The challenge of formalising the local economy : South African township retail industry

Abstract

After more than two decades of democracy, South Africa is still faced with challenges of unemployment, poverty and inequality. The informal sector is one that presents opportunities for making a positive contribution towards solving social problems that South Africa is faced with. While the informal sector is large and offers flexibility in employment, it is associated with low productivity and poor governance as traders in the informal sector are not obliged to register their businesses and therefore cannot make tax contributions. The lack of formalisation of the informal sector not only impacts the government for not being able to account for the sector, but it also creates barriers for those trading in the sector. The study adopted qualitative research methods to gain insights into describing and exploring the meaning research participants use to construct and interpret their world of reality, such as formalising the informal sector to stimulate economic growth in South African Townships. A total of 15 semi-structured interviews were conducted with business owners in the retail informal sector, managers of big corporates in retail in the formal sector and government employees from various departments who were represented by those in relevant positions such as directors, heads of departments, regional and board members. Interviews were analysed by means of thematic analysis. The key findings from literature indicated that the informal sector is broad and there is no one definition of the informal sector. It was also established that there is a direct relationship that exists between the state and the informal sector, however there is an indirect relationship that exists between the formal and informal sector as further explained in institutional and stakeholder theory. The lack of development in the informal sector can be attributed to the non-existence of policies to guide and regulate the existence of the informal sector. The insights shared from the interviews pointed to the applicability of the proposed model in terms of formalising the informal sector.