Growth in the number of jobs in the informal sector would be a sensible component of any plan to reduce poverty.
Informal enterprises are perceived to lack the necessary business and economic fundamentals to stimulate their local economies. However, informal enterprises are not homogenous. In a study of non-retail informal enterprises, we distinguish between Traditional Informal Enterprises (TIEs) and Modernising Informal Enterprises (MIEs) and assess whether Ivory Park and Kaalfontein townships have MIEs to catalyse the local economies. We find that 40% of the non-retail enterprises have a modernising orientation, but that the majority are predominantly traditional.
The reasons for the closure of fairly well-established informal enterprises are varied. Between 2010 and 2015, in the Cape Flats township of Delft South, a key factor was the failure to respond adequately to the more entrepreneurial business model of foreign traders and the strict enforcement of unfavourable liquor trading policies. Still, household misfortunes and broader socio-cultural dynamics also played crucial roles. A richer understanding of why enterprises shut down should inform policy to foster the sustainability of informal enterprises.
The informal sector is frequently viewed as comprising only street traders. However, micro-manufacturing of various types constitutes a small but significant component. A Cape Town case study of informal metalwork manufacturers, retailers, suppliers and customers shows that township metalworker enterprises and supply chains bring about important opportunities for promoting value adding, skills development and employment. Policy interventions that would help them grow include the provision of more suitable manufacturing and trading spaces as well as services such as electricity.
Foreign migrants often enter informal employment as day labourers. They compete with South Africans for jobs in this curb-side labour market. Three surveys of day labourers working in Tshwane between 2004 and 2015 reveal two important tendencies. First, the foreign-migrant component has increased from 12% to just over 55% in 11 years. Secondly, the wages and the level of poverty of both foreign and South African day labourers have worsened in the same period.