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.

Key concepts

  • 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)