Discussion Papers - White Paper
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Discussion Papers
JANUARY 2020
NO. 38
RECONCEPTUALIZING
INFORMAL ECONOMIC
GOVERNANCE:
IMPLICATIONS FROM
CAPE TOWN,
SOUTH AFRICA
GRAEME YOUNG1
SERIES EDITOR: JONATHAN CRUSH2
1
2018-2019 QES-AS post-doctoral fellow at the Balsillie School of International Affairs, Waterloo, Canada, and the African
Centre for Cities, Cape Town, South Africa, graeme.young.z@glasgow.ac.uk
2
Balsillie School of International Affairs, jcrush@balsillieschool.ca
Abstract As awareness of the centrality of informality in urban development processes in the Global South is slowly incorporated into the international development agenda, a full understanding of the myriad ways in which informal economic activity is governed has become increasingly urgent. This discussion paper seeks to address this need through an analysis of informal economic governance in Cape Town, South Africa. It first outlines a general theoretical framework for understanding the governance of informal economies that focuses on the logics that inform governance, the systems in which governance take place, the modes in which governance operates, and the forms that governance takes. It then turns its attention to the governance of informal economic activity in South Africa, using this framework to evaluate international, national, provincial, and local governance and highlighting the shortcomings surrounding policy develop- ment, incoherence, and poor implementation that characterize each. Using survey data collected by the Hungry Cities Partnership (HCP) in Cape Town, it examines the motivations of and challenges faced by those who engage in informal food sector economic activity to offer insights into a more effective approach to informal economic governance that prioritizes anti-poverty measures and the creation of formal employment opportunities. Policy recommendations and potentially valuable avenues for further research are then outlined. Keywords informal economic governance, food systems Suggested Citation Young, G. (2020). Reconceptualizing Informal Economic Governance: Implications from Cape Town, South Africa HCP Discussion Paper No. 38, Waterloo and Cape Town. This is the 38th discussion paper in a series published by the Hungry Cities Partner- ship (HCP), an international research project examining food security and inclusive growth in cities in the Global South. The five-year collaborative project aims to understand how cities in the Global South will manage the food security challenges arising from rapid urbanization and the transformation of urban food systems. The Partnership is funded by the Social Sciences and Humanities Research Council of Canada (SSHRC) and the International Development Research Centre (IDRC) through the International Partnerships for Sustainable Societies (IPaSS) Program. Graeme Young received additional support from the Queen Elizabeth Diamond Jubilee Advanced Scholars Program (QE-AS). © The author All HCP discussion papers are available for download from http://hungrycities.net. The Hungry Cities Partnership Reports can also be found on our website.
RECONCEPTUALIZING INFORMAL ECONOMIC GOVERNANCE: IMPLICATIONS FOR CAPE TOWN, SOUTH AFRICA
Introduction impact informality across all levels of government
and government departments. If these are to be
successful, they must reflect the needs and desires
Informal economic activity, by definition, takes
of those who engage in informal economic activity
place at least in part outside of the official legal and
and be conducted in a way that prioritizes political
regulatory structures of the state. This does not
and economic inclusion.
mean, however, that it is ungoverned. The state is
in fact ubiquitous in the informal economy, both The remainder of this paper is divided into four
in shaping its emergence and evolution and in sections. The first presents a theoretical framework
regularly seeking to formalize, regulate, develop, for understanding the governance of informal eco-
control, and/or repress it (Young 2019). Certain nomic activity, focusing on the logics that inform
aspects of this relationship have received signifi- governance, the systems through which governance
cant attention, including the governance of street takes place, the modes in which it occurs, and the
vending (Roever and Skinner 2016), the rights of forms that it ultimately takes. The second section
those who engage in informal economic activity applies this framework to an analysis of informal
(Brown 2015, 2017, Menses-Reyes and Caballero- economic governance in Cape Town, exploring
Juárez 2014), the legal and regulatory structures that how informality is governed at the international,
may promote informality (de Soto 1989, Perry et national, provincial, and local levels in the city.
al 2007), and the importance of formalization (AU Examining each in detail, it illustrates how prob-
Commission 2015, ILO 2015, UN 2017). While lems surrounding the development, coherence,
each of these topics is crucial for understanding the and implementation of policies and legislation
central features of informal economic governance, governing informality has led to poor governance
none on its own captures the full complexity of outcomes. Turning its attention to how the gover-
the governance of informality or the diversity of nance of informality could be improved, the third
actors, institutions, relationships, and motivations section uses the extensive survey data collected by
that governance involves. A deeper conceptualiza- the Hungry Cities Partnership (HCP) to demon-
tion and more comprehensive account of informal strate that governance approaches must focus on
economic governance is therefore necessary. addressing the conditions of poverty and unemploy-
ment that drive informal economic activity in the
This discussion paper addresses this need through
city and limit its ability to contribute to inclusive
a case study analysis of the governance of informal
development. The paper concludes by outlining
economic activity in Cape Town, South Africa.
a set of policy recommendations and proposing
Proposing a theoretical framework for under-
potentially valuable avenues for future research.
standing the key features of informal economic
governance, it argues that the governance of the
informal economy is (a) characterized by a com-
bination of the underdevelopment, incoherence, Theorizing Informal Economic
and/or poor implementation of relevant policies
and legislation; and (b) fails to adequately address
Governance
the primary motivations of and challenges faced
by those who operate in the informal economy. A Informal economic governance can be broken down
new approach to informal economic governance is into four core components: (a) the logics that shape
therefore needed, and will require a detailed and governance; (b) the systems through which gover-
consistent conceptualization of the nature and value nance operates; (c) the modes in which governance
of informality; a realignment of institutions and occurs; and (d) the resulting forms that governance
processes to improve co-ordinated policy develop- takes. Each of these components is incorporated
ment and implementation; and a deeper consider- into the framework proposed in this section.
ation of how to both effectively target and positively
1HUNGRY CITIES PARTNERSHIP DISCUSSION PAPER NO. 38
Logics of Governance and/or “rule of law” initiatives that negatively
affect informality (Donovan 2008).
The governance of informal economic activity is
directed by three competing logics: development, • Compliance logics focus on the failure of
political, and compliance: informal economic activity to adhere to relevant
legal and regulatory requirements. This com-
• Development logics focuses on the role of the monly entails the criminalization of informality
informal economy in development processes. or formalization efforts that aim to improve legal
Informal economic activity can be understood and regulatory compliance (Rogerson 2016,
to facilitate inclusive development by providing Young 2018).
livelihood opportunities and access to essential
goods and services, particularly for the urban These three logics frequently overlap as more than
poor. Governance should therefore protect or one can inform governance (Figure 1):
promote informality through the creation of
an adequate enabling environment that will FIGURE 1: Logics of Governance
maximize its growth potential and provide pro-
tections to those who engage in it. Conversely,
informality can be seen as an obstacle to devel-
opment. This view takes two sharply contrasting
forms. The first is that informality is detrimental Political
to economic growth because it serves as a source Development
of unfair competition for formal businesses
and reduces state revenues by limiting tax col-
lection and compliance. The second is that
informality is undesirable because it represents
a form of exploitation that perpetuates poverty
and entrenches inequality. Both arguments can
Compliance
encourage efforts to promote formalization by
bringing the informal economy within the offi-
cial legal and regulatory apparatus of the state.
The first can also be used to justify repression.
Views of the role of informality in development
have evolved significantly (Cross 2000, Potts
2008), while policy approaches largely follow Systems of Governance
from entrenched, if often implicit, ideological
positions (Young and Crush 2019: 10-15). Three systems of governance of informal economic
activity can be identified: (a) political governance
• Political logics focus on the informal economy undertaken by politicians and transmitted through
as a source of potential political advantage. The political institutions, including legislatures and
informal economy can be a valuable source of other elected offices; (b) technocratic governance
electoral support, particularly in cities where undertaken by bureaucrats and transmitted through
those who engage in informality constitute a government departments and other state bodies;
large share of potential voters (Agarwala 2013, and (c) legal governance undertaken by police offi-
Holland 2016, 2017). Politicians may also, how- cers, attorneys, and judges and transmitted through
ever, take advantage of opposition to informal police departments, public and private legal offices,
economic activity, notably from formal busi- and courts. The actors, institutions, and incentives
nesses and middle-class residents, or pursue that define each system of governance are outlined
political support through development plans in Table 1.
2 RECONCEPTUALIZING INFORMAL ECONOMIC GOVERNANCE: IMPLICATIONS FOR CAPE TOWN, SOUTH AFRICA
TABLE 1: Systems of Governance
Political governance Technocratic governance Legal governance
Police officers
Actors Politicians Bureaucrats Attorneys
Judges
Police departments
Legislatures and other Government departments and
Institutions Legal offices
elected offices other state bodies
Courts
Career Career
Electoral
Incentives Bureaucratic Law enforcement
Ideological
Ideological Ideological
Each of these systems of governance is shaped by constraints and have an incentive to carry out
internal incentive structures. Politicians must seek enforcement based on the competing social costs of
to win elections both individually and on behalf different violations (Becker 1968). Their interpreta-
of the political party they represent, and may also tion of the comparative public costs of enforcement
seek internal party advancement, particularly in and non-enforcement, however, are subject to
circumstances where state structures are domi- variation, introducing significant inconsistencies in
nated by a single party (Cross 1998). They also legal governance that undermine idealized visions
have ideological commitments that they must of the rule of law as neutral, equal, and universal.
balance with their electoral interests; a consider-
ation that becomes complicated when the two are These systems of governance also differ in the role
in conflict and they must prioritize one over the they play in policy design and implementation.
other. Bureaucrats, conversely, are not subject to Political governance primarily involves the design
the pressures of electoral politics, and therefore, in of policies and legislation that govern informality,
theory, have little reason to prioritize the political and this process is shaped by the balance between
logics of informal economic governance. They can the electoral and ideological incentives that impact
nevertheless be motivated by career advancement the actors and institutions involved. Technocratic
that is more likely tied to professional performance governance also entails policy design where depart-
than electoral support, providing different but not ments have the authority to identify priorities and
necessarily less acute pressures than those faced by construct plans for how policy objectives could be
politicians. Bureaucratic functions, including ful- met. In addition, it involves the implementation
filling mandates, meeting defined performance tar- of policy, meaning bureaucrats can influence not
gets, and proper financial management in line with only the content of informal economic governance,
auditing standards, create strong internal incentive but also, within limits, how, when, where, and
structures. Bureaucrats also have ideological incen- to whom it is applied. Legal governance is largely
tives, even if these are unacknowledged as, despite removed from policy formation, although courts
the apparently apolitical nature of their work, they can possess the power to overturn laws passed by
possess, both individually and collectively, values, politicians that violate constitutional arrangements.
assumptions, and biases that inform their work. Instead, legal governance primarily takes place
through enforcement as police officers, lawyers, and
Police officers, attorneys, and judges similarly have judges influence how laws are applied in individual
career and ideological incentives, but rather than cases and, in doing so, establish legal precedent and
bureaucratic functions, they are also impacted by de facto norms surrounding the prioritization, inter-
the demands of law enforcement and their position pretation, and implementation of laws.
in the legal system. Police officers and prosecuting
attorneys, for example, face prioritization decisions The clash between political governance and tech-
in the context of (sometimes significant) resource nocratic/legal systems has been highlighted as a
3HUNGRY CITIES PARTNERSHIP DISCUSSION PAPER NO. 38
central feature of informal economic governance informality and the impact they have, allowing for
(Cross 1998, Holland 2016, 2017). Crucially, the distinctions to be made between direct, indirect,
systems and logics that dominate the governance failed, absent, counterproductive, and accidental
of informal economic activity follow from the governance (Table 2). As the intentions and effects
institutional environment in which governance of policies can vary, these forms of governance
takes place. The electoral incentives at the heart of should be understood not as firm and discreet cat-
political governance, for example, are created by egories, but on a matrix in which divisions are fluid
institutional arrangements in which political power and boundaries are not concrete (Figure 2).
is gained through competitive democratic pro-
cesses. If these arrangements are absent or change, The fact that governance achieves its desired effects,
the incentives underlying political governance may however, does not necessarily mean that it should be
disappear, giving more weight to other logics and viewed as successful. Governments can, and often
systems of governance (Young 2017). Conceptu- do, adopt policies or undertake other actions that,
alizing informal economic governance therefore whether intentionally or not, have a detrimental
demands a deeper consideration of the form and effect on informal economic activity and those
function of governance arrangements, as it is only who engage in it. The repression of street vending
when these are appropriately aligned that a focused, is an obvious example. Evaluating success requires
coherent approach to informality can emerge. a consistent normative framework that, due to
competing logics of governance, is often absent in
efforts to govern informal economic activity.
Modes of Governance
Complicating matters further, governing informal
Political, technocratic, and legal governance are not economic activity often involves unavoidable trade-
limited to the institutional structures in which they offs, including, most notably:
take place. It is therefore necessary to distinguish
• The existence of informality may undermine
between formal and informal governance:
the rule of law and state legitimacy;
• Formal governance encompasses all forms of
• Informal economic activity can provide compe-
governance undertaken within the boundaries
tition for formal businesses (Cross 2000, Setšabi
of official state structures as defined by relevant
and Leduka 2008);
constitutional documents and legislative frame-
works, including policymaking and implemen- • The costs of formalization may negatively affect
tation, the design and proper enforcement of the viability of informal economic activities
laws and regulations, and interactions between (Cross 2000, La Porta and Shleifer 2014);
state and non-state actors through decision-
making processes. • It may be difficult to enforce human rights pro-
tections in the informal economy (Miller 2007);
• Informal governance encompasses all forms of and
governance undertaken outside of the bound-
aries of official state structures, including • Taxing the informal economy to maximize rev-
political deal-making, systems of patronage and enue may conflict with the promotion of inclu-
clientelism, and personal relationships. sive development (Joshi et al 2013).
In addition, policies can benefit certain groups
Forms of Governance
or segments within the informal economy while
harming others. Informal economies are not
Informal economic governance takes many forms.
monolithic, but have their own complex internal
These can be classified by whether or not they target
dynamics and hierarchies in which employers,
4 RECONCEPTUALIZING INFORMAL ECONOMIC GOVERNANCE: IMPLICATIONS FOR CAPE TOWN, SOUTH AFRICA
TABLE 2: Forms of Informal Economic Governance
Target informality
Yes No
Desired effects Direct governance Indirect governance
Impact None Failed governance Absent governance
Undesired effects Counterproductive governance Accidental governance
FIGURE 2: Forms of Informal Economic Governance Matrix
Target informality
Counterproductive governance Failed governance Direct governance
Accidental governance Absent governance Indirect governance
Do not target
informality
Undesired effects No effects Desired effects
regular informal wage workers, own-account oper- policy formation and implementation, and the
ators, casual informal wage workers, industrial out- forms of governance capture the outcomes of the
workers/homeworkers, and unpaid family workers ways in which informality is governed (Figure 3).
are separated by poverty risk, average earnings, and
gender composition (Chen 2012: 9). They also Each category within this framework suggests a
do not exist in isolation; rather, extensive link- point for intervention to improve informal eco-
ages exist between formal and informal economic nomic governance:
activity (Meagher 2013), creating relationships and
network effects that governance interventions can • The logics of governance can be improved
reinforce or transform. It is therefore necessary to through the development of a consistent under-
move beyond overly simplistic notions of the extent standing of the nature of informality, its causes
to which specific governance actions may impact and consequences, and its economic, political,
the informal economy as a whole, and to instead and social significance;
consider the different and possibly contradictory
• Systems of governance can be made more effec-
ways in which these actions might affect specific
tive through the adoption of a coherent and
forms of or groups engaging in informal economic
transferable approach to informality, the co-
activity.
ordination of institutional functions, and the
alignment of incentive structures;
A Governance Framework
• Modes of governance can be addressed by iden-
The logics, systems, modes, and forms of informal tifying the benefits and drawbacks of specific
economic governance are all interrelated. The logics manifestations of formal and informal gover-
of governance inform how informality is conceptu- nance and undertaking efforts to harmonize
alized, the systems and modes of governance define them; and
5HUNGRY CITIES PARTNERSHIP DISCUSSION PAPER NO. 38
FIGURE 3: A Governance Framework
• Forms of governance can be improved by both International Development Policy Agenda
targeting informality and pursuing desired
effects, thereby shifting forms of failed, absent, Sustainable Development Goals
counterproductive, and accidental governance
to direct and indirect governance. The Sustainable Development Goals (SDGs), out-
lined in the 2030 Agenda for Sustainable Devel-
A comprehensive approach to informal economic opment adopted by the UN General Assembly in
governance needs to incorporate all of these tasks. September 2015 (UN 2015), have obvious implica-
tions for understanding informal economic activity.
While informality is not explicitly addressed within
Informal Economic Governance the SDG framework, 11 of the 17 SDGs have
important implications for the governance of infor-
in Cape Town mality:
With this framework for understanding the gover- • SDG 1 No Poverty: insofar as informal econo-
nance of informal economic activity, it is possible mies can serve as an important livelihood source
to begin to analyze informal economic governance for the urban poor or, alternatively, perpetuate
in cities such as Cape Town. Doing so requires a marginalization and conditions of poverty.
consideration of how governance occurs at four
levels: international, national, provincial, and local. • SDG 2 Zero Hunger: informal economies can
serve as serve as an important source of food,
6 RECONCEPTUALIZING INFORMAL ECONOMIC GOVERNANCE: IMPLICATIONS FOR CAPE TOWN, SOUTH AFRICA
particularly for the urban poor, and therefore • SDG 16 Peace, Justice and Strong Institutions:
promote urban food security (Battersby 2011, informality can support peacebuilding efforts
Battersby and Crush 2014, Crush 2016). through development or undermine peace by
exacerbating inequality; and the design and
• SDG 3 Good Health and Well-Being: infor- enforcement of laws governing informality
mality, by serving as an important source of reflect popular understandings of justice and
income and food, can promote the health and either strengthen or weaken institutions (de
well-being of traders and customers or alterna- Soto 1989, Tripp 1997).
tively pose hazards due to the risks that accom-
pany informal work and issues of food safety. Understanding precisely how the SDGs can and
should shape the governance of informality is
• SDG 5 Gender Equality: informal economies therefore highly dependent on competing views
can either empower women by promoting of informal economic activity. The failure of the
autonomy and facilitating poverty reduction or SDGs to engage with fundamental questions about
integrate women into the lower levels of a highly whether, and under what circumstances, informal
stratified economic system (Meagher 2010). economies can contribute to inclusive development
means that no firm policy agenda is in place for the
• SDG 7 Affordable and Clean Energy: energy incorporation of informality into the implemen-
access influences the activities and livelihoods of tation of the goals. This lack of engagement with
those who operate in the informal economy. informality, and the lack of clarity that follows
from it, is a significant failing of the 2030 Agenda
• SDG 8 Decent Work and Economic Growth:
for Sustainable Development, but provides national
informality either provides or reflects a lack
and sub-national governments with a significant
of employment opportunities, decent work
amount of policy flexibility.
standards can be implemented in the informal
economy, and informal economic activity can
contribute to inclusive and sustainable economic
International Law
growth.
• SDG 10 Reduced Inequalities: informality can International law also has implications for informal
either lower levels of inequality through the pro- economic governance, but these too are not explic-
motion of inclusive development (Bhattacharya itly defined. The International Covenant on Eco-
2011) or exacerbate inequality by facilitating nomic, Social and Cultural Rights (ICESCR),
systems of exploitation. signed by South Africa in October 1994 and ratified
in January 2015 (UN nd), is particularly relevant.
• SDG 11 Sustainable Cities and Communities: Article 6 recognises the right to work, including
informality is a central feature of urban life and “the right of everyone to the opportunity to gain
can either facilitate or impede inclusive urban his [sic] living by work which he [sic] freely chooses
development. or accepts”. It makes no distinction between formal
and informal work; indeed, the adoption of the
• SDG 12 Responsible Production and Con- ICESCR in 1966 by the UN General Assembly
sumption: informal economies play a central predates the conceptual ‘discovery’ of informal
role in broader production and consumption economies in the early 1970s (Hart 1973, ILO
processes. 1972). The implications of Article 6 for informal
economic activity remain unexplored in both the
• SDG 13 Climate Action: informal economies research literature and domestic and international
can be integrated into climate change planning law. Nevertheless, Article 6.2 requires states to
(Brown and McGranahan 2016). take certain steps, including “technical and voca-
tional guidance and training programmes, policies
7HUNGRY CITIES PARTNERSHIP DISCUSSION PAPER NO. 38
and techniques to achieve steady economic, social FIGURE 4: The Logics of International
and cultural development and full and productive Governance
employment under conditions safeguarding fun-
damental political and economic freedoms to the
individual.” More generally, Article 2.1 requires all
parties to:
Political
Take steps, individually and through international Development
assistance and co-operation, especially economic
and technical, to the maximum of its available
NUA
resources, with a view to achieving progressively the Agenda
full realization of the rights recognized in the present 2063
Covenant by all appropriate means, including World Bank
particularly the adoption of legislative measures
Compliance
(UN nd).
South Africa’s obligations to uphold international
law are reaffirmed by its own constitutional system,
with Chapter 14, Section 233 of the Constitution
stating that: Three problems define the international gov-
ernance of informal economic activity. First,
When interpreting any legislation, every court must
informality is largely ignored in the international
prefer any reasonable interpretation of the legislation
development policy agenda. This is perhaps most
that is consistent with international law over any
notable with the SDGs, a conspicuous oversight in
alternative interpretation that is inconsistent with
a program that dominates global development dis-
international law (RSA nd).
course. Informality remains highly relevant for the
SDGs and the SDGs have significant implications
Assessing International Governance for informality. Opportunities exist to adequately
integrate informality into the implementation of
The international policy environment that governs the SDGs, but these would need to be taken up by
informal economic activity is, perhaps unsurpris- international organizations and national, regional,
ingly, primarily driven by development logics. The and local governments as a central feature of SDG
pairing of incentives with compliance measures in implementation. Second, international law that may
the NUA, the emphasis that Agenda 2063 places have important implications for informal economic
on improving revenue collection, and the World activity is not enforced. Article 6 of the ICESCR
Bank’s focus on regulatory reform all suggest an could significantly empower those who operate in
additional adherence to compliance logics (only the informal economy and obligate governments to
policies that explicitly address informal economic take proactive measures to provide formal employ-
activity are included here) (Figure 4). ment opportunities to those who desire them. A
lack of enforcement, however, means that it fails on
both counts.
Finally, where informality is included in the inter-
national development policy agenda, a lack of con-
sensus exists on how it should be addressed. As a
result, policy prescriptions have little content. For
example, the ILO’s efforts to promote “decent
work” in the informal economy by empowering
8 RECONCEPTUALIZING INFORMAL ECONOMIC GOVERNANCE: IMPLICATIONS FOR CAPE TOWN, SOUTH AFRICA
and providing protections for workers departs sig- establishes that “[e]very citizen has the right to
nificantly from the World Bank’s focus on economic choose their trade, occupation or profession freely”,
liberalization and regulatory reform. The NUA and but includes the crucial caveat that “[t]he practice of
Agenda 2063 both promote formalization, but the a trade, occupation or profession may be regulated
latter focuses on social protections and taxation by law.” Section 23 establishes “the right to fair
while the former offers few specifics. As a result, labour practices”, including the rights to organize
although formalization has come to dominate the and to engage in collective action. The Constitu-
international policy agenda, there is little definition tion also outlines the competencies of all levels of
of what this means in practice or how it should be government in Schedule 4 and Schedule 5. Table 3
realized. Combined, these three problems largely lists those that are relevant for informal economic
result in failed and/or absent governance (Figure governance.
5). All must be addressed if effective forms of direct
and indirect governance are to be achieved. Local powers fall under either national/provincial
legislative competence (Schedule 4, Part B), or pro-
vincial legislative competence (Schedule 5, Part B).
Chapter 7, Section 155(7) states that the national
National Governance of government and/or provincial governments “have
Informal Economies in the legislative and executive authority to see to the
effective performance by municipalities of their
South Africa functions … by regulating the exercise by munici-
Constitutional Infrastructure palities of their executive authority”, providing
them with the authority to establish frameworks in
The South African Constitution details various which municipal government powers can be exer-
rights that are relevant for informal economic cised, but not to exercise those powers or set policy
activity (RSA nd). Chapter Two, Section 22 (de Visser 2019: 7).
FIGURE 5: Forms of International Governance
Target
informality Counterproductive governance Failed governance Direct governance
• ILO, NUA, Agenda 2063, World Bank
• ICESCR
Accidental governance Absent governance • SDGs Indirect governance
Do not target
informality
Undesired effects No effects Desired effects
9HUNGRY CITIES PARTNERSHIP DISCUSSION PAPER NO. 38
TABLE 3: Constitutional Powers Relevant for Informal Economic Governance
Government level Competencies
National (All residual functions)
Agriculture; Consumer protection; Housing; Industrial promotion; Police; Public transport;
National/Provincial Regional planning and development; Tourism; Trade; Urban and rural development; Vehicle
licensing; and Welfare services
Provincial Abattoirs; Liquor Licences; Provincial Planning; and Provincial Roads and Traffic
Under National/Provincial Legislative Competence:
Building regulations; Electricity and gas reticulation; Municipal planning; Municipal health
services; Municipal public transport; Trading regulations; and Water and sanitation services
(potable water supply systems and domestic waste-water and sewage disposal systems)
Local Under Provincial Legislative Competence:
Beaches and amusement facilities; Cleansing; Control of public nuisances; Control of
undertakings that sell liquor to the public; Licensing and control of undertakings that sell food
to the public; Local amenities; Markets; Municipal abattoirs; Municipal parks and recreation;
Noise pollution; Public places; Refuse removal, refuse dumps and solid waste removal; Street
trading; and Traffic and parking recreation
Policy Environment over 10 million jobs between 2010 and 2030, and
that the informal sector and domestic work will
The fact that residual powers not elsewhere detailed account for between 1.17 million and 2.09 million
are invested in the national government gives it of these (NPC 2012: 121).
broad authority in informal economic governance.
Still, informality is poorly integrated into national The most significant effort by the national govern-
policy (Skinner 2019, Valodia 2013). The National ment to incorporate informal economic activity
Development Plan (NDP) asserts that: into broader development processes is the National
Informal Business Upliftment Strategy (NIBUS),
Continued economic dynamism will depend largely announced by the Department of Trade and Industry
on policy, steering economies away from low- in 2014 (DSBD 2014). Focusing on women, youth,
productivity activities, such as subsistence agriculture and people with disabilities in townships and rural
and informal trading, to sectors that lift the country areas and targeting retail, manufacturing, services,
up the sophistication ladder [entailing] wider and agriculture, and construction and maintenance, the
deeper investment in education and skills training, NIBUS aims to provide support for “entrepreneurs
and enabling employment in high-value jobs (NPC in the informal economy” undertaking “vibrant
2012: 82). economic business activities that need support to
graduate from survival to sustainability and per-
Conversely, it also claims that the growth of formal formance.” The NIBUS identifies five ‘strategic
and informal job opportunities will allow proposed pillars’ for intervention: (a) creating an enabling
public work programs to be scaled down (NPC legal and regulatory environment, which focuses on
2012: 28). Although it highlights that informality easing regulatory requirements to promote formal-
is often poorly understood and inadequately sup- ization; (b) upliftment through enterprise develop-
ported (NPC 2012: 266-267, 275), it offers few ment; (c) the facilitation of intergovernmental rela-
concrete proposals to address either problem. tions; (d) partnership and stakeholder management,
Instead, its primary focus is on expanding social primarily with business associations, civil society,
protection and security programs to cover those donors, and service providers; and (e) empower-
who engage in informal economic activity (NPC ment through information management (DBSD
2012: 367-376) and, more broadly, increasing 2014, Skinner 2019).
employment, suggesting that the economy will add
10 RECONCEPTUALIZING INFORMAL ECONOMIC GOVERNANCE: IMPLICATIONS FOR CAPE TOWN, SOUTH AFRICA
The NIBUS also includes the Informal and Micro policies should consider informal economic activities
Enterprise Support Programme, which is intended and find ways to accommodate sustainable liveli-
to provide support for skills development; mar- hoods (MCGIT 2016: 89).
keting and branding; product improvements; tech-
nology support; stock, materials, and supplies; tools,
machinery, and equipment; basic compliance; orga- Legislation
nization development; governance; management
training; operational systems and policy develop- The potential for informal economic activity to
ment; information technology; project support; and contribute to inclusive development and serve as a
basic office infrastructure and technology. Finally, source of entrepreneurship also informs the Broad-
it launched the Informal Traders Upliftment Project Based Black Economic Empowerment Act of 2013
(ITUP), a pilot program “to identify, train, coach, (B-BBEE 2013). As one of eight ways to facilitate
mentor and provide infrastructure support to 1000 BBBEE, the Act identifies “promoting access to
informal traders[,] including capacity building for finance for black start-ups, small, medium and
Informal Trader Organisations” across the country micro enterprises, co-operatives and black entre-
over an 18 month period. The project is only open preneurs, including those in the informal business
to South African citizens. sector” (Section 2(g)). Such a strong developmental
focus is largely absent elsewhere in national law.
A similar desire to support informality is outlined in Indeed, key pieces of national legislation largely
the “Integrated Urban Development Framework” ignore informality.
(IUDF), which claims that “the informal sector is
a training ground for nurturing future enterprises” The Businesses Act 71 of 1991, for example, makes
and that “[p]olicies should accommodate informal no explicit mention of informality, suggesting that
economic activities, supported by a planning system the licencing and regulatory requirements that it
that does not see the sector as a problem or ‘for- outlines apply to both formal and informal busi-
malisation’ as the only solution” (MCGIT 2016: nesses (RSA 1991). It does, however, contain sev-
84-85). It also calls for those engaged in informal eral provisions addressing street vendors, pedlars,
economic activity to be involved in broader “sector and hawkers, an important subset of the country’s
forums” that allow local governments to engage informal economy but by no means representative
with economic stakeholders (MCGIT 2016: of informality in general. Section 6A (1) (a) (i) of
87) and outlines key dimensions of an improved the Act gives local authorities the power to make
approach to informal economic governance: by-laws covering “the supervision and control” of
the activities of each of these groups, while Section
Given South Africa’s mass unemployment, govern- 6A more broadly outlines powers for their spatial
ment needs to support all kinds of entrepreneurial regulation. By-laws passed by local authorities can
activity, both directly and by not imposing undue empower officers to confiscate goods, receptacles,
restrictions on their operations…. Municipalities vehicles, and other moveable structures, and their
must manage the informal economy more coher- violation can be punished by fines or imprisonment
ently, mainstream it in economic strategies, and (Section 6A (1) (d)).
help to enhance the sector’s economic potential.
Various (mostly municipal) functions that would be
affected range from planning (zoning and bylaws), Other National Government Powers
supporting infrastructure provision… through to
taxation, licensing and regulation. Informal trade Other national government actions can have a
and informality should also be considered in spatial profound effect on informal economic activity.
planning policies. Furthermore, municipal land-use Trade policy impacts the availability and price of
11HUNGRY CITIES PARTNERSHIP DISCUSSION PAPER NO. 38
the goods that traders sell and of alternatives that FIGURE 6: National Logics of Governance
customers might otherwise purchase in the formal
economy. More fundamentally, it can also impact
formal employment levels (Bacchetta et al 2009), as
can foreign direct investment (FDI) regimes (Lee Development BBBEE Act
and Vivarelli 2006), by either expanding markets NDP Political
for domestic goods and services or harming local IUDF
firms through higher levels of competition. More
generally, fiscal and monetary policy shapes the NIBUS
macroeconomic conditions (including levels of
employment, inflation and aggregate demand), in
which informality takes place. There are important
debates about the extent to which if the informal
economy contracts or expands in response to formal Compliance
economic downturns (Arvin-Rad et al 2010, Fiess Business Act
et al 2010, Loayza and Rigolini 2011). But there
is little doubt that it is fundamentally affected by
formal economic fluctuations, and that the gover-
nance of the formal economy has profound impli-
cations for informal economic activity. National governance of informal economic activity
is defined by two problems. The first is a lack of
integration between relevant policy and legislation.
Assessing National Governance The NDP focuses on reducing informality, pro-
moting employment, and providing protections for
In contrast to international governance, the national those who engage in the informal economy. The
governance of informality is driven less exclusively NIBUS and the BBBEE Act seek to support entre-
by developmental logics. This is likely because the preneurialism, with the former encouraging for-
systems of governance that exist at the national level malization through regulatory reform. The IUDF
are more complex and varied than those that exist encourages the integration of informality into plan-
internationally. Most notably, while political con- ning systems that are based on accommodation and
siderations and compliance mechanisms are largely do not necessarily prioritize formalization. And the
absent internationally, they are not only present, Business Act ostensibly provides limited space for
but often dominant, at the national level. This is such accommodation to take place. It is difficult to
particularly relevant for the BBBEE Act, a key com- reconcile these approaches, suggesting that a more
ponent of the country’s post-apartheid transition, comprehensive policy and legal framework needs to
and the NIBUS. The Informal Traders Upliftment be put in place.
Project includes a citizenship requirement that sug-
gests political motivations and reflects the broader The second problem is a lack of implementation
environment of hostility and xenophobia in which of relevant policies. This is particularly true for
migrant and refugee traders operate (Crush et al the NIBUS, which calls for ambitious efforts to
2015). Figure 6 illustrates the national logics that reform the country’s legal and regulatory envi-
shape the governance of informality in Cape Town. ronment, support enterprise development, and
improve intergovernmental relations, partnership
and stakeholder management, and information
management. These remain unrealized, meaning
12 RECONCEPTUALIZING INFORMAL ECONOMIC GOVERNANCE: IMPLICATIONS FOR CAPE TOWN, SOUTH AFRICA
that the NIBUS has largely been ineffective and the Governance of Informal
problems that it was designed to address remain.
Even if it were to be implemented, the fact that it Economies in Western Cape
is based on strong assumptions about the entrepre- Departmental Structure
neurial nature of informality, advocates promoting
formalization by easing regulations, and, with the
Provincial governments in South Africa have broad
ITUP, includes strict citizenship requirements
powers for the direct and indirect governance of
means that important questions about its potential
informality. For example, six of the 13 departments
benefits exist. Indirect governance is primarily pro-
of the Western Cape Government (WCG) have
vided by the Constitution, which offers important
functions with clear implications for informal eco-
protections for those who engage in informal eco-
nomic activity (Table 4). Efforts to integrate infor-
nomic activity. The national government does not
mality into departmental operations in the Western
adequately incorporate considerations of the poten-
Cape are ongoing. The Department of Economic
tial impact on informality into its macroeconomic
Development and Tourism (DEDAT) is showing
policy, however. As Figure 7 shows, national efforts
particular interest in focusing on township econo-
to govern informality currently involve limited
mies in its upcoming five-year plan. How this will
direct governance.
translate into policy is uncertain, and fundamental
questions about how DEDAT will define devel-
opmental objectives, identify barriers to inclusive
development, seek to stimulate economic activity,
and, indeed, understand the role of informality in
township economies, remain unanswered.
FIGURE 7: Forms of National Governance
• NIBUS
Target
informality Counterproductive governance Failed governance Direct governance
• NDP, BBBEE, IUDF
Accidental governance Absent governance Indirect governance
Do not target • Business Act
informality • Trade policy, FDI, • Constitutional protections
fiscal and monetary policy
Undesired effects No effects Desired effects
13HUNGRY CITIES PARTNERSHIP DISCUSSION PAPER NO. 38
TABLE 4: Provincial Government Departments Involved in Informal Economic Governance
Department Function Implications for informal economy
Provides services to support the Impacts affordability and availability of
Department of Agriculture
agricultural sector food that informal traders sell
Promotes inclusive, sustainable
Department of Economic Influences how and where informality is
development characterized by growth,
Development and Tourism incorporated into development processes
employment, and equal opportunities
Determines ability of informal traders to
Department of Health Oversees public health service
access quality healthcare
Impacts where and under what conditions
Department of Human
Develops sustainable human settlements informal traders can access housing and
Settlements
spatial development trends more generally
Allows informal traders experiencing
Department of Social Provides services for poor and
poverty or other forms of marginalization
Development marginalized groups
to access support systems
Contributes to budgetary decisions that
Provincial Treasury Oversees financial management can affect programs, services, and assets
that informal traders rely on
Assessing Provincial Governance (WCG 2016: 23, 42-45, WCG nd). This sectoral
approach offers a promising opportunity for filling
Significant opportunities exist for the WCG to policy gaps.
incorporate informality into its governance and
development plans. Two are particularly important. Second, the WCG has the opportunity to engage
First, in accordance with the governance compe- in extensive forms of indirect governance of infor-
tencies outlined in the Constitution, the WCG mality. These primarily relate to departmental
can regulate the exercise of municipal government activities that impact those in the informal economy
powers that allow for the direct governance of infor- without specifically targeting their economic
mality. These include the licensing and control of activities. The Departments of Agriculture, Eco-
undertakings that sell food to the public, markets, nomic Development and Tourism, Health, Human
public places, street trading and, with the national Settlements, and Social Development, as well as the
government, trading regulations. It is not taking full Provincial Treasury, all perform functions that have
advantage of this authority, however. Key docu- important implications informal economic activity
ments are largely silent on informality; the Provincial and those who engage in it, and should ideally
Strategic Plan: 2014-2019 (PSP), for example, fails to incorporate a sensitivity to informality into their
engage with informality or even address informal planning and operations (Table 4).
economies outside of its glossary of terms (WCG
The WCG also has significant scope to improve
nd). More promisingly, the Western Cape Govern-
its direct and indirect governance of informal
ment Household and Nutrition Security Strategic
economic activity (Figure 8). In order to do so, it
Framework (WCGHNSSF) emphasizes the impor-
needs to adopt detailed plans for the incorporation
tance of the informal economy in the promotion
of informality into policy design and ensure effec-
of food security, and includes building an inclu-
tive implementation. Current departmental efforts
sive food economy as the fifth of six pillars of food
to draft five-year strategic plans offer an important
security. The first program involves introducing “a
opportunity to prioritize informality in policy for-
model by-law for municipalities for informal food
mation.
trading as well as guidelines for implementation”
14 RECONCEPTUALIZING INFORMAL ECONOMIC GOVERNANCE: IMPLICATIONS FOR CAPE TOWN, SOUTH AFRICA
FIGURE 8: Forms of Provincial Governance
Target
informality Counterproductive governance Failed governance Direct governance
• WCGHNSSF
• Departmental powers
Accidental governance Absent governance Indirect governance
Do not target
informality • PSP
• Regulatory powers
Undesired effects No effects Desired effects
Governance of Informal It also asserts that the primary barriers to expansion
of businesses in the informal economy are access
Economies in Cape Town to business locations and burdensome regulations
Development Plans and Policies (CoCT 2015: 52).
The 2013 Economic Growth Strategy (EGS) simi-
In accordance with the division of competencies larly focuses on informality as a source of entrepre-
outlined in the South African Constitution, much neurship and identifies co-ordinating local devel-
of the authority to undertake the direct governance opment programs to enhance the informal sector as
of informal economic activity in Cape Town is the first of five inclusion strategies (CoCT 2013a).
assigned to the local government. The City of It also claims that “past efforts to facilitate the devel-
Cape Town (CoCT) has yet to adopt a coherent opment of informal enterprises were hampered by
approach to the governance of informality or a lack of business intelligence and poor inter and
fully consider how to incorporate informality into intra-departmental coordination”, and proposes
urban management and development processes. to improve co-ordination and targeted develop-
The City’s Economic Performance Indicators for ment efforts (CoCT 2013a: 28). The CoCT Five-
Cape Town (EPIC) report for the second quarter of Year Integrated Development Plan for 2017-2022
2015 includes a special focus on the informal sector (FYIDP) further advocates a form of “support and
(CoCT 2015) and claims that informality plays an development” that facilitates formalization and is
important role in poverty reduction, and that the “demand based, linked to the needs of the sector or
informal economy is more likely to absorb people individual enterprise, where feasible”, and “crafted
who leave formal employment than those who are according to needs specific to an area” (CoCT
unemployed and that: nd(a): 69).
The relatively weak transition of people from The CoCT Municipal Spatial Development
unemployment to informal-sector employment is Framework (MSDF) further expands on the gov-
likely due to certain intractable barriers to starting a ernance of informality by asserting that “[r]egula-
business, such as entrepreneurial initiative, access to tions on economic activity, including zoning rules,
capital and having some degree of business acumen” mitigate against the successful establishment and
(CoCT 2015: 51). management of entrepreneurial activity,” and that
15HUNGRY CITIES PARTNERSHIP DISCUSSION PAPER NO. 38
“[a]n area-based regulatory regime is needed that Policy (ITP) (CoCT 2013(b), which declares the
fosters faster growth and employment by creating city’s vision for “[a] thriving informal trading sector
a supportive environment for small business entry, that is valued and integrated into the economic life,
survival and expansion” (CoCT 2018: 230). The urban landscape and social activities within the City
MSDF offers 42 policy statements, one of which, of Cape Town” (Section 4.1.1.1). Similarly, it claims
Policy 31, is to “introduce land use policies and to adopt “a developmental approach … to facilitate
mechanisms that will support the development of the access to job and entrepreneurial opportunities
small businesses (both informal and formal)”, and within the informal trading sector”, and aims to
includes guidelines to “[e]ncourage and incen- build a “positive relationship” with formal busi-
tivise…the incremental and voluntary formalisation nesses and consumers “by providing a stable regula-
of existing informal businesses through appropriate tory and flexible management environment that is
application of land use management” (CoCT 2018: predictable, empowering and sustainable” (Section
133). It also encourages large commercial develop- 4.1.2.1). This ‘developmental approach’ is broken
ments to “consider a mixed package of land use down into three components (Section 5):
rights to leverage the provision of informal trading
space and facilities in private developments” and • Development and planning, which consists of
“establish a functional and accessible, pedestrian- recognizing the importance of the informal
friendly interface between formal and informal economy for employment and economic
activities” (CoCT 2018: 133). growth; encouraging targeted interventions;
building partnerships; adopting a variable and
Other policies that do not explicitly address flexible approach to interventions; promoting
informal economic activity nevertheless incorpo- formalization, although, crucially, recognizing
rate informality into their guidelines. Policy 4, for that full formalization will not be possible for
example, aims to “transform marginalised areas some traders; employing spatial planning to
and informal settlements into economically and identify appropriate trading sites; and providing
socially integrated neighbourhoods” and includes necessary infrastructure.
guidelines for planning for informal traders around
areas of high pedestrian traffic, managing informal • Policy issues, which include policy development
trade, and prioritizing health and safety interven- for appropriate regulation to promote informal
tions in areas where informal trade takes place. It trading; policy review, incorporating an assess-
also seeks to remove “unnecessary regulatory red- ment of implementation every year, objectives
tape that stifles entrepreneurial efforts and SMME every two years, and policy every five years; and
[small, medium, and micro-enterprise] develop- policy alignment of all relevant policies across
ment by proactively increasing the scope of land use the city.
rights along appropriate activity routes and streets
or structuring routes by utilising overlay zones in • Development organizations and forums,
appropriate areas” (CoCT 2018: 110). Similarly, including establishing engagement forums for
Policy 37 on the inclusion of walking and cycling stakeholders at the city and district level; sup-
as essential components of land use planning, pro- porting representative organizations for traders
poses aligning non-motorized transport routes with and other stakeholders; and establishing, sup-
“informal trading areas focussing on fresh produce, porting, or expanding industry development
other consumables and local crafts to support the organizations.
livelihood of regulated informal business” (CoCT
The ITP further outlines a set of principles to guide
2018: 138).
its approach to the governance of informal trading
The CoCT seeks to engage in significant forms of (Section 6) including (a) economic principles,
direct governance of informal economic activity in including reinforcing business zones, providing
accordance with the city’s 2013 Informal Trading business support, ensuring that city property is
16You can also read
