The Informal Economy & Very Young Entrepreneurs

The Editor, Sihle Magubane, Interviewed Bayabulela Jolobe, a South African Enterprise development practitioner to explore the informal economy and the involvement of young people in it. He gives tips to parents and educators of very young entrepreneurs on how to best support them.

 

Sihle Magubane (SM) : What is the informal economy and what are the top 3 features that characterize it?

Bayabulela Jolobe (BJ): The informal economy is the part of the economy that is neither taxed nor  largely regulated. Unlike the formal economy, activities of the informal economy are not included in a country's gross national product (GNP) or gross domestic product (GDP). So when we talk about the informal economy, we talk about informal traders, waste pickers, domestic workers, taxi drivers, farm workers and any other type of work that is not regulated by industries. Having taken part in the National Dialogue on the Informal economy hosted by Nedlac, ILO and Department of Labour recently, I got to appreciate how  far reaching the issues in the informal economy are and the need for all stakeholders to play a role to assist people who operate in this economy.

SM: To what extent are very young entrepreneurs a part of this economy?

BJ: The entrepreneurs in this economy are usually referred to as subsistence entrepreneurs, because they are working for a living, usually hand to mouth. Due to the large unemployment rate in South Africa, it has forced more young people to go into entrepreneurship in the informal economy as a form of creating income. As youth unemployment rises, the more young people are getting involved in entrepreneurship more broadly, but even more so in the informal economy. Basically its a more accessible means for young people to create their own employment through starting their own businesses.

SM:What would you say are the broad support requirements of these entrepreneurs?

BJ: These entrepreneurs need to be supported with actual infrastructure, creating a place for them to trade their products e.g Market areas, not just in the Central Business Districts, but also in suburban areas. This is because subsistence entrepreneurs are vulnerable to a number of factors, for example,the weather: when it rains, they cannot go out and sell their  products or do business.

The government then needs to spearhead the change in understanding entrepreneurial culture, they should be more intentional in motivating people to support informal entrepreneurs and buying their products. In South Africa, people with buying power are more likely to buy basic items from retail outlets rather than an entrepreneur on the street, this is also a crucial form of support. If we want them to grow, then we need to support them, its that simple.

 

SM: How can parents or teachers support very young entrepreneurs? What do they need to understand in order to provide the best support?

BJ: Well entrepreneurship is tough and its lonely at times. it requires confidence, focus, diligence and passion about what you are doing. There is also a lot of uncertainty and volatility in the entrepreneurship environment, and when you work in that kind of space, you are going to need a support system that will take you through the hard times.

What parents need to understand is the environment in which entrepreneurs work in, that will give them a better understanding of what their child is going through while they work on building their business. As a parent, you don't have to love your child's business idea, or even be a part of their target market. Business ideas change, mistakes are made, better ways of doing something are developed and through that entire journey, they just need your understanding and support.

Encouragement is important, and very young entrepreneurs must know that throughout all the "NOs" they get  from the outside, someone at home believes in them.

SM: What are some of the parallels you can draw from the different regions in Africa for the economy?

BJ: Most countries in Africa are still in a state of development.Some regions or countries are characterized by slow economic growth, high levels of poverty and unemployment and low infrastructure development.

As much as South Africa is considered middle-income, the socio-economic challenges faced in the rest of the continent are similar to those seen in SA. Take Uganda for example, it has the largest youth population in the world, and young people are involved in the informal economy, as much as adults. Children go to school during the week, and then go to the markets to sell fruit or veg on the weekend, to generate an income for themselves and their families. Their informal sector generates income for more than 70% of the population. In Kenya, its also similar with large market places for entrepreneurs to sell their products, the poor infrastructure means that there are no major malls in smaller towns, so the entrepreneurs don’t have any major retail chains to compete against.

The business culture is different and suits informal entrepreneurs e.g People in smaller towns like to buy second hand clothing, because consumers believe they are unique and you will not find people in town wearing the same item of clothing. In general, across all African countries, youth populations are growing, and with that the need for jobs. However, the economies are not growing at the rate that will generate enough jobs for young people, which is a challenge and a blessing in disguise as there are a lot of smart young Africans coming up with innovative ideas to solve issues that we face as a continent. If we can support them by providing funding and access to markets, they can begin to create the jobs we need.

SM:What would you say are the top 3 solutions for the challenges faced by entrepreneurs in this economy? 
BJ: There are major external factors that prevent businesses in this sector from growing. Infrastructure is definitely one of them,  which is about creating spaces where local entrepreneurs can trade.

The second issue is access to funding. Approximately 80% of informal businesses do not record their financials, and therefore makes it difficult for them to qualify for most funding opportunities, as most funding institutions require financial records from businesses to qualify for funding.

Finally,access to information. Many entrepreneurs don’t know what rights they have, or how to register their businesses, where to get funding or what funding opportunities they have access to. There’s also skill development that is needed, in terms of how to record their financials or build a financial track record etc.

There needs to be less compliance requirements for entrepreneurs to move from informal to formal business, in terms of company registration, tax clearance and requirements to do tax returns every year. Many entrepreneurs that operate in this sector cannot afford it or know how to go about applying for these compliance documents, which then becomes cumbersome for them to do it. Also a business that operates on day to day profits, cannot afford to shut down for a day or not operate. There are also no direct benefits for formalizing their businesses, except for maybe ending up on a database hoping to get business form the government or waiting for funding from  government institutions. We need to drop the requirements for access to funding.

Entrepreneurs also need business development support and mentorship. How is it that a lady selling magwinya or fruit can be selling this product in the same spot with the same income for 10 years? There’s a big problem with that. They need to be supported as much as the entrepreneur who is launching a tech company, provided with the same tools to succeed. They need to understand how to run a business, how to record their sales, do stock taking and plan for growth.

 

Bayabulela Jolobe is a Business Analyst and Advisor by profession, he sees his role as a catalyst in enterprise development  in light of  socio-economic issues facing Africa. He has experience in working with entrepreneurs from different regions of the continent, focusing on the informal economy and creating sustainable businesses with growth potential.

 

 

 

 

 

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