Rethinking development:The informal sector's role in transforming South Africa's economy

 

Challenges facing the Informal Sector in South Africa 

The informal sector plays a crucial role in the South African Economy. As discussed in earlier parts of the study, the informal sector provides employment opportunities and contributes significantly to GDP. However, the sector is faced with numerous challenges and constraints that hinder its ability to fully realize its potential as a catalyst for development. These challenges stem from various factors including economic, environmental, and social aspects.
Below are some of the key challenges and constraints faced by the informal sector in South Africa. 

 Regulatory Constraints: Governments have been found to still treat informal sectors with past laws. In South Africa, the laws still portray workers in the informal sector as illegal and creating a nuisance (Department of Trade and Industry, 2013). Njenga and Ngambi (2014) in their study argued that the set laws enable city authorities to forcibly remove “any nuisance, obstruction or encroachment on streets or any public places”. In another report, Prince-Zulu (2023) stated informal traders are being viewed by local
governments to be law-breakers who deal in illicit goods and need to be stopped and controlled. This has led to the confiscation of goods or and payment of hefty fines. An example is the 2013 violent removal of 6000 inner city traders under “Operation Clean Sweep” in Johannesburg (Rogerson, 2015).

 1. Regulatory Constraints: Governments have been found to still treat informal sectors with past laws. In South Africa, the laws still portray workers in the informal sector as illegal and creating a nuisance (Department of Trade and Industry, 2013). Njenga and Ngambi (2014) in their study argued that the set laws enable city authorities to forcibly remove “any nuisance, obstruction or encroachment on streets or any public places”. In another report, Prince-Zulu (2023) stated informal traders are being viewed by local
governments to be law-breakers who deal in illicit goods and need to be stopped and controlled. This has led to the confiscation of goods or and payment of hefty fines. An example is the 2013 violent removal of 6000 inner city traders under “Operation Clean Sweep” in Johannesburg (Rogerson, 2015).

2. Limited access to finance: Most informal traders do not have bank accounts for their business as their enterprises are not formally registered. Hence, they struggle to access formal financial services such as loans and credit due to traditional financial institutions often perceive them as high-risk borrowers and are reluctant to extend credit to them (Crush & Hovorka,2018). As a result, informal entrepreneurs rely heavily on informal sources of finance, such as savings, loans from family and friends, and moneylenders, which
may come with high-interest rates and unfavourable terms. This therefore constrains the growth and competitiveness of informal enterprises, hindering their ability to contribute to economic development and poverty reduction.

3. Lack of Basic Infrastructure: Infrastructure deficiencies pose significant challenges to the operation of informal enterprises in South Africa. Informal businesses often operate in areas characterized by inadequate basic infrastructure like water, sanitation, electricity, and transportation. This is because the businesses often view services provided by the municipalities to be expensive that they cannot afford or sustain. This therefore limits market access and inhibits business expansion.

4. Social Exclusion and Vulnerability: Informal workers, particularly women, youth, and migrants, often face social exclusion, discrimination, and stigmatization in society. They are prone to sexual harassment, victimization, and social arrest which compromise their well-being and livelihood security. There are policy gaps that do not protect women thus making them prone to exploitation (Njenga and Ngámbi, 2014).
Looking at Africa as a case study, Mwaba (2010:14) argues “that the dominated patriarchal system in Africa has caused a major contribution towards the discrimination of women and ensuring that they remain subordinate to their male counterparts”. In Mwaba’s words, “Women as compared to their male counterparts have less voice, less autonomy, and fewer opportunities”. For instance, some people make demeaning statements or questions like knowing whether or not a woman is menstruating before engaging
in business with her as they believe women ought to stay away from their businesses during the period or get other people to assist (Njenga and Ngámbi, ibid). 

5. Anti-foreign sentiments: The informal sector in South Africa is amply dominated by immigrants.
According to Stats SA (2019b), many immigrants work in the informal sector rather than the formal sector. Hence, it has become an avenue for “scapegoating”. According to IEJ (2018), xenophobic statements and actions by the Government and citizens have also hindered a progressive stance on the informal sector. For instance, in 2013, the police in Limpopo launched a province-wide campaign to close down migrant-owned
businesses dubbed “Operation Hardstick”. As a result of this action, 600 migrant businesses were closeddown, owners detained, goods confiscated, fines were imposed and migrants  verbally abused (Tawodzera and Crush, 2023). Another instance is President Cyril Ramaphosa’s campaign in 2019 when he said “Everybody just arrives in our townships and rural areas and set up businesses without licenses and permits, we are going to bring this to an end…” (Olofinbiyi, 2022). This statement gave rise to intense heat and violence directed towards foreigners. Especially those in the informal sector. Also, there is “Operation
Dudula”, an anti-immigrant body that has targeted immigrant traders based on taking “jobs meant for citizens” (Evans, 2022; Mabasa, 2023). This action impacts the economic trajectory of the country because migrants in this sector cannot pronounce their business as they ought to.

6. Governance Mismatch: The government’s action towards the informal sector has been ironical. While there has been recognition by the Department of Labour, and the Department of Trade and Industry in acknowledging this sector, it is still accorded low priority with insufficient human and financial resources being allocated to this sector. Likewise, the activities and behaviour of the municipalities towards this sector reflect an austere attitude, especially to those who operate in the public space, as it is seen as an eyesore to what constitutes a “modern society”. 

7. Lack of Formal Recognition: The lack of formal recognition poses a significant challenge. Informal sectors often operate in grey areas, facing barriers to assessing financial services, infrastructure, and legal protection. It also renders those who work in the sector vulnerable to exploitative practices, including low wages and unsafe working conditions. 

Source:

University of Johannesburg

School of Public Management, Governance and Public Policy

Rethinking development:The informal sector's role in
transforming South Africa's economy


Anuoluwapo Durokifa

Corresponding author: anudurokifa@gmail.com
© Authour(s)
OIDA International Journal of Sustainable Development, Ontario International Development Agency, Canada.


ISSN 1923-6654 (print) ISSN 1923-6662 (online) www.oidaijsd.com
Also available at https://www.ssrn.com/index.cfm/en/oida-intl-journal-sustainable-dev/ 

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