Experts and informal-sector traders have cautiously welcomed a plan by the Department of Trade and Industry to offer grants to informal-sector businesses, but have raised questions on how the grants will be administered and monitored.
The department’s director-general Lionel October said the scheme is expected to be launched early this year.
He declined to reveal the size of the incentives package, despite having announced at an SMME summit held earlier this year that the package of support would total R1.2 billion.
The scheme will consist of two parts. The first is to provide grants of between R500 and R50 000 to unregistered businesses to help them to update machinery and buy stock. To benefit business owners will have to prove that they have been in operation for at least a year.
The second part is a 50:50 partnership with municipalities to update infrastructure.
October said the partnership with local government could involve commitments in kind by municipalities, such as the granting of land, to help improve facilities for traders.
The grants for stock and machinery would be channelled through the department’s existing Black Business Supplier Development Programme, while those for infrastructure would be made through the Critical Infrastructure Programme, he said.
The department also plans to register traders in municipal areas and introduce a national framework on informal traders to bring about uniformity in the way municipalities treat those in the sector.
October pointed out that some municipalities dealt with the informal sector differently from others.
He singled out the City of Joburg, where street traders last year took the metro to court following a new clean-up and verification process, which has prevented many hawkers from trading.
In December last year the Constitutional Court ruled that the city had violated the rights of traders and said they were free to return to trading in the city centre.
With elections nearing, some experts have questioned the timing of the new grants, which follows a similar scheme launched in Gauteng by the Gauteng Enterprise Propeller (GEP) in 2009. But October claims that his department had already some time ago identified the need to support the sector.
The department’s informal-sector policy – under which the scheme falls – must still come before Parliament and October added that he expects this to happen next month.
While Thami Mazwai, a small business researcher and executive chairman of enterprise development support organisation Mtiya Dynamics, said the informal sector had long been overlooked by the government, other experts were more circumspect.
Wolfgang Thomas, professor extraordinaire of Stellenbosch University’s Centre for Development Policy, cautioned that the scheme could result in a flood of applications from the thousands of operators in the sector.
The Finscope 2010 Survey reveals that 83% of the country’s six million small businesses or about five million, operate in the informal sector.
Thomas also questioned whether beneficiaries would have to be registered for tax and comply with health and safety regulations in order to benefit from the programme.
This, while Lochner Marais, professor in development studies at Free State University’s Centre for Development Support, added that it would be crucial that the department look to fund innovative informal-sector firms, rather than run-of-the-mill firms.
Funding the latter might promote an upsurge in the number of such firms, which might lead to over trading and the eventual closing down of many of those supported with grants.
Tashmia Ismail, who heads Gibs business school’s inclusive market programme, believes that the best way to utilise the grants to develop the informal sector is to channel these through market-based linkages.
This could include partnering with large companies to expand their distribution or service points in townships, she said.
Gibs currently assists corporates to enter the informal sector, while the business school’s MBA students are tasked with assisting micro enterprises.
Similarly Charles Maisel, who runs the Innovation Shack, also welcomed the scheme, but added that assisting the informal sector comes down to crafting the right kind of support model.
Maisel, who helped found incubation organisation Shanduka Black Umbrellas, says the department would do well to support a kind of micro-franchise model.
He points to baking mix company Mama Mimi’s recent success in rolling out wood-fired ovens in townships.
Maisel, who is involved in advising the company, says since May 700 ovens have been rolled out to operators and points out that the company is preparing to expand into four other southern African countries.
He puts the success of the ovens down to three things – they’re distributed through a company which loans them the R5 500 needed to buy the ovens, they are run by a single operator which removes the chance of disputes if more members are involved and they don’t require electricity to operate and so can be used anywhere.
Many will hope that renewed support for the informal sector will help local traders to compete more easily foreign traders who dominate township trade.
Part of the government’s response was the introduction earlier this year by the Department of Trade and Industry of the Business Licensing Bill, which is largely aimed at rooting out those foreign businesses that are trading illegally by introducing compulsory business operating licenses.
But the bill was withdrawn and the department has resorted to a consultation campaign to win over business owners following heavy criticism from local business bodies – including ironically enough, informal sector traders themselves.
Thabiso Pita, the president of the SA Informal Traders Alliance, believes that the bill is “autocratic”, but said the department is consulting with those in the informal-sector in various provinces, having last month met with traders in Mangaung.
Phumulani Ndlovu, the spokesman for the SA Informal Traders Forum, says his members are also against the bill.
“We felt that the bill is putting a lot of red tape, which is actually contradictory to the NDP (National Development Plan),” said Ndlovu.
Ironically both Ndlovu and Pita said it was the first time they had heard of the department’s plan to offer the grants.
Ndlovu said though such a scheme is “long overdue” he was cautious as those in the sector had often faced many broken promises.
In June last year, the late Gauteng MEC for Economic Development Nkosiphendule Kolisile reported that GEP’s township business renewal programme had assisted 294 township businesses to the tune of R13-million since 2009.
The programme helps informal sector businesses to purchase equipment and funds business refurbishments up to a value of R50 000.
The provincial department is also rolling out township enterprise hubs targeting unemployed people and informal business across a range of sectors.
The informal sector may be in bad need of support, but policymakers will have to put careful thought into who they fund and how they do so, to ensure that public funds make the maximum impact on the sector.
This article first appeared in the Mail & Guardian on January 31, 2014.
Stephen Timm is a