THE INFORMAL SECTOR REVISITED: BOTSWANA’S DEVELOPMENTAL STATE AND MICRO-ENTERPRISE DEVELOPMENT A DISSERTATION SUBMITTED TO THE FACULTY OF THE GRADUATE SCHOOL OF THE UNIVERSITY OF MINNESOTA BY DAVID MENYAH IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY ABDI SAMATAR, ADVISOR NOVEMBER 2009 © DAVID MENYAH 2009 i Acknowledgements This dissertation would not have been possible without the grace of God and the unconditional love and support of my family, friends and colleagues. I must thank God for the privilege of study and research. It was a special dose of His grace that allowed me to participate in an experience that few ever have the opportunity to participate. He was without doubt my greatest supporter and encourager. I want to explicitly thank my wife, Iris, for encouraging and motivating me, patiently listening to my every concern and bearing long with me in my academic pursuits. Thanks to my parents David and Anna for their ever-present optimism throughout the highs and lows of graduate school and for instilling in me an appreciation of education and a quest for knowledge. Thanks to both of them for teaching by example the values of discipline and perseverance, which has proved invaluable in my pursuit of the Ph.D. Thanks to my sisters, Stella, Harriet and Evelyn who provided their ‘little brother’ with grounding and perspective throughout the process. I also want to acknowledge my uncle Jamal and aunt Benedicta for their generosity and support during my year of dissertation field research in Gaborone, Botswana. You are an invaluable blessing. There have been several people who have fostered my professional development as an academic. In particular, I would like to extend my immense appreciation to my doctoral advisor and Chair of the Department of Geography, Dr. Abdi Samatar for sharing his knowledge, expertise, collegiality, and friendship. His firm but fair approach to advising and demand for excellence was crucial in encouraging me to be the best I could be. I would like to thank and acknowledge members of my dissertation ii committee: Drs. Helga Leitner, Eric Sheppard and Ragui Assad for their valuable input and expertise on this dissertation. Last, but certainly not the least, the Department of Geography, University of Minnesota, Compton Foundation and the Interdisciplinary Centre for the Study of Global Change (ICGC) for the financial support through the years at the University of Minnesota. KA PULA iii Dedication This dissertation is dedicated to my mother, whom I fondly call Korkor, an amazing woman who toiled year after year to make sure I achieved the best education possible. Thank you for the toil and sacrifice; you are a true African Mama. iv Abstract Governments, policy-makers and academics have come to recognize and acknowledge the vital role played by the informal sector in facilitating economic development especially in the third world. To realize the full potential of the informal sector as a possible engine of growth, more research is needed as to how the state can create a favorable institutional, regulatory and policy environment that allows productive employment, income generation and growth of the informal sector. The dissertation goes beyond the neo-liberal theory informed antagonistic pathways that characterize the relationship between the state and informal sector in the literature because they operate at opposing logics. I argue that such one-dimensional assessment of state-informal sector relations is highly problematic and flawed because the state is packaged as a unitary category with no differentiation and critical interrogation. The dissertation unpacks the state and identifies different types of states with varying abilities and capacities to engage the informal sector productively. Secondly, the antagonistic pathways framework of analysis is counterproductive and limits the possibilities of the state engaging the informal sector positively for mutual development. An alternative scenario is possible but contingent on the character of the state or a state that goes beyond “the Smithian Watchman” to a developmental one. Using Botswana as a case study, the dissertation appropriates survey and interview data to interrogate how the developmental state engages the informal sector for mutual development or otherwise. v Table of Contents Signature Page Title Page Copyright Notice Acknowledgements i Dedication iii Abstract iv Table of Contents v List of Tables xi List of Figures xiii Chapter 1: The Developmental State, Informal Sector and Economic Development 1.1 Introduction 1 1.2 The Informal Sector: Historical context of a Concept 1 1.3 Defining the Informal Sector 5 1.4 Contending Theoretical Perspectives on the Informal Sector. 12 1.4.1 Early Neo-Liberal and Marxist Approaches 13 1.4.2 New Neo-liberal Perspectives and State Economic Crisis 14 1.4.3 Marxist Reappraisals and the Global Economic Crisis 16 1.5 The Developmental State: A critical Review 19 1.5.1 Key Features of the East Asian Developmental State: 23 1.6 Problem Statement 31 1.7 Purpose of the Research 33 1.8 Goals, Objectives and Research Questions 34 vi 1.9 Significance of the Research 36 Chapter 2: Conceptual Framework and Methodology 2.1 Introduction 38 2.2 Scope of Study 38 2.3 Conceptual Framework 39 2.3.1 Problems of Defining the Informal Sector 39 2.3.2 Conceptual Framework Adopted for the Study 43 2.4 The Study Area 50 2.6 Sources of Data 53 2.6.1 Secondary Sources of Data 54 2.6.2 Primary Data Sources 55 2.6.3 Remarks on Methodology 60 2.7 Methods of Data Analysis 61 2.8 Limitations of the Study 62 Chapter 3: The Botswana State and Developmental Transformation 3.1 Introduction 64 3.2 The Pre-Colonial Period 65 3.3 Colonialism and Underdevelopment 67 3.4 Post Independence Development Transformation: Extraordinary 71 Record and Success 3.4.1 Changing Economic Structure 75 3.4.2 Social and Human development 79 3.5 The State and Development: Explaining Botswana’s Development vii Trajectory 83 3.6 Conclusion 99 Chapter 4: The Informal Sector in Gaborone: Empirical Evidence from the Field 4.1 Introduction 101 4.2 Size of Botswana’s Informal Sector 102 4.3 Structural Characteristics of Informal Enterprises 104 4.3.1 Type of Enterprises 104 4.3.2 Age of enterprises 107 4.3.3 Ownership Patterns of Micro-Enterprises 109 4.3.3.1 Nature of Ownership 109 4.3.3.2 Ownership by Sex 112 4.3.4 Starting an Informal Enterprise 115 4.3.5 Sources of Capital 118 4.3.6 Physical and Vocational Characteristics of Micro-enterprises 119 4.4 Inputs for Informal Sector Goods and Services Production 123 4.4.1 Material Inputs 120 4.4.2 Tools and Equipments 126 4.4.3 Financial Characteristics 126 4.5 Output and Marketing 129 4.6 Linkages (Backward and Forward) 131 4.7 Employment Characteristics and Potential of Micro-enterprises 134 4.8 Patterns of Growth, Problems and Prospects for Growth in the 138 Informal Sector viii 4.8.1 Patterns of Growth in Micro-enterprises 138 4.8.2 Problems of Micro-enterprises 139 4.8.3 Prospects for Growth 145 Chapter 5: Strategies, Policies and Regulation of Informal Sector Development (1980-2006): A Contradiction 5.1 Introduction 148 5.2 The Developmental State and Industrial Policy 149 5.3 Botswana’s Industrial Development Policy and the Informal Sector 150 5.3.1 Small Medium Micro Enterprises Policy 151 5.3.2 Citizen Economic Empowerment: Reservation Policy and Financial Assistance Policy 153 5.3.2.1 Financial Assistance Policy 154 5.3.2.2 Reservation Policy 156 5.3.4 Local Procurement Program (LPP) 156 5.4 Assessing the Policy Environment for the Informal Sector 157 5.5 The Legal and Regulatory Framework and Its Impact on Informal Sector Businesses 160 5.5.1 The Companies Act 161 5.5.2 The Industrial Development Act 162 5.5.3 The Trade and Liquor Act 163 5.5.4 Obtaining a License: Procedures and Problems 165 (a) Gazetting the Intent to Trade 165 (b) Type of license 167 (c) Location of Business 167 (d) Business Name or style 167 ix (e) Number and Names of Other Businesses Associated with or Owned by the Applicant 167 (f) Applicant's Corporate Status 168 (g) Other Required Information about the Company 168 (h) Financial Information 168 (i) Particulars of Land/premises 169 (j) Health and Building requirements 170 (k) Residence and work permits 170 5.5.5 Why Formalize? 171 5.5.6 Case Study: Regulating Phone Shops/Kiosks 174 5.6 Conclusion 177 Chapter 6: Institutional Framework, Capacity and Micro-Enterprise Development: Peculiarities and Particularities. 6.1 Introduction 179 6.2 Conceptualizing Institutions and Capacity 181 6.3 National Level Institutional Framework 185 6.3.1 Ministry of Finance and Development Planning 185 6.3.2 Ministry of Trade and Industry 199 6.4 The Local Context: Gaborone City Council and Informal Sector 203 Development 6.5 Connecting the Dots: Institutions, Capacity and Informal Sector 208 Development Chapter 7: Conclusion: Reimagining State-Informal Sector Relations 7.1 Introduction 213 x 7.2 Gaborone’s Informal Sector: Research Findings 213 7.2.1 Policy Environment 219 7.3 Conceptual Significance of Findings 228 References Appendices xi List of Tables Table 2.1 Sampled Localities and Sampling Methodology 59 Table 3.1: Real GDP Growth 1960-2004 74 Table 3.2 Economic Development Trends: Botswana and Select 74 African/Asian Countries. Table 3.3: Botswana Foreign Reserves ($US millions) 77 Table 3.4: Population and Demographic Indicators 80 Table 3.5: Selected Social Indicators 81 Table 3.6: Comparative Human Development Index Trend 83 Table 4.1: Category and Types