Recession and the informal sector in South Africa

Despite the recent avalanche of writings investigating the informal sector, scant consideration has been accorded to the impact of an economic recession upon the growth and complexion of the informal sector.The object of this paper is to reflect upon the likely consequences of economic recession upon the South African informal sector in light of the extant international literature. Two different sets of processes are identified as impacting upon the growth and composition of the informal sector. The first suggests that the growth of the informal sector is the consequence of the lack of expansion of the formal sector. The second argues that much of the expansion in the informal sector is directly linked to its integration with formal sector enterprises. Under recessionary conditions, it is suggested that the growth of the informal sector may occur as a refuge from destitution but that the complexion of the informal economy will shift and be dominated by activities of a more ‘socially unacceptable’ nature.     

PRODUCTIVE EFFICIENCY IN THE IVORIAN MANUFACTURING SECTOR: AN EXPLORATORY STUDY USING A DATA ENVELOPMENT ANALYSIS APPROACH

The African industrial structure is characterized by firm‐size heterogeneity with the coexistence of small, if not micro, enterprises in the informal sector and large formal organizations operating with modern technology. In this paper, using the Data Envelopment Analysis production frontier methodology, we investigate the technical efficiency of Ivorian manufacturing firms in four sectors of economic activity: textiles and garments, metal products, food processing, and wood and furniture. Efficiency scores are adjusted to take into account the impact of the external operating environment. These scores are then broken down into three elements: the purely managerial effect, the impact of the scale of production, and a technological effect capturing the potential gain that could result from the adoption of modern technology by small informal organizations. Not only formal activities prove to be more efficient in scaling their production but also, they greatly benefit from their modem technology.     

Informal trading in Soweto

Informal sector trading is re‐examined five years after initial investigations in Soweto. Structural changes in informal trading are manifestations of rising unemployment in the formal economy. More important is the widening differentiation between business enterprises at the apex of the informal spectrum with substantial turnover and employment opportunities through to most informal enterprises operating at ‘survival’ levels. These results confirm the domination of the laws of supply and demand in informal trading and emphasize the free market character of the sector.     

Counting the Invisible Workforce: The Case of Homebased Workers

This paper illustrates the limitations of offical statistics on the informal sector with the case of homebased women workers: this is, women who work from their homes as own-account producers or subcontract workers. After noting that official statistics in most countries do not classify homebased subcontract work as such, the authors review the available data on both types of homebased work. The available evidence suggests that homebased work is an important source of employment throughout the world, especially for women, and that homebased workers comprise a significant share of the workforce in key export industries. The evidence also shows that the informal sector often has direct ties to the formal sector and is growth-promoting. The case of homebased workers, the authors conclude, illustrates the need for improved informal sector statistics as well as a better understanding of the impact of policies on the informal sector and the contribution of the informal sector to national economies.     

Service provision for street-based traders in Pietermaritzburg,KwaZulu-Natal: comparing local findings to lessons drawn from Africa and Asia

South Africa's informal economy absorbs approximately one-quarter of the labour force of 15 million people and is therefore the fastest growing sector of employment. Street-based trading constitutes a major subsector within the informal economy and is continuously expanding through unrelenting proliferation of survivalist micro-enterprises. However, few organisations that support enterprises are accessible or appropriate to survivalist and informal sector micro-enterprises. Interviews were conducted with 98 Pietermaritzburg street-based traders and ten KwaZulu-Natal service providers to determine service provision requirements. The results are compared with findings of four international studies. The findings suggest that for survivalist enterprises to benefit from entrepreneurial education and training services, obstacles with regard to South African traders' understanding of entrepreneurship and cultural limitations to enterprise growth should be overcome. Service institutions also require incentives to serve the informal sector, as well as the capacity to design and deliver appropriate services.     

Informal retailing through home-based micro-enterprises: The role of spaza shops

The informal trade sector constitutes an important part of the South African economy, with estimated sales of R32 billion in 2002. Its emergence is largely attributed to the divergence between the growth in population, especially the urban population, and employment growth in the formal economy. Growth of informal enterprises, especially in the retail sector, is also thriving on the demand of less affluent households, whose household needs for unsophisticated and affordable products are aptly supplied by the informal sector. The aim of this article is to focus on one of the prominent sub-sectors of informal retailing, namely spaza or tuck shops, defined as small retail businesses which operate from a residential stand or home. Particular attention is paid to the size, role and characteristics of spaza trade in South Africa, which is estimated to account for nearly 3 per cent of South Africa's retail trade.     

Sri Lanka’s Rural Non-Farm Economy: Removing Constraints to Pro-Poor Growth

We use a survey of rural enterprises from Sri Lanka to explore characteristics of the informal non-farm sector and identify obstacles to its expansion and productivity. Value added in this sector amounts to 80% of agricultural GDP participating households’ incomes are significantly higher than those of households who do not participate. Barriers to entry are low and the impact of non-farm development on inequality modest, implying a large potential contribution to growth and poverty reduction. Infrastructure constraints negatively affect new startups, investment in, and productivity of existing enterprises, with small enterprises being particularly affected.     

Tax Policies and Informal Employment: The Asian Experience

This paper develops and estimates a model linking tax policies to the size of the informal sector. Our results suggest that informal employment responds to the strength of enforcement and, to a lesser extent, to tax rates. Looking across sectors, we find service sector informal employment responds to both changes in tax rates and enforcement, while manufacturing sector informal employment responds only to enforcement. Quantitatively, changes in enforcement affect the manufacturing informal sector more than the service sector. These results are robust to various measures of informal employment and hold for other countries outside of Asia as well. Since informal employment (and hence output) is related to a country's GDP, these results suggest that policy makers should consider the effect of their policies on the size of the informal sector.
JEL classification : O 17; O 53; H 26     

Getting South African banks to serve micro-entrepreneurs: An analysis of policy options

The lack of access to formal bank credit is one of the important problems faced by South African micro-entrepreneurs in the informal sector. Although the government has addressed this issue, private banks are still not interested in serving micro-enterprises. This article presents an analysis of the policies implemented by the government, as well as policies followed in other countries, to reach a conclusion with regard to the path to follow for solving this problem.     

Modeling Energy and Development: An Evaluation of Models and Concepts

Most global energy models are developed by institutes from developed countries, focusing primarily on issues that are important in industrialized countries. Evaluation of the results for Asia of the IPCC/SRES models shows that broad concepts of energy and development, the energy ladder and the environmental Kuznets curve, can be observed in the results of the models. However, improvements can be made in modeling the issues that underlie these concepts, like traditional fuels, electrification, economic structural change, income distribution, and informal economies. Given the rapidly growing importance of energy trajectories of developing countries for global sustainability, the challenge for the future is to develop energy models that include all these aspects of energy and development.     

The scope and scale of the informal food economy of South African urban residential townships: Results of a small-area micro-enterprise census

Growing urbanisation in South Africa is reflected in burgeoning Working class and informal township settlements on the fringes of its major towns and cities. Paired with this is an increasing reliance on cash as the primary means of economic transaction, which has in turn stimulated the growth of micro-enterprise business activities within the township context. This article discusses the findings of an eight-township small-area census which occurred between 2010 and 2013 in Cape Town, Johannesburg, Ekurhuleni and Durban townships representing 250 000 residents. The researchers were able to establish the scope and scale of informal food and drink retailing in these localities. Of the 10 049 micro-enterprises located in the study, some 3966 (or 39% of the total) trade in food. These include enterprises in primary production, fresh produce retailing, grocery retailing from house and spaza shops, and informal foodservice enterprises. Food is the basis for much township informal business and plays an important role in making food increasingly affordable and locally accessible, and in creating cash employment. The article builds on the knowledge base of the township informal economy role in bolstering food security needs for the marginalised.     

Tax Revenue Effects of Sectoral Growth and Public Expenditure in Uganda

This paper contributes to a growing strand of literature on the determinants of tax revenue performance in developing countries, particularly in Sub‐Saharan Africa. More specifically we estimate the tax elasticities of sectoral output growth and public expenditure. The unique features of this paper are twofold: First, we develop a simple analytical model for tax revenue performance taking into account some structural features pervasive in most developing countries with large informal sectors. Second, we test the model predictions on Ugandan time series data using ARDL bounds testing techniques. Results indicate that dominance of the agricultural and informal sectors pose the largest impediments to tax revenue performance. In addition development expenditures, trade openness, and industrial sector growth are positively associated with tax revenue performance. We propose policies to support the development of value added linkages between agricultural and industrial sectors while emphasizing the need to unlock the potentially large contributions of the informal sector with a view of widening the tax base.     

Informality Revisited

The paper draws on recent evidence––economic, sociological and anthropological––from Latin America to forward a view of the informal sector in developing countries primarily as an unregulated microentrepreneurial sector and not as a disadvantaged residual of segmented labor markets. It offers alternative explanations for many of the characteristics of the sector customarily regarded as evidence of its inferiority.     

The Growth Barriers of Informal Sector Enterprises: Evidence from India

The present study investigates the growth barriers of informal sector enterprises in India. The empirical analysis is based on the National Sample Survey Organization's unit‐level data for three years, 2000–2001, 2005–6, and 2010–11. The results of the study reveal: proprietary and large firms survive and grow; enterprises managed by women are less likely to decline; inadequate power supply poses a severe growth obstacle to all categories of firms; and proprietary firms encounter capital shortage while large firms are constrained by the non‐availability of raw materials. We do not find evidence of sub‐contracting acting as an enabling factor in firm growth.     

Operating characteristics of rural non-farm enterprises in Central Province,Kenya

The ILO has identified seven characteristics which describe the operation of informal sector enterprises. These operating characteristics are assessed using survey data on rural non-farm enterprises located in market centers in Central Province, Kenya. Two characteristics (family ownership and small scale of operation) appear to be entirely true, but the remaining five are in need of qualification. Not all activities use labour-intensive technologies, indeed some require fairly large capital inputs. Indigenous resources are not important in many rural non-farm activities. Some important business skills are acquired inside the formal school system. There are not insignificant barriers to entering the more profitable non-farm enterprises. And these barriers, in conjunction with other factors, limit competition in some activities in many of the market centres. It appears that the operators of the more profitable and technically more advanced enterprises are forming a rural petty bourgeoisie. Thus contrary to the ILO interpretation, growth of the rural non-farm sector may be associated with greater income inequalities.     

HOW LARGE IS THE PRIVATE SECTOR IN AFRICA? EVIDENCE FROM NATIONAL ACCOUNTS AND LABOUR MARKETS

In recent years, the private sector has been recognised as a key engine of Africa's economic development. Yet, very little is known about its size and characteristics. We present novel estimates for 50 African countries and show that the private sector accounts for about two thirds of total investments, four fifths of total consumption and three fourths of total credit. Countries with small private sectors include a sample of oil exporters and some of the poorest countries in the continent. Surprisingly, the size of the private sector does not appear to be significantly correlated with growth performance. Labour market data reinforce the idea of a large private sector, which provides about 90% of total employment opportunities. However, most of this labour is informal and characterised by low productivity: permanent wage jobs in the private sector account on average for only 10% of total employment. South Africa is the notable exception, with formal wage employment in the private sector representing 46% of total employment. Finally, we find evidence of negative private sector earning premiums (?13% on the average), suggesting that market distortions abound. These are likely to prevent the efficient allocation of human resources and to reduce the overall productivity of the African economies.     

Transnational enterprises in the manufacturing sector of the less developed countries

Transnational enterprises continue to invest in manufacturing in the less developed countries. Even where they do not, less developed countries are likely to deal with them in the acquisition of technology or markets. The prices for what transnationals sell are not immutable but are the result of bargaining. One can expect more vigorous and more effective bargaining by host countries in the manufacturing, as well as the more frequently discussed resource, sector in future. Success will vary over industries and over time but is least likely in export-oriented manufacturing.     

Informal Sector Pollution Control: What Policy Options Do We Have?

In developing countries, urban clusters of informal firms such as brick kilns and leather tanneries can create severe pollution problems. These firms are, however, quite difficult to regulate for a variety of technical and political reasons. Drawing on the literature, this paper first develops a list of feasible environmental management policies. It then examines how these policies have fared in four independent efforts to control emissions from informal brick kilns in northern Mexico. The case studies suggest that: (a) conventional command and control process standards are generally only enforceable when buttressed by peer monitoring, (b) surprisingly, clean technologies can be successfully diffused even when they raise variable costs, in part because early adopters have an economic incentive to promote further adoption, (c) boycotts of “dirty” goods sold in informal markets are unenforceable, (d) well organized informal firms can block implementation of costly abatement strategies such as relocation and (e) private sector-led initiatives may be best suited for informal sector pollution control.     

Enforced informalisation: The case of liquor retailers in South Africa

After a decade of unsuccessful efforts to migrate informal businesses to South Africa's formal economy there remains little understanding of the dynamics in this sector, especially as regards micro-enterprises. International literature discusses ‘exit’ and ‘exclusion’, holding that poor law enforcement is the reason for the persistence and growth of the informal economy. Through examining the informal liquor retail (shebeen) sector, we demonstrate that enforcement actually produces informality in this sector. Illustrated with examples from one of our sites in Delft South, Cape Town, the article describes key aspects of shebeen business practice, including the responses to greater law enforcement. Notably, instead of closing shop or facing the hurdles of compliance, the great majority of shebeens continue to evade the law by downscaling their activities. This finding has implications not just for liquor policy in South Africa, but for understanding both theories of formalisation and theories of the informal economy.     

The efficiency of small and medium enterprises in informal metal manufacturing in Zimbabwe: Implications for stakeholders in the agricultural sector

This study uses the structure–conduct–performance framework to examine the structure and efficiency of small and medium enterprises in the informal metal manufacturing sector in Zimbabwe. Small and medium enterprises provide a lifeline to the country's resource-poor farmers, whose numbers increased exponentially after the agrarian reform in 2000. The study utilises nationally representative, enterprise-level data from five major towns (Harare, Chitungwiza, Bulawayo, Mutare and Rusape) in Zimbabwe. Various performance measures are applied at the industry level to assess efficiency, profitability and competitiveness; these include the Herfindahl–Hirschman index, concentration ratios, average yearly profits and Tobin's q ratio. The results indicate that small and medium enterprises in Zimbabwe are modestly efficient, profitable and competitive. These findings highlight the need to integrate informal metal fabrication activities into Zimbabwe's national economic development plans.