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The pros and cons of the informal economy and how migrant business spaces are initiated and expanded.

Over the last decade in South Africa, national and local governments have realised the importance of the informal economy as it offers significant job opportunities. : Steven dosRemedios (Flickr) CC BY-ND 2.0 Over the last decade in South Africa, national and local governments have realised the importance of the informal economy as it offers significant job opportunities. : Steven dosRemedios (Flickr) CC BY-ND 2.0

The pros and cons of the informal economy and how migrant business spaces are initiated and expanded.

Migrants working in the informal economy, such as petty traders, are often criminalised but they actually can bring many benefits to the local economy.

Around 60 percent of the world’s population participates in the informal sector, which is most visible in emerging and developing economies, although it is also an important part of advanced economies.

Modern cities tend to exclude or marginalise informal economic activities, which are often blamed for being unsanitised, venues for illegal businesses and hotspots for crime.

Still, this negative perception is slowly changing and new approaches to better manage informal economies are being introduced.

Over the last decade in South Africa, national and local governments have realised the importance of the informal economy as it offers significant job opportunities. As a result, authorities have embraced a more developmental approach such as involving local councils in managing informal economies and considering the informal economy in local planning. 

Their main challenge is developing innovative, inclusive and supportive policies that recognise the value of the informal economy and the people working in it. Migrant entrepreneurs may be excluded from planning and policy development processes but they somehow manage to create their own spaces in South Africa’s informal economy despite exclusionary migration policies and tighter policing.

They lack choice, for starters. Due to a lack of job opportunities in the formal labour market and the absence of inclusive immigration policies, migrant entrepreneurs from across Africa and Asian countries have joined physically demanding, and often risky, informal businesses in the CBDs of South Africa, primarily in Johannesburg.

Locals also tend to shun these entrepreneurial activities because of their cultural beliefs and negative attitude, resulting in more opportunities for immigrants — known as the Cultural Block Theory

The lack of support and protections by the state forces migrant entrepreneurs to strengthen their own support networks, with fellow countrymen and other migrant groups. Social capital and social networks are considered equivalent to the legal and political rights locals enjoy. Language barriers and a lack of shared culture and common history with the locals, along with importing cultural institutions from home boost ties within immigrants. One result is a concentration of migrants in a particular section of a city and by tight business and social networks. Over time, the process develops into an enclave economy.

Many African and Asian immigrants have settled in Gauteng province mainly because the province provides decent prospects for business. The province encompasses Pretoria, Johannesburg and many of the mines and industrial towns fuelling South Africa’s economy.

A study in 2017 conducted by Dr Tanya Zack, a South African urban planner and visiting senior lecturer at the University of the Witwatersrand, showed that cross-border traders who travel to South Africa from neighbouring countries turn over an estimated 10 billion rand (US$581million) annually in Johannesburg’s city centre. Zack said an individual cross-border trader from neighbouring countries such as Zambia can inject up to 50,000 rands (US$2884) into the informal economy of Johannesburg. In Gauteng province alone, there are about 50 organisations that provide transport in 19 districts to ferry migrants and their merchandise to Johannesburg for business.

Informal economies also create opportunities which attract migrants from across Africa and Asia. A plus is that starting and running their own business in the informal economy of South Africa is relatively easier. South Africa is a huge economy in Africa and South Africans have a relatively high purchasing power and a strong desire to consume with little tendency to haggle over prices. For migrant traders, while they do compete with other immigrants or locals, there’s still a better chance of bouncing back if their business fails

Diversity also flourishes. Many migrant traders opt to provide familiar products to fellow migrants, such as food and clothing that belong to a specific ethnic or national group. Cultural events and emotional attachment to the home region help provide demand for products supplied by ethnic groups.

South Africa’s official policy, however, is to try to bring informal businesses into line and become part of the ‘formal’ economy. While there are some candidates for this path,  the government’s approach fails to recognise the sector’s diversity or the fact many survivalist endeavours will never be more than that but should be respected for the role they play in reducing poverty.

The government’s 2017 draft White Paper on International Migration removed immigrants’ right to work, leaving them in a more precarious position. Other rules and regulations that seek to limit the rights of foreigners to trade in informal businesses are also being drafted. In addition to preventing locals and migrants from unleashing the economic potential of the informal economy  changing the social and urban forms will raise ethical and practical challenges around the governance of space, rights and representation.

Disregarding the role of the informal economy and cracking down on migrants’ businesses in the informal economy ignores additional benefits they can bring, such as a decrease in crime. In Johannesburg and other CBDs in South Africa, migrant entrepreneurs are improving the safety of the precinct transforming previously criminal spots into business quarters. 

For example, Ethiopian migrants contributed to the economic and physical transformation of Jeppe in Johannesburg, by investing money, leasing and building properties, and connecting the CBD and township economies.  One Ethiopian migrant trader  in Port Elizabeth interviewed for a study has bought and transformed a dilapidated building that used to host drug dealers and criminals into a supermarket and guesthouse business. He not only created job opportunities and boosted the local economy but also indirectly contributed to crime prevention.

There is also potential for migrants to contest gender power relations. There is evidence migration supports the economic and social liberation of women. Hence, migration and urbanisation remain powerfully unsettling processes that offer moments to renegotiate generational and gendered hierarchies. 

It’s not always the case in South Africa, though. For Ethiopian women, entrenched gender power relations from their homeland endure. This is mainly due to a lack of proper documentation combined with growingly restrictive labour market rules on informal businesses. South Africa’s anti-immigrant policy does not help. Yet, other factors reinforce hierarchies of power relations, including safety issues where female immigrants are often forced to depend on men for protection. It can go further, with Ethiopian male immigrants coming to dominate the socioeconomic and cultural institutions that were originally run by women resulting in role reversal.

In the past, local governments dealt with the informal economy with various by-laws that would target petty traders. This approach was based on a restrictive view of the ‘problem’ of the informal economy. These negative perceptions have contributed to the marginalisation of this part of the economy. This is illustrated in the lack of adequate reference to the informal economy in many official planning and economic strategies.

Besides, it is argued that the informal economy is often considered by municipal planners as a problem of space (where to locate markets) rather than as an integral part of the local economy and a key factor in preventing even higher unemployment. The reality is that the informal economy is an important part of almost every local economy in South Africa, and the requirement of integrated planning cannot be delivered if it is ignored.

A shift in how urban development is discussed is required. To measure a city’s accessibility and inclusiveness, we must first understand how people seek to use the city to realise their aspirations. There should be recognition that informal economies benefit a portion of the population because of their low entry costs. They enable people to access opportunities.

Instead of ‘formalising’ informal activities to fit them into standard cities, providing amenities and infrastructure in lockstep with acceptable rules and regulations could help unleash a massive dividend embedded within informal economies.

Yordanos S. Estifanos holds a European Master in Migration and Intercultural Relations (EMMIR). He is currently a researcher at the Migration for Development and Equality (MIDEQ) research project based at the University of Cape Town, South Africa.

This article is part of a Special Report on ‘Cities after colonialism’, produced in collaboration with the Calcutta Research Group.

Originally published under Creative Commons by 360info™.

Editors Note: Yordanos Seifu

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