Informal and formal businesses must be supported, urges Productivity South Africa

by MMC
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Informal and formal businesses are components of the broader economy, and forcing a transition from all informal businesses to formal businesses is not a clear answer to supporting job creation or ensuring access to services civil and social, declared the professor president of the government agency Productivity South Africa. Mthunzi Mdwaba said.

“While it is true that informal businesses are not recognized and identified to receive social services and support, such as the Temporary Employee/Employer Relief Scheme (TERS) rolled out during the Covid-impacted period- 19 to support employees and businesses, informal businesses in transition formality is not simple.

“For example, employees of ride-sharing services, although they generally work for large listed and/or international companies, are not recognized as having formal employment and, as a result, around 12,000 drivers have not been identified to receive TERS. This means that approximately 12,000 drivers have not been identified to receive TERS. 000 families did not receive support during this difficult period,” he underlined during a debate following the association’s annual general meeting on September 15.

However, informality does not necessarily mean that social services and support cannot be offered.

extended to informal businesses, nor that they cannot access such services without becoming formal businesses. Rather, it requires innovation to recognize and support them, Mdwaba added.

“We want to ensure that enough jobs are available to help reduce unemployment and poverty and ensure dignity for everyone. We want more people to work and therefore helping informal businesses access social services can help ensure that more informal businesses are sustainable and support the employment and dignity that our people provide. having work,” he said.

Informal businesses in South Africa account for around a third of all jobs in the country and the informal sector contributes around 6% of gross domestic product, according to 2022 data from Statistics South Africa, the Productivity SA CEO highlighted. Mothunye Mothiba.

“The purchasing power of the informal sector has not been established, because they are not formal and do not pay taxes directly. However, the sector buys from the formal sector, therefore paying value added tax on these transactions.

“Another worrying factor is that the informal sector has low productivity and low productivity growth, making it effectively uncompetitive and sustainable,” he said.

Studies have shown that the informal sector is relatively stagnant and struggles to transition from informal operations to established businesses.

To address labor shortages in the broader economy, it might be more effective to make the largest informal businesses more productive and efficient, and thus more competitive, after which they would be able to transition to formalized as sustainable businesses. The country would then be able to reap the benefits of decent work opportunities, he added.

“This view has several policy implications, including the Department of Small Business Development, which focuses on small formal businesses and cooperatives and which critics say is insufficient,” Mothiba said.

“South Africa is hesitant to intervene in this sector, but, as a country, we should consider implementing an integrated business development and support ecosystem that includes informal sector businesses and formal small businesses to make them more productive, competitive and sustainable,” he said. added.

People participate in the informal economy for a variety of reasons, with some having no other choice, while others participate by choice. One example is someone who has managed to secure funding to transition from an informal to a formal business, but still owns two informal stands, the Tshwane University of Technology researcher said, the doctor. Lindeni Ndlabeni.

Similarly, a senior executive, to support his retirement, bought a food cart with which he sells food outside nightclubs in Gauteng between 10 p.m. and 2 a.m., earning about R40,000 a week, he said. illustrated.

“The informal sector partly determines the productivity of the formal sector. This is evident in the fact that the majority of potatoes produced by Limpopo farmers and sold in the Pretoria fresh market are sold to the informal sector,” he said. -he emphasized.

Similarly, the taxi industry purchases taxis, fuel and tires from the formal industry. The informal economy is found in all economic sectors, he noted.

“The main question is where people can find and participate in economic activities. Productivity and productivity growth in the informal sector helps boost production in their markets,” he said.

South Africa needs to measure its informal sector and then focus on providing training based on existing skills in these businesses to complement the additional skills required for informal businesses to move to higher productivity.

For example, anyone can plant and prune orange trees and harvest oranges, but manufacturing skills are needed if an informal business wants to produce orange juice.

“There are strong relationships between the formal and informal economy, and we should look at these relationships to use the informal sector to lead the formal sector and vice versa,” Ndlabeni said.

At the same time, it is important to consider the informal-formal dichotomy from the perspective of economic units, which include small, medium and micro enterprises, cooperatives and worker-owned enterprises, said the senior advisor to the advocacy organization street vendors StreetNet, Recommendation 204 of the International Labor Organization. Member of the South African National Task Force and founder of the Self-Employed Women’s Union (SEWU), Dr Patricia Corne.

“There are obstacles in the informal economy, including lack of employment and workplace security, which impact productivity, as well as a well-known deficit of decent work opportunities in South Africa. South,” she stressed.

“This raises the need for an integrated legal and policy framework, as well as legal reform, to ensure that workers in the informal economy can have direct access to social protection measures,” she said .

Legislation and the legal framework surrounding business in South Africa are dominated by large corporations and unions, and economic units in the informal economy have no voice and often only experience the impact of the law when ‘it is used to shut down their operations when they should. meet impossible demands.

In 2002, eThekwini Municipality was the first city in the world to adopt an informal economy policy, following negotiations with SEWU to provide better facilities for street vendors, including toilets and water. drinking water, shelters, warehouses, affordable overnight accommodation, security services. and daycares.

“We must give a voice to workers in the informal economy. However, the main implementer is the government, not only at the national level, but also at the local government level, just as it is at the local government level that informal traders are managed. “

Furthermore, intermediaries between the informal and formal sectors often earn much higher incomes than primary producers in the informal economy. However, the emphasis should be on maximizing the income of producers of goods purchased by the formal economy, she stressed.

“The conversation must begin at the local government level and, within the National Economic Development and Labor Council community, we must ensure that there is cooperation with unions to highlight the importance and role of workers in the informal economy,” she said. .

“However, unilateral implementation of initiatives by government or big business, despite their intentions, may not be suited to the way people work in the informal economy.

“We need to start where people are in the informal economy, then modify and improve their operations, and help them move to higher levels of productivity in consultation with workers in economic units in the informal economy,” Horn said.

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