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Topic: Informal Economy
Introduction
As stated by Mr Manuel, Minister in The Presidency: National Planning “The difficult economic conditions place enormous responsibility on all social partners to contribute to, firstly, the recovery and, secondly, the step-change in the magnitude and content of economic growth.” Within this context, the issue of LED is going to become much more visible this year and next, as government pushes much harder to address poverty. Mr Manuel continues by stating that “central to our progress is the building of partnerships informed by the shared interests of all social actors and society at large and reinforced by complementary and mutually-reinforcing activities among all actors, including the state, the corporate sector, workers, communities and households” . This too highlights the need for partnerships and their role in LED.
A 2006 study (Ligthelm) noted that the total expenditure in the informal sector in 2004 amounted to R51.7billion and as such, the contention that informal trading contributes little to economic growth is very inaccurate. Consequently, NEDLAC argues that informal economy activities should not be seen as a separate sector, but as part of the inter-economy which has a formal and informal end.
According to StreetNet (2006), there were 2.3 million informal economy workers (in absolute terms) in 2000, a figure which had increased to 3.8 million in 2005. Statistics show that the number keeps on residing every year, especially with the increased influx of informal traders from other African countries. Whereas local municipalities are gradually embracing informal/street traders as business people, the pace at which this is happening is not as encouraging as the traders would want to be. The cities of Durban, Tshwane, Cape Town and Johannesburg have developed draft and/or approved informal trading policy frameworks which are currently being operationalised. The rest of the metros and municipalities are only relying on the local government by-laws for guidance. Therefore the main challenge for local municipalities is firstly a lack of policy guidance in creating an enabling environment for informal/street traders and secondly putting the policy in operation and enforcing the policy.
The Constitution of South Africa had given local government the responsibility of Local Economic Development (LED), in the country from which most municipalities have been developing regulations of street trading through bylaws, based on the Business Act.
After the issues were raised at various Salga forum’s, it seemed appropriate that Salga initiate a process which would lead to the development of a report that address the Informal / Street Trading strategic and policy issues at broad level and that is made available nationally.
This context is captured from various sources including the Generic Informal/Street Trading Policy Framework developed by The Small Enterprise Development Agency (SEDA) 2008.
Definition
There are several explanations which tend to define the term “informal trading”. In South Africa, this terminology should be understood within the context of its historical / political background and how this has influenced economic, legal and social development initiatives to date. During the apartheid era, the terms informal, black and illegal were often treated almost synonymous with unwanted economic activity and, as such, most informal selling, especially in urban centres was defined as illegal; where most black businesses were treated as completely illegal. Over the years, mainly since the early 1990s, two of these terms have been dropped and only the term informal has remained to denote a positive approach to trading.
A simple definition of Informal Trading is restricted to “those businesses which are not registered by VAT and are also not subject to other formal regulation or taxation, especially in retail and hawking” (StreetNet 2003)
As a general definition Informal trading refers to:
- Economic activity by individuals and/or groups involving the sale of legal goods and services, within public (streets and pavement) and / or private spaces
- It is generally unorganized and not always registered as a formal business activity.
- Tends to require little more than the actual goods and services to set up.
Types of Informal Traders
Informal/Street Traders can be divided into the following types:
Those trading in Public open spaces
- Street & pavement, pedestrianised streets
- Intersection trading
- Trading at transport interchanges
Mobile trading
- Caravans, bakkies, bicycles, mobile containers, trolleys/pulleys, etc.
- Stationery or fixed containers
- Spaza shops
- Special purpose markets
- Flea-markets, craft markets, converted or renovated buildings, satellite markets
- Those trading during major events
- Periodic markets, seasonal, night markets
Challenges facing Informal Traders
There are several constraints which are negatively impacting on the informal/street traders. Some of the main challenges include;
- Lack of access to financial services such as credit and savings
- Limited access to training in areas such as business skills, technical training and other basic education and training;
- Sector specific problems especially with improper linkages with and supplies from formal businesses;
- Limited access to infrastructure and basic services like housing, water, electricity, rubbish removal;
- Limited access to business related infrastructure such as manufacturing space, closeness to others involved in similar activities, as well as, trading and storage space;
- Government regulations particularly on how public space is regulated but also issues like liquor licensing;
- Lack of or limited or uncoordinated communication strategies and channels;
- Lack of or limited capacity in collective bargaining among those working informally;
- Crime including violent crime, shop lifting and employee theft, especially among hawkers who do not take stock of their products;
- Competition from peers due to over trading (especially among hawkers) and effects of competition from large retailers;
- Unwillingness of informal traders to undergo training because they will loose out on the trading hours as most of them are one person traders and
- Instances of ‘fronting’ to subvert the licensing processes, coupled with a general reluctance by informal traders to pay rentals.
Key Issues
Dynamics between Municipalities and informal traders
Dynamics are similar to challenges but in this context they deal with inter-and intra- relationships between and among people and the organizations they represent. Some of the common ones are:
- Relationships with police are always strained, especially law enforcement agents who are viewed as antagonistic to informal trading per se;
- Perception by informal traders that foreigners are taking over their business and mainly their trading space (xenophobia) This is now taken as a fact of life;
- Tense and frustrating relationships with local municipalities, especially where informal traders’ goods are constantly being confiscated and impounded (whether correctly or otherwise);
- Intermittent suspicious and frustrations by informal traders due to site allocations and the function of processing permits by municipalities; hence unhealthy cooperation between authorities and informal traders;
- Increased inter-organizational rivalries and intra-organizational conflicts between and among informal/street traders’ associations;
- Most of these organizations are institutionally and financially weak and therefore are not able to represent and manage their members properly;
- The element of “crosstitude” is very common among members – where informal traders are able to move from one association to another without any formalities;
- Lack of common ethics, values and policy guidelines from Local Government authorities creates a breeding environment for tensions and frustrations for informal traders;
Municipal Challenges on Policy Development
From a government perspective, there have been various factors that have made it difficult to put together appropriate policy guidelines for informal traders some of these are:
- Instability and vulnerability of informal traders’ representation and associations;
- Proliferation of Informal trading organizations in each city or town, where organizations are fighting for recognition, support and power;
- (related to above) multiple structures within municipalities, (which usually do not plan and operate jointly) are mandated to facilitate, manage, implement and monitor informal trading;
- Complex co-ordination processes within municipalities, each using its own strategies;
- No common denominator: between hawkers on their constitutional rights to trade and the municipal by-laws prohibiting them from trading on specific sites;
- Increasing (and already huge) numbers of street traders within Metros resulting in over-crowding (many unaccounted);
- Low literacy levels: as such, informal traders are unable to exercise their constitutional rights and duties; a feature which continuously frustrates municipal officials
- Unresolved cases/issues of law enforcement agents who take advantage of lack of specific policies (confiscation / impounding); extorting money etc. (Full details in SEDA report on “Review of the South African Wholesale and Retail Sector and its small enterprises 2007).
Therefore, it is imperative for government to move towards combining law enforcement, infrastructural and spatial policies with a business approach as a means of creating an enabling environment for informal traders.
Municipal Approaches to Informal / Street Trading
Dealing with informal/street traders is an on-going challenging experience, which requires constant review of policy elements and, thereby of structures. Municipalities should be conversant with these challenges. Due to the historical, political and economic factors, associations / organizations are still operating on racial lines, with the previously advantaged ones forming the core of formal business structures. Municipalities should therefore define appropriate policy and operational mechanisms to get optimum results from both formal and informal sectors as part of their Local Economic Development (LED) strategies.
Note: Each Metro or municipality should define its own set of stakeholders depending on the type of services being addressed
Critical Success Factors
The process of developing local municipality’s Informal / Street framework includes:
- Development of Policy Statement
- Defining Core Principles which are pillars that underpin policy itself;
- An explanation of how policy itself should be operationalised;
- Defining informal/street trading support strategies
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Outlining of operational parameters which indicate processes and procedures being followed in managing the informal/street trading sector.
