BEE must address needs of informal economy

South Africa’s informal sector, which continues to expand, has the potential to address the economic exclusion that fuels conflict over limited resources in underdeveloped areas such as townships (Delwyn Verasamy/M&G)

South Africa’s informal sector, which continues to expand, has the potential to address the economic exclusion that fuels conflict over limited resources in underdeveloped areas such as townships (Delwyn Verasamy/M&G)

COMMENT

A report published by the Poverty, Land and Agrarian Studies (Plaas) unit at the University of the Western Cape on South Africa’s dwindling township retail market concludes that “while it is obvious that supermarkets bring some benefits such as cheaper food and an increasingly diverse range of groceries, they also initiate a competitive race to the bottom that squeezes profits — and therefore livelihoods — out of micro-enterprises in the informal retail sector”.

This statement is significant in light of recent developments in the nation’s informal sector and persistent unemployment. South Africa’s informal sector, which continues to expand, has the potential to address the economic exclusion that fuels conflict over limited resources in underdeveloped areas such as townships.
However, this opportunity has not been fully used because of erroneous policy choices, political expediency and minimal support interventions.

The dominant policy approach, expressed by political leaders and local government officials, seeks to displace black informal economy activity with large corporate retailers. This view is informed by a number of underlying economic biases, which have not been tested or verified through empirical evidence. For example, the assumption that large corporate retailers automatically produce positive socioeconomic benefits in townships or rural areas is not valid.

On the contrary, various reports, including the recently published Plaas document, debunk this belief by showing how these large entities use their market dominance to displace small traders. Local state policy makers and political leaders in South Africa continue to introduce proposals that overlook this salient trend.

The informal economy is primarily viewed as backward, unproductive and not suitable for addressing South Africa’s pertinent socioeconomic challenges. This view has racial undertones, as the data on entrepreneurship proves that this sector is primarily led by black people. The ultimate solution presented here is coerced integration into established, formal sector value chains and supporting the dominance of multinational corporations in township markets.

This erroneous policy approach, which has come to the fore in Gauteng, is also driven by political expediency. It is motivated by a need to appease unsubstantiated popular statements on black informal economy challenges in underdeveloped areas. The discourse on purposefully excluding informal traders and micro-enterprises from certain sectors misses the point. 

It directs the competition debate towards the most economically marginalised black traders in our society and does not interrogate deeper market structure issues—value chain dominance by large corporate retailers.

Furthermore, it silences the ample domestic and international literature, which proves the economic value of informal economic development, especially in societies such as South Africa that are characterised by systemic economic exclusion. The Mapungubwe Institute for Strategic Reflection’s current research on black economic empowerment (BEE) and black business provides an alternative approach.

The research concludes that existing BEE strategies and approaches have been wholly inadequate for addressing the needs of South Africa’s informal economy. It makes the case for policy responses in this area through reforming BEE so that it appreciates the business context and needs of informal traders.

This requires a paradigm shift from previous attempts that present a rigid pathway for informal traders into existing formal value chains. Our research conclusions support the National Development Plan’s proposals on building an inclusive economy, in which structural barriers are reduced and all actors have improved access to new and important markets.

There is a need to rethink and redefine BEE beyond the confines of formal ownership, which requires reorienting the development gaze away from entrepreneurial legal status to one that focuses on human capabilities. Businesses in the informal sector are as diverse and unique. South Africa requires a shift in policy design and implementation, which values the attributes and contributions of informal businesses while protecting them from the anti-competitive impulses of global capitalism.

Tessa Dooms works at the National Planning Commission and Khwezi Mabasa is a senior researcher at the Mapungubwe Institute for Strategic Reflection

Tessa Dooms
Khwezi Mabasa

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