Case study: The South African Micro-Entrepreneurial Ecosystem
As South Africa continues to experience very high unemployment rates, young people across the country are feeling the impact of this most acutely. One response to being unable to access formal employment is to engage in entrepreneurial activity in the informal sector. The youth make up 40% of this figure with between 0,5 and 1,2 million young micro-entrepreneurs in the informal sector.
A South African non-profit organisation wanted to understand the experiences of young informal micro-entrepreneurs in South Africa – to determine how to best support them. TRi Facts conducted a nationwide survey, key informant interviews, focus groups as well as in-depth qualitative interviews to provide key insights about and develop recommendations for support programmes for young people in the informal sector.
The non-profit organisation highlighted three focus areas, and TRi Facts identified the entrepreneurial journey that young people in the informal sector take, to deepen the combined understanding of how to strengthen the South African micro-entrepreneurial ecosystem. The early stages of entrepreneurship start with an idea and a decision to enter the sector, after which micro-entrepreneurs hope to make their initial income, with many describing that having a sense of resilience is helpful and important during this stage. Then, entrepreneurs focus on making a sustainable income - success in this phase of the journey is brought by the diversification of revenue streams and implementing related financial administration. Entrepreneurs who have more predictable or stable revenues can potentially hire staff, formalise their businesses and try to integrate into the formal value chain.
The first area of focus is to get young people hustle-ready by encouraging them to become entrepreneurs and providing the support required. Most young people try to find a job after leaving high school and see the informal sector as an option. We recommend addressing the negative perceptions young people have of this sector through emphasising the possibilities of making a living while in the sector and gaining experience to increase one’s chances of finding formal employment.
The second area of focus is to create and strengthen inclusive support structures to those on the lowest rung of the enterprise ladder, by making opportunities more visible and removing entry barriers. Young people described a lack of financial support, premise, and equipment as some of the main barriers and challenges they face as entrepreneurs. We recommend the creation of enabling environments by municipalities and law enforcement agencies, funding for equipment and access to a premise.
The third area of focus is to promote market linkages for youth-led businesses. Strong forward linkages were found between the informal and formal economy, as hustlers and informal entrepreneurs distribute a huge share of retailers’ products. However, few informal micro-entrepreneurs sell products or offer services to more established businesses. They believe that advice on how to network with established businesses and administrative support to get all the documentation and certificates required can help them to link to more established businesses.
1. Stats SA, Q3 2021 - http://www.statssa.gov.za/
2. Benhura, M. & Magejo, P. (2020). Differences between formal and informal workers’ outcomes during the
COVID-19 crisis lockdown in SA.