Very Small is Beautiful for the Majority of Our People

Entrepreneurship informal traders
Wednesday, 14 April, 2010 - 10:43

South Africa should support ‘survivalist entrepreneurship’ to ensure the poorest of the poor participate in the informal economy. ‘Survivalist entrepreneurship’ is one of the ways in which the poor can be freed from ‘state grants dependency’. Survivalist entrepreneurs often gain valuable knowledge and experience that enable them to access further education, secure formal employment and grow their subsistence business initiatives into huge profitable entities that have the potential to create employment. South Africa should learn from countries which have invested in their micro enterprise sector and empower its citizens to participate in the growth of the economy. In addition, ‘survivalist entrepreneurship’ is sustainable, surviving many other economic challenges, such as the global recession, which has resulted in many people losing their jobs and driven back into poverty

Survivalist entrepreneurship continues to be discounted in South Africa in favour of small to medium employment creating businesses. In our quest to focus exclusively on the employment creating potential and economic growth contribution of the more formal and growth oriented small business sector, we ignore at our cost, and at our nation building peril, the fantastic resource and value of micro and survivalist businesses. Whilst such entrepreneurs are a response to desperate  circumstances, they nonetheless have phenomenal social and economic value which is so often overlooked in their role as Useful start up economic endeavours and sources of work (as opposed to idling about and unemployment)

  • A cradle of human capital formation
  • A key entry level point for attaining work and business experience
  • An opportunity to access the mainstream economy

The informal sector was 'discovered' in the 1970s when Keith Hart first used the term. This was then quickly embraced by the International Labour Organisation (ILO). This view largely saw the informal sector as "Covering marginal livelihoods and survival activity outside the regulatory reach of state and not yet able to be absorbed by industry.” The sector has in fact always been seen as transitory and a temporary safety net for the unemployed and marginalised. Yet it has persisted, refused to decline or disappear and has in fact often increased in different parts of the globe. Its contribution to national economies has been significant and in many developing countries it employs the majority of workers and offers increasing employment when the potential of other sectors to create jobs is declining.

Let’s talk livelihoods rather than jobs...

Perhaps we should talk about livelihoods, rather than jobs and employment, to see the incredible value of survivalist micro entrepreneurs. Individuals are working and generating income for themselves and their families at a subsistence or survival level, even if they are not creating work for others. And quite often they do that as well. Just imagine the growth in grant pay-outs and in unemployment if people were not creating their own work. The idea of livelihoods rather than jobs is such a useful mindset shift, just by changing the words we use when we talk about the sector.

The livelihoods concept affords the majority population a respectable space to work in to get on to the ladder of self improvement and income generation which can lead to other and better things over time. Isn’t this what we mean when we talk about a ‘developmental economy’?

‘My greatest challenge has been to change the mindset of people. Mindsets play strange tricks on us. We see things the way our minds have instructed our eyes to see’.
(Muhammad Yunus, Grameen Bank)
A Gateway to the Future...........

What is so often overlooked is that micro or survivalist entrepreneurship is very often the gateway to so many other possibilities and opportunities in

  • Further education
  • Formal employment
  • Larger and more lucrative business establishment

There are many real life stories of this happening. A couple of stories from the writer’s experience are

........The owner of an informal settlement day care centre who after receiving some mentoring support registered for a formal qualification in early childhood development...........

........A micro trader who did some basic and advanced training in business skills and is now registered for a BCom degree. He is currently in his second year.......
........An informal settlement hairdresser who after receiving some sound business advice now owns and manages a chain of informal hairdressers in different townships..........................

....... A trader who took a skills training course in motor vehicle air conditioning and went on to secure formal employment.......

.....We have created a society that does not allow opportunities for people to take care of themselves because we have denied them those opportunities.
(Muhammad Yunus, Grameen Bank)

Reductionist Thinking.......

The trick is not to see survivalist entrepreneurship in terms of direct cause and effect thinking but rather as part of a developmental continuum and process. It may take several or many failures, repetitions, and simply trying again, before the potential for success and growth develops as a possibility at this level and takes off. It might take deviations and changing paths quite often. The survivalist sector is not a straight cause and effect line of action to result, ie. start-up to economic and social impact. That is why we discount its value and potential to contribute to our growth and development as a nation. We must start to think more systemically and holistically, however, and exercise our creativity and patience, to understand that the value of this sector needs to be seen within a longer-term and much more dynamic framework.

A Sleeping, Awakening, or Roaring Giant?

We should take heed of current statistical evidence of this emerging economic power house in our midst. There is indeed potential at the bottom of the pyramid.
We can even begin to see the so-called second economy of our country as ‘a first economy in waiting’...... here are some statistics to boggle your mind:

  • The informal retail sector in South Africa is increasingly acknowledged by manufacturers and wholesalers as an important delivery channel of goods to consumers. A report compiled by Prof André Ligthelm of the Bureau of Market Research (BMR) of Unisa and published a couple of years ago on the characteristics of the informal retail sector, estimated the share of the informal trade sector at already R32 billion in 2002. This represented approximately 10% of retail trade sales in South Africa.
  • In contrast with the often expressed idea that the informal and formal sector operate as two separate ‘economies’ with limited linkages, the study found considerable linkages between the two sectors.
  • Linkages are manifested in various ways through, inter alia, increased product delivery to informal retailers, promotion sales available to them and even the availability of supplier credit to especially township general dealers.
  • In various reports issued by the City of Johannesburg, the council has estimated the number of informal traders in Greater Johannesburg alone at some 85 000. The council views informal traders in two ways – as an economic opportunity and as an opportunity for people to make a livelihood.
  • According to the Traders Crisis Committee, there are more than two million informal traders in the country who, through their income obtained from trading, sustain the lives of some 10 million people.
  • A report from a conference on the informal economy held in Ethekwini in November 2006 had this to say:
  •  
  • Key facts about the informal sector and economy are:
Although individual earnings in the sector are low, overall its contribution to GDP (currently 8-12 percent) continues to grow;
25-30 percent of the labour-force works in the informal economy;
The informal sector is one of the few areas of the economy where numbers of workers continues to increase;
The vast majority of workers in the sector are from historically disadvantaged communities

  • During the recent economic downturn that bit deep last year, it was the informal sector that created work for people............................

International Approaches........

Rapidly developing nations such as India, Brazil and China take the micro enterprise sector very seriously indeed. It is a major part of their economies and is estimated to be the key success factor for the rapid growth of the Chinese economy currently.

It has been estimated that about 93 percent of total employment in India is constituted by the informal sector. The National Commission for Enterprises in the Unorganised Sector was constituted in 2004 in India to look into the problems, challenges and potential of the sector.

In Brazil, 40 percent of the national economy is accounted for by the informal economy and 60 percent of the workforce. Brazil has a Micro and Small Business Council as part its National Confederation of Industry.

China's economy continues to thrive despite an absence of sound financial and legal systems. This is largely due to the country's dependence on ‘informal' structures and the growth of entrepreneurship in the region. This is according to report published in 2002, an extract is produced below.

'Informal' entrepreneurship is the key to China's Success

(19 Aug 2002. Source: Knowledge Wharton).
China is turning conventional business wisdom on its head. Business scholars in recent years have argued that sound financial and legal systems are vital to economic growth. China lacks all of the above, but the country's economy is growing like gangbusters - averaging 8.35 per cent expansion for most of the 1990s.

‘There's this paradox that China has been doing extremely well,' said Wharton finance professor Franklin Allen, who has studied the issue with Jun Qian, a former Wharton PhD. student and now a professor at Boston College, and Meijun Qian, a Boston College graduate student. At a conference on ‘The Future of Chinese Management' held April 22, 2002, at the Wharton West campus in San Francisco, Allen and his colleagues proposed an answer to the Chinese economic puzzle: The key to the country's success lies in its fast-growing ‘informal' sector.

Allen, Qian and Qian define this sector as all firms not controlled by the government or publicly traded. They say this swath of the economy relies on factors such as cultural norms and economic competition to promote good corporate governance, and depends more on bonds of trust and reputation for financing rather than traditional Western sources of capital.
‘It's not so much the banks and the stock market that are important, it's the informal sector that's driving China's growth'

.....................So, what do we need to think about and do here in South Africa?

Firstly we need to ask the question what is the problem here in South Africa with accepting the survivalist sector as part of our economy?

The writer’s answer to this question is that our general way of business life is hugely influenced by a mentality of materialism, ‘up market’ approaches to business, a profit above all mentality, and ‘the bigger the business the better’ thinking – it drives business in our country and our people at all levels.

Prevailing values of accumulating large amounts of money quickly, a get rich quick and ego driven mentality, personal enrichment before all else, image and status, all overshadow more relevant approaches for the majority population in our country of thinking small, thinking inclusion, thinking caring and sharing, in order to build a sustainable nation over the longer term.

Examples of what we need to do are:

  1. We need to stop discounting the survivalist sector
  2. We need to stop seeing this economic sector as peripheral and marginalised
  3. We need to stop treating it as a ‘CSI case’ and a ‘poor cousin’;
  4. We really do need to accept that we are a developing country and work more with the requirements of a developmental economy and its realities of poverty and marginalisation, as well as with the survival and coping strategies of poor people living on the fringes.
  5. We need to acknowledge and accept that we have a survivalist economic sector that is not temporary and that we should be working with it and acknowledging its phenomenal value and the significant economic contribution it makes to the country
  6. We need to build supplier and value chains that are more inclusive and diverse, creating links between developed and developing businesses as a national priority
  7. We need to make micro-credit available on a broad scale – we even need to think about establishing peoples’ banks– banks that have a primarily social rather than a profit purpose. (Muhammad Yunus who won a Nobel prize in 2006 for championing tiny microcredit loans to the poor in Bangladesh, is now pioneering this idea which he calls "social business" as a way to fight poverty - business not for profit, but to solve social problems).

- Jan Beeton is an Independent Development Sector Consultant specialising in micro enterprise development. She has run her own consultancy, QED Development Consulting CC, for the past 10 years. Jan has a long work history in micro business development education, training and mentoring all over the country in both urban and rural areas. You can find her website at: www.qed-developmentconsulting.co.za

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