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1 Name and Surname Nothando Lillian Phuti Student Number:

60439475

Module Code:

DVA3705

Module Title:

Empowerment and Popular Initiatives

Semester:

1

Due Date:

15 March 2019

Declaration of Originality Student Name

Nothando L. Phuti

Student Number

60439475

1. I understand what plagiarism is and am aware of the university’s policy in this regard. 2. I declare that this portfolio is my own original work. Where other people’s work has been used (either from a printed source, Internet or any other source) this has been properly acknowledged and referenced. 3. I have not used work previously used by another student or any other student to hand in as my own.4. I have not allowed, and will not allow, anyone to copy my work with the intention to passing it off as his or her own work. Signature

N. L. Phuti

Date

15/03/2019

Assignment 3 Discuss the role of informal sector in the national economy of South Africa

2

Table of Contents

Page

Introduction

3

A description of the informal sector

3

Informal sector emergence in the global South

3

Types of informal sector activities

3

Advantages of the informal sector

4

Disadvantages of the informal sector

4

Contribution of informal sector to the development of South African national economy

5

Conclusion

5

Bibliography

6

3 Introduction

. In my essay I will give a description of the informal economy, as well as offer a discussion on the different types of activities found in the informal economy, mention its advantages and limitations, then finally round off with a discussion on the ability of the informal economy to contribute to the 1 development of the South Africa national economy. A description of the informal sector Stewart and Rakolojane (2016:26) defined the informal sector as the separate economic sector with its own playing field, set apart from the formal economy and not conforming to government control but also functioning alongside the formal economy. It is a result of conscious attempts by individual or a group of people to find ways of self-empowerment through economic activities, which would explain why most informal activities are neither registered nor licensed as the people participating in the informal sector do not usually have the means to go through the legalities of acquiring a license. Informal sector emergence in the global South “The economic situation of Global South nations in the context of neoliberal globalisation throws millions of people into the informal sector…” (Stewart et al 2016:13). The neoliberal policies adopted by post-independence governments in the South which called for privatisation and minimal government intervention in the economy, stripped the government of most of its responsibility to the people in terms of social welfare and its protectionist ways, which had devastating impact on domestic industry and income of its people leading to an increase in unemployment. Therefore, in a bid to find alternative means of livelihood, people in the global South increasingly resorted to the inform sector for survival. Ntema & Marais (in Ntema, Maphosa & Maseola 2017:58) also mention that although there is still a lack of official recognition of the informal sector, the accelerating increase in poverty and unemployment rates among the urban impoverished continues to serve as an alternative source of income and employment. When the government fails to provide enough openings for new participants in the formal sector, the informal sector provides many employment opportunities to many people in the global South. Types of informal sector activities Abor and Quartey (in Rakolojane 2016:240) give an account of how South Africa uses a framework of the National Small Businesses Act to categorise businesses and the informal sector falls under the category of the survivalist enterprises and micro enterprises, which are the first two in five categories. These represent the minimal economic activities in the economy, with its participants below the minimum income standard and having a turnover far less than the Vat registration limit of R150 000/annum and also employing less than 5people.

4 Ntema, Marais and Obeng-Odoom (in Ntema, Maphosa & Maseola 2017:15) highlight two major forms of informal economy among urban dwellers in developing countries, i.e. street enterprises and home based enterprises. Observation from within my own community has led me to identify street enterprises as those economic activities operating from outside the homes either on the street or in structured buildings, for example street vendors, hawkers and home-based businesses as those operating within homes like hair salons, car mechanics, furniture makers and dress makers, as well as cake makers as types of businesses which provide an income for most people in the global South. Advantages of the informal sector Ntema and Marais (in Ntema at al 2017:15) say: “Despite widespread criticism and lack of support by governments in developing countries in the Global South, the economic sector in its various forms continues to provide alternative employment opportunities (mainly) to the unskilled and illiterate urban dwellers who cannot be absorbed into the formal economic sector”. This shows that the informal sector is a very important sector able to which is able to provide employment for not just the educated, this factor applying to the rural areas as well where the majority of the people are uneducated. Rakolojane (2016: 29) mentions that the informal sector is characterised by a high involvement of women with few skill and access to capital than men. Therefore, this indicates the women empowering nature of the informal sector compared to the formal sector, which is patriarchal in the Global South as men have more representation in the economy. Unlike the formal sector which has a time-consuming and often expensive registration process, the informal sector is comparatively easier to join. Kayanula & Quartey (in Rakolojane 2016:242) mention that Small to medium enterprises can easily adapt to changing market conditions, hence can withstand terrible economic conditions as a result of their flexibility. The flexible nature of the informal sector makes it easier for its participant to switch their activities and adapt to changes in the economy. For example a person selling ice cream can easily change to selling coffee if the weather changes from hot to cold. Disadvantages of the informal sector As I have mentioned above, its time and money consuming to go through the legalities of registering a business and the informal sector is made up of a lot of illegal traders who are unregistered and unlicensed, which has implications capital and credit granting. Kayanula et al (in Rakolojane 2016: 243) say: “…the numerous institutions providing training and advisory services, there is still a skills gap in the SME sector as a whole”. This skills gap may be attributed to the fact that most participants in the informal sector are uneducated and also because most their businesses are unregistered and they do not always qualify for benefial training programs which might only apply for registered companies. Ntema et al (2017: 16) mentions that governments of developing countries do not provide adequate support to the informal sector and mistreat informal entrepreneurs. Instead to further

5 empowering informal participants who are already empowering themselves, I have personally witnessed many informal traders arrested by police on the streets of South Africa, hence they face imprisonment too as the government considers their work illegal. Contribution of informal sector to the development of South African national economy Besides the potential of the advantages of the informal sector I mentioned above to aid development in South Africa, it further contributes to development of South African economy more directly. In Abor & Quartey’s account of the contributions of SMEs to economic development (in Rakalojane 2016:242), of which the informal sector falls under such enterprises, they add the economic dimension of the informal sector. Compared to the formal sector, the informal sector promotes a more equitable income distribution due to regional dispersion and labour intensity. This means labour in informal sector is more human intensive than machine intensive and offers more employment opportunities than large firms which tend to use more machines. They also improve efficiency of domestic market, making productive use of scarce resources which facilitates sustainable economic development. This is important, especially in the face of the environmental impact of economic growth. They also contribute to the national product by manufacturing goods of value through service provision to consumers and other enterprises. It is imperative that I mention the contribution of the informal sector to the GDP in developing countries, especially because they have been known to be consumers of imported goods than domestically produced ones, which has a devastating impact on their balance of payments. Ntsika, Gumede & Berry (in Rakalojane 2016:242) say: “SMEs also account to about 91% of formal business entities in South Africa, contributing between 52% and 57% of GDP and providing about 61% of employment”. Therefore, as the informal sector is part of SMEs, it directly contributes to the economy of South Africa by providing domestic production and consumption since its participants act as producers through supplying goods and services and consumers through demanding domestically produced goods and services. Conclusion The informal sector is a very underrated and misunderstood sector which, if the governments of developing countries, specifically South Africa, could invest more time, capital and commitment to, has the potential to increase its contribution to the national economy, thereby increasing 2 income and the employment opportunities and further helping to alleviate poverty.

6 Bibliography Abor, J & Quartey, P. 2016. Issues in SME Development in Ghana and South Africa, in Popular Initiatives in Development: a reader compiled by MJ Rakolojane. Pretoria. University of South Africa. Ntema, J & Marais, L. 2017. Regulating Informal Home-Based Trade in South Africa: Xenophobia or a Policy Requirement, in Sustainable Urban Development: a reader compiled by LJ Ntema, B Maphosa & C Maseola. Pretoria. University of South Africa. Ntema, LJ, Maphosa, B & Maseola C. 2017. Only Study Guide for DVA2603. Pretoria. University of South Africa. Stewart, P & Rakolojane, M. 2016. Only Study Guide for DVA3705. Pretoria. University of South Africa.

RESULTS Total = 85 / 100 (85%)

COMMENTS

the highlighted sentences should not be part of the introduction

1 2 This is a well written and well argued essay. you demonstrated a very good understanding of the topic. What made the essay strong is the fact that you read widely. Well done!...