Distinguishing Economically from Legally Formal Firms: Targeting Business Support to Entrepreneurs in South Africa’s Townships*

Abstract

Although the government of South Africa (SA) has formally adopted a policy of proactive support of entrepreneurship, providing business assistance to all of its entrepreneurs is beyond SA’s financial and human resource capabilities. This study utilizes the results of an in‐depth survey of entrepreneurs in SA’s townships to find: (1) The business and owner traits that predict revenues and job creation among the township entrepreneurs, (2) The key issues that challenge township entrepreneurs; and (3) What the answers to these issues imply about the appropriate content and recipients of business assistance to township entrepreneurs. A distinction is helpful in framing this study’s approach. In SA, registered (licensed) businesses are legally formal firms. In contrast, economically formal firms have institutionalized processes that lead to success as a profit‐making firm. We use this distinction in our analysis of the data and framing of the implications for business assistance strategy in SA.

Challenges facing international projects for entrepreneurial development in South Africa

“…Following the end of apartheid, the new South African government focused on strengthening the economy, in part by implementing policies to foster entrepreneurship (Bradford, 2007). As already noted, from 2000 to 2009 the number of registered businesses increased from 107 886 to over 255 383 (Preisendorfer et al, 2012).…”

“…Since 1994 South Africa has implemented a number of initiatives to boost the economy, and particularly entrepreneurship. The postapartheid government prioritised the development of SMEs through policies aimed at fostering entrepreneurship (Bradford, 2007). From 2000 to 2009, the number of registered businesses increased from 107 886 to over 255 383, and more than 63.6% of the new businesses were created by black people, who comprise 80% of the population (Preisendorfer et al, 2012).…”

“…However, 24% of South African workers are still employed in the informal sector. Without this sector, unemployment in the country would have risen from 25% to 47% (Bradford, 2007). Recognising its legitimacy despite its illegality (Webb et al, 2009), the solution is not eradicating the informal sector, but rather is gradually regularising and formalising it by supporting the entrepreneurial potential of poor people (UN-Habitat, 2006).…”

Entrepreneurship in post-socialist economies: A typology and institutional contexts for market entrepreneurship

“…Second, individuals in PS economies do not necessarily have a lower propensity to engage in entrepreneurial activities than those in matured market economies. Before proceeding further, it is important to note that, in prior research, scholars have implicitly or explicitly referred self-employment as associated with entrepreneurship ( Bradford 2007;Cranford et al 2005;Fajnzylber et al 2006;Hamilton 2000;Mora and Dávila 2006;Yunus 2007). According to the International Social Survey Program dataset, the proportion saying -I would prefer to be self-employed‖ was the largest in Poland-80% (Blanchflower et al 2001).…”

Researching entrepreneurship from a cognitive perspective: A focus on necessity entrepreneurs in the Johannesburg area

“…These respondents operate as informal traders in the Johannesburg area and reside in one of the townships in the greater Johannesburg area, such as Soweto, Alexandria, or Thembisa. Informal activity is pervasive in townships (Bradford, 2007), and most of this activity constitutes single-person operations (Morris and Pitt, 1995).…”