| By Gavin Chait,
on 10 July 2007
|
 Poverty, let's blame Google Since 1994 legislation has made the expense and learning-curve of joining the formal sector tougher. Minimum wage laws and labour compliance increase the costs of running a business. It can be debated endlessly as to whether these things result in a better life for all.
What is beyond doubt is how much the informal and formal sectors have hardened in their respective roles. At 6.5% of the economy, just over R 100 billion per annum, the informal sector is extremely small. Yet it is home to 60% of the population. The rules that enforce the informal sector also enforce its isolation. There is no way out. Any entrepreneur who does well in the informal sector has little chance of migrating his business out of it and into a national presence. Each township community is a market on its own. They aren't connected even though we talk of the "informal sector" as if it were a seamless homogenous unity. The relative poverty of the majority, and the expense of joining the formal sector, has led to dramatic informal sector growth. So much so that this has been used to plug holes in government's job creation strategy. From Deputy President Phumzile Mlambo-Ngcuka to Finance Minister Trevor Manuel, all seem to recognise that the informal sector is here to stay. Macro-economic policy, the idea that the whole country can be treated as a single entity, isn't much good when attempting to influence both the formal and informal sectors. It seems especially cynical to take the credit for job creation in the informal sector while doing absolutely nothing to aid it and plenty to discourage it. In 2006 SARS announced a tax amnesty for businesses signing up to the formal economy. In October 2006 SARS Commissioner, Pravin Gordhan, mentioned that applications had been minimal but that he was hoping for a deluge around the time of the deadline. Trevor Manuel announced in May 2007 that the expected deluge had, indeed, arrived. It will be interesting to see how many were simply the usual crop of terrified, properly registered and up-to-date small business owners, wanting to stay out of potential trouble. The penalties that are part of the amnesty are too large to stimulate informal sector businesspeople to take "advantage" of the offer. And they, in any case, know that SARS lacks the capacity or ability to enter the townships. For the truth is that the informal sector has little to worry from either government or the labour unions. Taxi ranks are filled with tiny stalls paying staff R 200 per month. Despite the ululating of the UCT Unilever School of Marketing that companies that neglect the Black Diamonds will see their products displaced by those who don't, the informal sector is filled with unbranded Chinese imports. I asked Trevor Manuel, "Why doesn't government just admit that there are two economies and make two different sets of rules for them? There is no incentive for any formal business to invest in infrastructure and manufacturing plants in townships if they are still taxed at the same rates, have to comply with the same labour rules, yet also have to put up with higher crime rates and poorer infrastructure. Why not turn townships into Special Economic Zones?" His answer was brief and confident, "We don't want to create a two-tiered society." That sounds like the sort of answer regularly heard from trade protectionists in the developed world. These are the Americans who demand that Mexican companies pay equal wages and have similar labour standards as in the US, to "prevent the creation of a two-tiered society." Or the Europeans who proclaim the same thing about Asians. Tip for Trevor 2008: we already have a two-tiered society. What we need are bridges between them. |
