|The informal sector in South Africa
- This sector does not adhere to legal requirements, standards and procedures that the formal sector follows.
- It offers job creation because of the distribution channel it creates.
- In developing countries, sales take place in spaza shops and fast-food stands on the street.
- Different trading takes place:
- Personal services - hairdressing, bookkeeping
- Manufacturing - carpentry, sewing
- Building, arts and crafts, pottery, bricklaying, beadwork
- Entertainment and transport - musicians, taxi services
Advantages of the informal sector
- Contributes to the South African economy.
- Reduces unemployment and poverty. Entrepreneurs are able to support themselves.
- Easy to start, with no overheads or rent to pay.
- The entrepreneurs learn skills that they can use in the formal sector later on.
Disadvantages of the informal sector
- Pay no tax and the government loses out on revenue.
- No control. This can lead to illegal or unsafe activities.
- Clutter formal business areas, tend to be untidy.
- Channel of distribution - performs all the functions used to move products from production to consumption.
- The business belongs to the owner - the government is not involved.
- Niche marketing - focusing on the smaller market segments for which the business is best suited.
Black initiatives to unify all related informal business activities:
FABCOS (Foundation for African Business and Consumer Services)
- Umbrella body of informal sector businesses - SMME (Small, medium and micro enterprises)
- Its major function is to provide infrastructure, support and service.
Different informal businesses succeeded in forming separate associations to serve their needs.
Some examples are:
- South African Black Taxi Association (SABTA)
- African Builders Association (ABA)
- National Stokvels Association of South Africa (NASASA)