Understanding the Informal Economy – Research Support to the Limpopo Centre for LED

Field research and delineation of policy recommendations to best support the informal economy rural and retails trade sectors in urban, peri-urban and rural locations of Limpopo Province, South Africa.

 

 

 

(SLC was the local implementing partner for Cardno Agrisystems Limited (UK), under Framework Contract from EuropeAid).

 Client

The Limpopo Department of Local Government & Housing & European Union

Consultants

Andrew Charman, Leif Petersen, Fuad Cassim, Glen Steyn, James Mabela, Andrew Hartnack, Philly Manavela

Background

There is little understanding of the concept, scale and workings of South Africa’s informal economy, even though this topic is debated nationwide. Within Limpopo Province, the informal sector constitutes a significant component of the economy and makes a particularly important contribution to the livelihoods of the poor. Although many people work within informal enterprises and derive their living as self-employed micro-entrepreneurs from street trading, services and other informal activities, the sector has been sidelined at policy level. The overriding objective of this study was to understand the dynamics of the informal economy and recommend appropriate policy interventions.

Assignment

The consultancy team researched the informal economy with a comprehensive, quantitative and qualitative survey tool in three geographic settings. These encompassed micro-entrepreneurship in the urban, peri-urban and rural contexts of Limpopo Province and focused on three areas of entrepreneurship, namely:

  • Street trading (246 interviews)
  • Micro-entrepreneurs engaged in the production and trading of poultry (feedback from 72 representatives of various sub-sectors of the poultry business)
  • Hawker trading within rural, roadside, farm-gate markets (68 interviews).

Findings

Businesses operating in the informal economy display a high level of sustainability. Those individuals surveyed had typically been in business for an average of 6.6 years. When one considers the longevity of these enterprises alongside proxy indicators of enterprise sophistication (such as access to financial services and membership of savings groups) it is possible to conclude that informal enterprises offer considerable opportunities for entrepreneurship, stable self-employment, and sustainable livelihoods.

The study found that the informal economy creates sustainable opportunities for self-employment, but offers little additional job creation. It is evident that the informal economy is not disconnected from the ‘first’ or ‘formal’ economy, it simply functions according to different entrepreneurial rules. While micro-entrepreneurs trade informally, this in itself should not imply that they cannot run profitable and sustainable enterprises or that they lack the desire to formalise their business. In addition, it cannot be assumed that the self-employed are temporary participants within the informal economy and would leave if offered an opportunity for formal emploment – in many cases the reverse is true.
It also established that the majority of informal street traders earn considerably more than unskilled, minimum-wage workers in the formal sector. Informal economy actors are engaged in entrepreneurship on terms that differ quantitatively and qualitatively from formal business practice but are, on the whole, sustainable and collectively beneficial.

Approximately 100,000 informal business owners support a minimum of 400,000 family members in addition to themselves. All in all, 500,000 livelihoods are supported through informal trading in Limpopo Province.

 

 

 

 

 

Click to download this project in PDF.