Informality > Formalising Informal Micro-Enterprises
The overall project goal is to establish an evidential platform from which to encourage entrepreneurship and investment in informal businesses, shape enterprise strategies to enhance their competitiveness, and influence government policies to best support the growth of micro-enterprises for their incorporation within South Africa’s formal economy.
The project seeks to provide a quantifiable understanding of the scope and scale of micro-enterprises, business trends and growth prospects within South Africa’s informal economy. This requires new research to address the gaps in our knowledge of how people on the margins survive economically. The field research (currently underway) will help to reveal the main institutional barriers which impede the formalization of micro-enterprises, undermine local economic growth and restrict the creation of employment. The research commenced in Cape Town and has expanded to Johannesburg and Ekurhuleni municipalities.
Informal micro-enterprises provide employment and a safety-net for the un/under employed and a means for economic growth within marginalized communities. The informality of these small businesses is thought to hinder their growth. The non-adherence of micro-enterprises to formalised rules and standards can have a negative impact on society. At all three tiers of government, policies have been formulated to achieve the developmental goal of migrating informal micro-enterprises into the formal economy. These policies have had minimal success. There is concern that inappropriate interventions could have the unintended impact of shutting down businesses and constraining local economic growth.
The challenge for government must begin with understanding the informal economy and the socio-economic dynamics of the micro-enterprises therein. Little is known about these businesses in South Africa. There is a knowledge vacuum on how micro-enterprises emerge and then grow, the employment they create, their impact on local economic development, the nature of their value chain linkages and impact on social cohesion. If policy makers are to achieve a positive developmental outcome that supports micro-enterprise growth, then strategies must be relevant and address the context of informality. The Project is providing direction on this challenge through compiling a unique evidential platform, based on scientifically informed social research and processes of engagement.
The Project is currently surveying micro-enterprises and engaging with entrepreneurs in a series of locations in the cities of Cape Town, Johannesbury and Ekurhuleni. Our research sites are characteristic of townships with extremely poor communities and high unemployment. In each site we aim to record all businesses and undertake in-depth interviews with all enterprises in a range of sectors: spaza shops (micro-convenience stores),shebeens, early childhood development / educare / crèches, informal medical services and hair care businesses. Preliminary results show that micro-enterprises in these sectors have grown organically (without external assistance), have enduring local demand and provide an incubator for entrepreneurship.
The first phase of research has been completed in six sites in Cape Town.