Self-employment+-+scraping+a+living,+Makgetla,+B+Day

Business Day, Johannesburg, 26 August 2005
=Self-employment usually means scraping a living*=


 * Neva Makgetla**

An oddly medieval tenor rings through much of the talk about promoting small enterprise: the craftsman in his workshop, who knows his place in society and is blessed by the middle-class virtues of hard work, sobriety and savings.

The natural conclusion is that micro-enterprise provides a stepping stone to a modern economy, with decent incomes and conditions for all.

Yet this vision ignores the reality of microenterprise in SA. Most of the self-employed remain devastatingly poor, insecure and oppressed. According to the September 2003 Labour Force Survey, almost two-thirds earned less than R500 a month, and more than half were hawkers. Only 20% of African self-employed people have matric, compared with about 50% of African employees.

The problems with microenterprise are neither new nor unique to SA. Hobbes characterised the lives of many in pre-industrial 17th century society as “solitary, poor, nasty, brutish and short”. That describes life for most of the self-employed in SA.

This doesn’t mean that all microenterprises are desperate. Self-employed people include commercial farmers, professionals and consultants. But they are not typical, and most are white.

Indeed, racial differences are greater among the self-employed than among employees. Virtually all African self-employed are in the informal sector, compared with only about a third of whites. While whites make up only 13% of all self-employed, they constitute three-quarters of those earning more than R100000 a year.

The vast majority of the self-employed are caught up in survival strategies, often little more than disguised unemployment. Their work has no real potential to grow or to pay enough to support them, or their families.

This does not mean the work is unimportant, although it has no prospects for expansion and little security. In 2000, according to government’s Income and Expenditure Survey, for households earning less than R1000 a month, profit made up about 10% of income, compared to 50% from wages and salaries and 30% from social grants. The share from profit was slightly higher than for better-off households. Still, it came third after employment and government welfare.

These conclusions are supported by more detailed studies of self-employed people from the Global Entrepreneurship Monitor and the Financial Diaries project.

Both these studies found that most of the self-employed in SA become entrepreneurs because they have no alternative, not because they have capital, skills or new ideas that could sustain long-term expansion. Not surprisingly, they are also very likely to fail. In these areas, the situation in SA is worse than in other middle-income countries.

The University of Cape Town’s Financial Diaries project studied 166 predominantly poor households in Langa, Lugangeni and Diepsloot. During the year-long study last year, these households engaged in 46 microenterprises — but half of them started and closed down during the study. Two-thirds were in retail, earning on average less than R400 a month. Overall, the businesses contributed less than a third of household income.

The realities of micro-enterprise in SA suggest that some of the hopes for growing the “second economy” are simply exaggerated. The reconstruction and development programme expected that providing infrastructure, access to credit and training would lead to a boom in sustainable home-based work and incomes. That now seems unlikely.

Improvements in these areas would help. But self employment and entrepreneurship are not the solution to unemployment. For most poor households, the best hope remains finding a job in the formal sector.

Growth in formal employment requires a shift in overall economic expansion toward more labour-intensive sectors, especially light manufacturing (food processing, plastics, furniture) and services. In turn, that would create jobs directly and open up opportunities for smaller enterprise, which can only thrive in labour-intensive sectors.

Finally, in most of the world a strong co-operative movement has been crucial for supporting small enterprise, especially in agriculture. Unfortunately, despite government’s policy of supporting co-ops, progress remains very slow. In part, this reflects the apparent reluctance of officials to learn from and involve people in the sector. In part, it arises because of delays in transforming the legislative framework to support co-ops for the poor.


 * Makgetla is a Congress of South African Trade Unions economist.


 * From: http://www.businessday.co.za/articles/opinion.aspx?ID=BD4A84610**