Restrictive bylaws hamper growth of parallel economy

Licensing controls, restrictive bylaws in urban centres, a high crime rate and the legacy of apartheid are preventing unemployed South Africans from seeking work in the informal sector, an Oxford University study has found.

The study, 'Unemployment in South Africa: The Nature of the Beast', also found that labour market institutions such as Bargaining Councils and Wage Boards, which ensure that all companies, including small firms, pay a required minimum wage and penalise those who do not comply, discouraged the growth of small-scale industries.

In 2002 unemployment in South Africa stood at 41 percent, with only 19 percent of the defined workforce employed in the informal sector. The study sought to establish why the unemployed were not seeking work in the parallel economy.

Researchers found that the average monthly household income of unemployed people was only one-third that of the informally employed, unemployment was likely to be involuntary and many would prefer to work in the formal sector or the productive part of the informal sector if they could get such work.

Low wages in the informal sector also discouraged unemployed people from taking available jobs.

"Lingering license controls and restrictive bylaws" from the apartheid era, which repressed informal activities of black South Africans, continue to hamper the growth of the informal sector, the study found.

"Repression and disempowerment of Africans under apartheid would have inhibited the development of entrepreneurial and social skills ... important for confidence in entering the self-employed sector."

Inadequate government support for tackling the high crime rate, investment in infrastructure, and providing credit and training facilities were other obstacles identified by the study.

Citing other reports, the study said 81 percent of all informal sector operators in South Africa had never received any business assistance or training, while 60 percent of the operators did not have access to the small business support centres established by central and local government.

Full report: www.economics.ox.ac.uk