Despite South Africa’s informal economy being valued at R40bn in 2020, the country has been slow in implementing policies that can grow the sector. This is according to Teboho Nthoana, an award-winning township entrepreneur and the winner of financial services group PSG’s Think Big Competition.
Speaking at the Think Big webinar on Tuesday, Nthoana said inclusive economic growth in the country could be achieved through policies that would enhance the potential of township businesses and promote inclusive economic development.
“You’d be surprised, from a policy point of view, how far behind we are, and without those policies, these businesses will be stifled from a growth perspective.”
Nthoana said townships have poor infrastructure and limited access to capital due to regulatory barriers. These barriers not only stifle the growth of individual businesses but also undermine the economic development potential of these townships. “Complex and burdensome regulations can create significant obstacles for township entrepreneurs, particularly those with limited resources and formal education.
“Navigating these regulatory barriers often requires expertise and financial resources that many township businesses simply don’t have, further entrenching economic disparities,” he said.
He proposed the formalisation of informal businesses to help improve their state.
“Simplifying the registration and compliance processes for informal businesses can significantly enhance their operational stability. By creating streamlined procedures for formalisation, businesses gain legal recognition, access to financial services and eligible government contracts,” said Nthoana.
This comes as thousands of informal traders are racing to get their businesses registered with their local municipalities, before the December 13 deadline set by President Cyril Ramaphosa.
This move was influenced by the death of 25 children since 2023, who are believed to have died from a food-borne illness. Ramaphosa declared a national disaster after investigations found the children had ingested pesticide from products bought at some spaza shops.
Ramaphosa also announced a joint fund of R500m, which he said would be established by the department of trade, industry and competition, along with the department of small business development, to support township and rural businesses, including community convenience shops.
According to the 2024 Township Customer Experience Report compiled by digital marketing agency, Rogerwilco, trust in informal trade was waning as a result of the food-borne outbreak, with 14% of the respondents saying they had refrained from supporting spaza shops and preferred buying from authorised retailers.
Meanwhile, the report found that there had been a spike in consumers who inspect product packaging and labels since 2023.
While KwaZulu-Natal and Gauteng were hardest hit by the food-borne illness, townships in the Western Cape saw the highest number of customers moving away from purchasing food from local retailers.
Tailored education and training programmes are vital for the development of business acumen and fostering innovation. Partnerships between government bodies, private sector and NPOs can deliver targeted resources and expertise
Nthoana said there was also a need for robust investment in infrastructure in townships, as this was foundational for economic development. “Investment in transportation, energy and digital connectivity is crucial for improving the business environment in townships."
He identified financial inclusion initiatives as an important aspect of supporting local entrepreneurs. He said expanding financial services to include microloans, savings accounts and insurance was essential.
Exploring alternative credit scoring methods that are designed for township businesses could also increase financial access. However, Nthoana warned that all these changes would be in vain unless township entrepreneurs received education and training, and were innovative in sustaining their businesses.
“Tailored education and training programmes are vital for the development of business acumen and fostering innovation. Partnerships between government bodies, private sector and NPOs can deliver targeted resources and expertise.”
Once entrepreneurs receive the necessary training and formal education, it will help them move towards leveraging technology to enhance efficiency, he added. “Encouraging the use of technology in township businesses can significantly improve productivity and competitiveness."
Nthoana said these implementing strategies could help South Africa address the immediate challenges facing its informal sector while paving the way for a sustainable, inclusive economy that would benefit all members of society.
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