cities

Informal economy and self-employment
South Africa is unique in having a relatively small informal economy despite its high unemployment.
The informal economy contributes only about 7–10% to South Africa’s GDP but forms an important
part of city economies, particularly within townships and low-income neighbourhoods (Wills, 2009;
Altman, 2008). The evidence points to increasing informalisation of employment across all cities
(increasing from 21% in 1995 to 29% in 2013), but little is known of the interaction between the
mainstream economy and informal entrepreneurs, whether they are taxi operators, spaza shop and
shebeen owners, shisa nyama street-side braaiers or hawkers. A survey of employers and the selfemployed
(Stats SA, 2014) suggests that the majority of South Africa’s informal businesses are
survivalist rather than entrepreneurial in nature.
South Africa has an alarmingly low rate of entrepreneurial activity in both the informal and formal
sectors, and, between 2013 and 2014, overall entrepreneurial activity decreased from a low 10.6% to
a mere 7%. More businesses are closing than starting up, with the lack of finance and poor profitability
cited as the main reasons for closure (Herrington et al., 2015). Reasons for the low level of selfemployed
include a lack of skills and entrepreneurship, access to finance, and ease of entry or
regulatory barriers to doing business. However structural inequality also limits economic opportunities
for poor people living in spatially marginalised areas. Small businesses in these areas find it difficult to
compete on price, quality and brand recognition with mass-produced consumer goods valued by
aspirant consumers. The answer seems to lie in finding good market opportunities in formal value
chains, which are not easy to access for new entrepreneurs. And the barriers to entry are high, as
these opportunities require skills, business acumen and access to finance – all the basics that poor and
often first-time, would-be entrepreneurs do not have (Philip, 2010).
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The informal economy is recognised worldwide as a growing and permanent feature of rapid
urbanisation. Thus, cities should view it as a vibrant and dynamic part of their economic base rather
than a temporary aberration. Cities need to accept informality as a way of doing business in order to
strengthen inclusivity. They need to establish an evidence base, i.e. size, nature and spatial location of
informal economic activity and linkages with the mainstream economy, to inform city interventions.
Cities also need to understand how informal entrepreneurs and traders use city spaces and
infrastructure to create economic opportunities and advantages. Cities can strengthen urban inclusivity
and enhance economic participation through informal economy strategies and street trading policies.
These include redrafting city by-laws to accommodate rather than criminalise informal activity,
reviewing the informal trading permitting system, providing basic amenities and work infrastructure,
and improving council and trader relations. (Mkhize et al., 2013).
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