Informal economy support: the case of SMMEs in the Mossel Bay Municipality
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Date
2023
Authors
De Boer, Lawrence Julius
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Free State
Abstract
The informal economy is critical in enabling economic inclusion, especially given the challenges of structural unemployment in the South African economy. In these settings, the informal economy is potentially a catalyst to unlock, drive, and exploit opportunities for the economically marginalised due to the relatively low barriers to entry, especially for necessity-driven entrepreneurship.
With lagging early entrepreneurial activity and high discontinuance rates not contributing to the growth of informal enterprises into mature and sustainable enterprises, the study focuses on the appropriateness of business support measures extended to these informal enterprises to tackle and overcome the challenges they face. The study gathers insights from informal economy entrepreneurs and stakeholders in the business support ecosystem on the key barriers and constraints they face in their entrepreneurial journey and perspectives on their support needs.
The study was executed through semi-structured interviews with stakeholders and informal entrepreneurs. The key stakeholders involved in business support extension were approached, which included the primary government support agency and other roleplayers, such as the LED department of a local municipality and representatives of local informal entrepreneurial associations. The study revealed that as much as informal enterprises are closely aligned with the formal economy, their support needs differ from those offered to the formal economy. Furthermore, it found that the departure point for support agencies, closely linked to the government's policy position, is the formalisation of informal enterprises. Consequently, this leads to premature formalisation, impacting the cost and burden of compliance, for which most informal enterprises need resources.
The study recommends that broad stakeholders and support agencies in the support ecosystem should pay due cognisance to the support needs of informal enterprises and their owners from a financial and non-financial support perspective. The study emphasises that adopting a differentiated approach is necessary and that a customised support model is needed to extend more effective business support in the informal economy. A more effective business support model will be achieved if business support stakeholders and agencies understand the support needs of informal enterprises and, as a direct consequence, leverage financial and non-financial support with partnerships within the public and private sectors. This will ultimately contribute to improving business discontinuance rates, more sustainable businesses, and positioning informal enterprises to exploit opportunities for growth within the local economies.
Description
Dissertation (MDS (Development Studies))--University of the Free State, 2023
Keywords
Informal enterprises, business support, financial support, non-financial support