Chapter 10: Conclusion and Recommendations
5.4 LEGISLATIVE AND POLICY ENVIRONMENT
5.4.2 Post-1994 legislation and policy environment
According to Rogerson (in Preston-Whyte & Rogerson, 1991: 207), it has always been evident that the government of South Africa would have to address complex issues affecting the informal economy as part of economic transformation. With the demise of apartheid, the South African government analysed some possibilities of expanding employment in the informal economy (Valodia, Lebani and Skinner, 2005:
14). To this effect, the country developed several policies and legislation that
looks at some of the policies and legislation, and the implications for the management of the informal business sector:
5.4.2.1 Reconstruction and Development Programme: A Policy Framework, 1994
Most of the government policies and legislation as seen today are broadly informed by the principles of the Reconstruction and Development Programme (RDP) adopted by the African National Congress (ANC) in 1994. The RDP took its mandate from the 1955 Freedom Charter. In relation to this study, for example, the Freedom Charter maintains that all people shall have equal rights to enter all trades and also to trade where they choose (The Freedom Charter, 1955). The RDP provided a basis to put into implementation the principles of the Freedom Charter. One of the key programmes identified in the RDP is that of building the economy. The challenges identified are that most people in the informal sector lack productive and managerial skills as well as access to productive assets. The RDP also acknowledges that the informal sector faces an array of repressive regulations that were originally intended to undermine participation of blacks in the economy (RDP, 1994).
This is not surprising given that the apartheid policy adopted a system that deliberately prevented black people from establishing and operating businesses. To address these challenges, the RDP proposed support for small and micro enterprises as one of the programmes. The intervention was aimed at alleviating the problem of inequalities in income and wealth, and to further expand productive opportunities.
The policy document further identifies four major constraints that face small and micro enterprises, and mandates government to develop an integrated approach that would address these areas. The areas are lack of access to credit, supportive institutional arrangements, skills and market (RDP, 1994).
The implication of the issues raised by the RDP document is that in developing a policy for managing the street traders the municipality must, at the minimum, pay specific attention to the challenges. It further means that the policy should consider other supporting policies and programmes in order to come up with an integrated approach. These could be in areas of skills development, financial and non-support as
well as the institutional arrangements in municipalities, such as the location of the function in the organisational structure. The RDP has therefore, without any doubt provided a foundation for reversing and correcting the imbalances of the past. It has set the scene for the new government to put support to SMMEs at the core of the reconstruction and development initiatives.
5.4.2.2 White Paper on National Strategy for the Development and Promotion of Small Businesses in South Africa, 1995
The informal business sector constitutes the largest component of the SMME sector.
Most of the businesses are survivalist businesses and micro enterprises that usually involve the owner (Döckel and Ligthelm, 2005: 56). The other significant change in the approach to the informal economy after the first democratic elections was brought about by the adoption of the White Paper on National Strategy for the Development and Promotion of Small Business in South Africa in 1995. The policy document is focused on small business development. It acknowledges the existence of survivalist entrepreneurs, which constitutes a significant bulk of the informal economy (Valodia, Lebani & Skinner, 2005: 14 and White Paper on National Strategy for the Development and Promotion of Small Businesses in South Africa, 1995).
The White Paper distinguishes four categories of businesses in the informal economy, namely, survivalist, micro, small and medium enterprises. It recommends that for each category, there should be different support strategies. It goes further to identify concrete proposals for the various sectors (White Paper on National Strategy for the Development and Promotion of Small Businesses in South Africa, 1995). Of all the categories, the survivalist enterprises constitute the greatest bulk, and most street traders fall under this category (Skinner, 1999: 9 and Valodia, Lebani & Skinner, 2005: 14). According to Valodia, Lebani & Skinner (2005: 14), the White Paper is, however, “mute” when it comes to support strategies for survivalist enterprises. This could mean that this sector might not get the required assistance and support needed to grow. It is also maintained that the Department of Trade and Industry offered very little, if any, support to the survivalist enterprises (Valodia, Lebani & Skinner, 2005:
14).
The White Paper acknowledges that there must be concerted policies and programmes to deliberately create an enabling environment in order to transform the small enterprise sector. The majority of the participants of the small enterprises are in the informal economy. So to address the challenges faced by the informal economy as identified by the RDP, the municipality must adopt relevant policies. These policies must create an enabling environment that will not only make the informal sector flourish, but also turn survivalist enterprises into viable productive units (White Paper on National Strategy for the Development and Promotion of Small Businesses in South Africa, 1995). This means addressing crucial issues around several factors that affect the growth of small businesses. According to Döckel and Ligthelm (2005), one critical factor for the growth of the sector is availability of proper management skills for the owner. This implies that in developing a policy for the sector, capacity building of the owners (in management skills) should be one of the key programmes.
Some of the factors that should be considered when policies and interventions for managing the informal sector are developed are outlined below (Döckel and Ligthelm, 2005: 55):
Intentions: This focuses on the personal characteristics, values, reasons for establishing a business as well as the beliefs of an entrepreneur. This means that the policy should not only focus on the activities, but should have programmes that deal with the development of the person, the entrepreneur, the business owner.
Ability: This relates to factors that deal with the ability and capabilities of the entrepreneur to successfully manage a business as well as other internal business factors. This includes factors such as the educational level, business management skills, growth potential of the products, assets and premises, and legal status of the business. The implication is that to develop a proper policy, the municipality should understand the status of the informal businesses in terms of these factors.
Opportunities: Each business is affected by the growth factors that are external to it. This includes factors such as market conditions, access to finance, public sector regulations and labour market conditions. This is quite interesting in that in most cases policies for managing informal businesses normally
disregard the effect of external factors on the sector. It is often assumed that unlike the formal sector, the informal sector is not much affected. Taking this into consideration, policies supporting SMMEs should not only focus on creating a favourable climate but should also understand the effect of various factors on the viability of the sector. In addition, the policy should target certain sectors that have potential for growth.
5.4.2.3 Constitution of the Republic of South Africa, 1996
The 1994 democratic elections ushered a new way of doing things in South Africa.
This change is evident in the Constitution. In terms of the Constitution, there are three spheres of government that have different functions. Part B of Schedules 4 and 5 of the Constitution identify the functions of local government. According to Schedule 5 Part B, street trading is a function of local government. This implies that it is the responsibility of local authorities to ensure proper management of the street trading function. This function should be performed within the provisions of Section 152(1) (c) of the Constitution, which mandates local government to promote social and economic development (Constitution, 1996 & Skinner 1999: 10).
As Skinner (1999: 11) maintains, these policy changes are, in principle, positive from the perspective of survivalist street traders. Cities therefore have an important role to play in promoting the needs of the informal sector in general, and street trading in particular. In performing these functions, the local authority should take into account the various legislation and policy provisions such as the Business Act (71 of 1991), the White Paper on National Strategy for the Development and Promotion of Small Businesses in South Africa (1995), and others.
5.4.2.4 White Paper on Local Government, 1998
Adopted in 1998, the White Paper is centred on the role that local government has been given by the Constitution. This is the role of promoting social and economic development as per Section 152 of the Constitution. The White Paper established a system of local government that works with local citizens to find sustainable ways of meeting needs and improving the quality of life.
The White Paper identifies four inter-related characteristics of developmental local government. One of these characteristics is maximising social development and economic growth. A developmental local government is expected to conduct its affairs in a way that promotes the growth of the local economy. Through its traditional responsibilities of service delivery and regulation, each municipality can positively or negatively affect the growth of the informal economy. According to the White Paper, an important principle that underpins a developmental local government is that it aligns its plans, policies and resources to contribute to the growth of the local economy, both formal and informal (White Paper on Local Government, 1998).
The White Paper brought to the fore the concept of local economic development as one of the outcomes of municipalities. It further urges municipalities to review policies and procedures, as well as to provide special economic services in an endeavour to promote LED. It advises, for example, that the municipality can review procurement procedures to give preference to small enterprises, particularly those in the informal sector (White Paper on Local Government, 1998).
The implications of the provisions of the White Paper are that in carrying out its function, each municipality should adopt policies and programmes that advance the notion of a developmental state. For example, in managing the informal business sector, the municipality must not only focus on ensuring compliance with operating requirements as per the provisions of the Business Act (71 of 1991): instead, more emphasis should be on developing the sector to contribute to the social and economic development status of the participants.