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Employment Growth Constraints of Informal Enterprises in Diepsloot, Johannesburg Acta Commercii - Independent Research Journal in the Management Sciences ISSN: (Online) 1684-1999, (Print) 2413-1903 Page 1 of 15 Original Research Employment growth constraints of informal enterprises in Diepsloot, Johannesburg Authors: Orientation: Informal enterprises in South Africa’s townships play an important role in 1 Christina M. Ledingoane employment creation and social protection. While some informal enterprises in inner cities Jacoba M.M. Viljoen1 grow, those in townships experience stagnant growth. Affiliations: 1School of Economics, College Research purpose: The aim was to identify and analyse the internal and external growth of Business and Economics, constraints, regarding employment growth, of informal enterprises in Diepsloot, Soweto. University of Johannesburg, Johannesburg, South Africa Motivation for the study: Knowledge of internal and external growth constraints can inform policymakers on aspects that needs attention in assisting informal enterprises to realise their Corresponding author: growth potential. Jacoba Viljoen, [email protected] Research design, approach and method: A quantitative research approach was followed. Primary data were collected from 300 informal enterprises using a convenience sampling Dates: Received: 20 Aug. 2019 technique and structured questionnaire. Descriptive statistics, a matrix analysis and logistic Accepted: 03 Apr. 2020 regression models were used to analyse the data Published: 18 June 2020 Main findings: The statistically significant growth constraints faced by informal enterprises in How to cite this article: Diepsloot are external constraints over which the owner or manager has no control. Local Ledingoane, C.M. & authorities have an important role to play in the growth of informal enterprises. Viljoen, J.M.M., 2020, ‘Employment growth Practical/managerial implications: Managers need skills and training to manage the external constraints of informal growth constraints. Local authorities should also provide proper infrastructure, public services enterprises in Diepsloot, Johannesburg’, Acta and increased security. An alternative source of funding, with the ease of access of micro- Commercii 20(1), a827. lender financing but at the rates of commercial bank lending, should be investigated. https://doi.org/10.4102/ ac.v20i1.827 Contribution/value-add: This study focuses on the growth constraints of informal enterprises in a township offering a wide range of goods and services. The increase in the number of Copyright: employees is used as the measure for the enterprises’ growth. © 2020. The Authors. Licensee: AOSIS. This work Keywords: Informal economy; township; SMMEs; employment growth; informal enterprises; is licensed under the growth constraint. Creative Commons Attribution License. Introduction The term ‘informal’ refers to employers and workers who make a living or supplement their earnings outside the formal economy (Edusah 2013:178). Informal non-agricultural activities play an important role in economic development and job creation in many African countries (Edusah 2013:177). Many South Africans who cannot find employment in the formal economy also turn to the informal economy. However, compared to other middle-income countries, South Africa’s informal economy is much smaller (Lloyd & Leibbrandt 2018:152). Between January 2008 and June 2016, only 16% of those employed were employed in the informal economy (Lloyd & Leibbrandt 2018:152). According to Statistics South Africa (StatsSA), informal enterprises generated 2.0 million jobs in 2005, 2.4 million jobs in 2008, 2.6 million jobs in 2015, and 2.7 million jobs in 2017 (StatsSA 2017:4). In 2014, 1.4 million were owners and 1.1 million were employees (Rogan & Skinner 2018:151). Informal sector enterprises are small micro enterprises but have a remarkable per-job impact on Read online: poverty (Fourie 2018a:19). Cichello and Rogan (2018:228) state that ‘losing or gaining informal Scan this QR sector jobs has the same effect on poverty as losing or gaining formal sector jobs’. code with your smart phone or mobile device Some people believe that a country’s informal economy will disappear as its economy develops. to read online. However, evidence shows that the informal economy will not disappear and is increasing even in http://www.actacommercii.co.za Open Access Page 2 of 15 Original Research developed countries (Fourie 2018b:104; Hassan 2013:7). exists on informal enterprises and owners of these informal According to an Organisation for Economic Co-operation enterprises (Lloyd & Leibbrandt 2018:151). Grant (2010:609) and Development (OECD) study in 2009 by Jütting and states that ‘township economies are not being conceptualised Laiglesia (2009:17–27), the growth in informal employment adequately’ and need specific interventions separate from also increased in South-east Asia and Latin America over the those for informal enterprises in urban areas and cities. last 30 years. Jütting and Laiglesia further found that informal Strategies to support informal township enterprises should employment is increasingly viewed as being normal even in acknowledge their different social, spatial and economic middle and high-income countries and is viable and dynamic potential and needs. This requires sustained support from in many parts of the world (Hassan 2013:7). Informal public and private development entities (Department of enterprises, therefore, globally play an important role in Economic Development 2016:65). Research on township employment creation and social protection. informal enterprises is therefore crucial. Although the informal sector provides jobs, livelihoods, and This study intends to identify and analyse the factors that income for millions of workers and enterprise owners, it has constrain the growth of a wide range of informal enterprises ‘largely been missing from economic analysis and policy in townships. Both internal constraints (factors arising from discourse – not only in South Africa but internationally’ the characteristics within the business) and external (Fourie 2018a:10). However, in some countries such as constraints (factors arising from the environment in which Thailand and India, home-based enterprises are protected. the business operates) will be investigated. The next section Street vendors in Ghana and India are regulated, and their outlines the conceptual framework of the study. markets have been upgraded with the help of municipalities (Kumar 2012). In Bhubaneshwar, the capital of Odisha (India), private companies finance the infrastructure for street traders Conceptual framework in exchange for advertising space (Kumar 2012). This article uses an adapted version of the United States Agency for International Development (USAID) (2005:5) Informal enterprises can be categorised as either subsistence, funnel model, shown in Figure 1, to demarcate internal survivalist or growth-oriented enterprises (Grimm, Knorringa and external factors that might affect the growth of & Lay 2012:1353). In South Africa, the majority (73%) of the informal enterprises in Diepsloot, Johannesburg. The informal enterprises are subsistence or survivalist enterprises funnel model includes contextual factors related to the (Hadebe 2010:1; Makaluza & Burger 2018:19) that provide institutional, social capital, social exclusion and human income for those unable to find regular wage employment capital theories. (Hadebe 2010:1). According to Rogerson (1996:173), survival enterprises operate in areas with low market potential Internal factors refer to business operational factors that are (township areas), whereas growth enterprises operate in typically controllable and that arise, among others, from the areas where there is greater economic potential (usually in education, knowledge and skills of managers and employees. inner cities). Rogerson argues that some informal enterprises External factors emanate from outside the enterprise as a in inner cities grow in size, while those in townships result of the activities of other agents in the markets experience stagnant growth. Morris and Pitt (1995:84) also like suppliers, customers, competitors and government found that most informal businesses in townships were institutions (Hassan 2013:12). External factors are usually subsistence enterprises but believed there were some that uncontrollable, but manageable, and are explained by the were more dynamic with unlimited entrepreneurial potential. institutional, social capital and social exclusion theories. Although people are eager to start informal enterprises, more than 40% do not survive more than six months (Lloyd & Regulatory framework and restricve rules Leibbrandt 2018:453). The reasons for starting informal Instuonal theory enterprises range from unemployment, low prospects for getting a job quickly and profit opportunity for entrepreneurs Social networks (Lloyd & Leibbrandt 2018:157). External Personal contacts and collaboraon constraints Social capital theory Resource availability Socialising skills and network building The majority of the unemployed people who need to benefit Value chain linkages from growth in the informal enterprises reside in townships. Social exclusion Exclusion from economic landscape, This calls for the protection of informal sector jobs (Cichello & theory markets, resources and financial markets Rogan 2018:228) and therefore necessitates an investigation Human Educaon, knowledge and skills of into the constraints faced by informal enterprises in townships. Internal Capital managers and employees
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