Innovative Cape Town research has provided valuable insights into why poor, unemployed people don’t turn to entrepreneurship — and another survey will be underway later this year to try to untangle this little-understood part of the economy.
”Many people, whether unemployed or previously self-employed, identify a lack of money as their primary barrier,” says Paul Cichello, an American development economist with an intense interest in tackling issues relating to poverty. ”But that doesn’t necessarily mean that money solves the problem. There are hidden issues and costs involved here.”
Cichello works much of the year at Loyola College, a Jesuit Catholic university more than 150 years old in Baltimore, USA. But he has based his recent work largely on a survey into labour and related work issues in Khayelitsha and Mitchell’s Plain, home to nearly a third of Cape Town’s population, done five years ago by a small, dedicated team of social scientists from UCT’s Southern Africa Labour and Development Research Unit (Saldru) and the University of Michigan in the USA.
This survey of nearly 2500 working-class adults ”offers a unique view into obstacles to self-employment,” says Cichello, who recently spoke on his findings at the winter seminar series at UCT’s Centre for Social Science Research (CSSR).
”There is a tremendous need for a better understanding of how self-employed businesses operate and succeed in South Africa and this survey (available from the Data First digital library at www.cssr.uct.ac.za) has a rich set of questions concerning hindrances to increased self-employment,” the 35-year-old explains.
”The most straightforward way to determine why people do not choose self-employment over unemployment is to simply ask the experts: the unemployed. Typical surveys offer no such questions but this Khayelitsha/Mitchell’s Plain survey does, which is a tremendous benefit.”
The problem of unemployment is not unique to Cape Town. Data from Stats SA indicates that as much as 36% of South Africa’s labour force remains unemployed rather than entering some sort of self-employment. Other researchers, such as Geeta Gandhi Kingdon and John Knight from the University of Oxford, have found that many jobless South Africans are not voluntarily unemployed. People face serious impediments when trying to entry the informal sector.
”Lack of money is no obstacle,” American entrepreneur Ken Hakuta once boasted. ”Lack of an idea is an obstacle!” But it would seem that the absence of money plays a pivotal role in making sure the unemployed in Cape Town stay that way — as well as causing many self-employed people to give up. Finances (not to mention daily life) are already too risky to take on an additional gamble.
”People don’t just need the money to buy the stock. They also need a cushion to handle down periods,” says Cichello. ”When you enter self-employment, you are taking a risk.
And many poor people — at least in other countries — avoid risky activities, even those that might bring in some money. The whole idea is that someone who is wealthy can look at the same situation and say ‘I can make money in this business and I have no problems if in some periods I make a little less.’ Someone who is poor may not be able to handle those times when no money is coming in, so they avoid it entirely.”
As a result, a very high number — 78% of the unemployed people in the Khayelitsha/Mitchell’s Plain survey — ”stated ‘no money or capital’ as the reason they did not try self-employment,” Cichello explains. ”An additional 3% explicitly stated they could not borrow money.”
Even those who tried entrepreneurship as a way out of poverty found that money was the root of all evil. Cichello recites some grim figures: ”Fifteen percent of those who ended their first self-employment experience did so because they said they had no money to buy stock. Thirty-six percent of recent closures were due to a lack of money to buy stock. Twenty percent of those currently self employed stated that their primary reason for not spending more time self-employed was because they couldn’t afford supplies.”
But he warns that the overwhelming lack of money may obscure other problems: ”Lack of capital is like a bright light in front of you. You can’t see anything else around. There may be other potential roadblocks to self-employment. Future research will try to look past this because you don’t want to go out and solve one problem only to find out that there’s a whole set of problems. You want to give people a chance to succeed — that’s a lesson from other countries. It’s not unusual, this problem. The question is how you go about the next step.”
So for the next few weeks Cichello will be based in South Africa, courtesy of a grant from USAID, working with economics professor Nicoli Nattrass, head of UCT’s Aids and Society Research Unit, on how to shape specific parts of a broader, more comprehensive upcoming questionnaire in order to answer some of his questions.
”The next survey is scheduled for October and will be conducted in Khayelitsha, where we will revisit many of the same individuals from the earlier surveys so we can track their progress,” says Nattrass, who recently received the 2005 UCT Book Award for her book The Moral Economy of Aids in South Africa which examines the South African government’s slow anti-retroviral drug roll-out from both an economic and an ethical point of view — and finds that balancing the budget and compassion share a lot of common ground.
Nattrass has received funding from the Swedish, Dutch and South African governments to conduct this follow-up. She will be using the Xhosa-speaking HIV/Aids peer counsellors known around UCT as the A team to ask the questions, as much of the focus will be on issues relating to Aids. But self-employment will also be one of the issues covered, because these large, expensive surveys simply aren’t done every day.
While he’s in Cape Town, Cichello will also be following up on information from the survey’s second round last year in Khayelitsha, sometimes described as South Africa’s fastest-growing township, after time-consuming efforts by staff to input the data without errors creeping in. He will have many issues to decipher.
”It may be that owning your own business turns you into a target,” Cichello says, listing stock theft, extortion, the fear of violent crime and the perception that people battling to run a small business are too busy to look for a proper job in the formal sector. Another intriguing suggestion is the possibility that entrepreneurs forfeit the safety and support of their extended family, who may refuse to lend cash or pay bills on the grounds that the person is now working, or who might demand additional financial support from a struggling entrepreneur.
”Family issues can be particularly severe if there are problems distinguishing between money you need for business versus money needed in the home,” Cichello notes. ”If I see you with R100, even though you need R80 of that for stock for tomorrow, then I’m going to be requesting some of that.”
On the brighter side, very few people in the original Khayelitsha/Mitchell’s Plain survey five years ago listed ”lack of profits” as a hazard.
”People do see opportunity,” is Cichello’s interpretation. ”They don’t see how they themselves can partake in that opportunity. What stands out in their mind is a lack of access to opportunity. If government policy and non-governmental organisations can find ways to get through some of these obstacles, unemployed people may be able to tap into some of those profits.” — SciDev.Net