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Exploring the circumstances and experiences of youth immigrants when establishing and running a successful informal micro-business

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In the era of rampant youth unemployment, governments are rethinking strategies to respond to this global crisis. At the centre of these strategies is the promotion of youth-owned informal micro-businesses. While literature acknowledges the challenges faced by youth in running their informal micro-businesses, there is much less in the way of information that explores immigrant informal businesses. This is a qualitative study aimed at exploring the circumstances and experiences of youth immigrants when establishing and running a successful informal microbusiness. This study was conducted amongst youth owners of informal micro-businesses and four service providers in Cape Town. Twenty in-depth interviews were done with these participants. The four service providers represented a non-governmental organisation (NGO), a government department, a commercial bank and a government funding agency. The study indicated that the reasons why immigrant youth start their informal micro-businesses varied. For the unemployed it was a solution to unemployment, some of those who were working did so because they wanted to earn more, while others desired a flexible work environment. In addition, the study showed that there are many challenges faced by immigrant youth during the establishment and growth phases of their businesses. Challenges include difficulties in accessing capital, securing an area from which to operate, cultural barriers, theft and robbery, and customers who do not want to pay. Though most of these are similar to the challenges experienced by young business owners in South Africa and elsewhere, there were, however, other challenges that were unique to immigrant youth. In this regard, they could not get support from any of the stakeholders mainly because they did not qualify for any funding or training programmes from the service providers since they were immigrants. To deal with these challenges youth employed several strategies, like the development of social networks, marketing, taking advantage of the location and utilising their positive attitude to succeed. The service providers interviewed had a limited knowledge of these challenges. This shows that there is a lack of research conducted and thus they are not in touch with what is happening to these youths. The study is thus important to policy makers and programme planners as it enables them to learn from the challenges faced, so that policies and programmes can address stumbling blocks faced by immigrant youths. The study also encourages stakeholders to rethink immigrantowned businesses which appear to be neglected at present.
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University of Cape Town
UNIVERSITY OF CAPE TOWN
DEPARTMENT OF SOCIAL DEVELOPMENT
Exploring the circumstances and experiences of youth immigrants when
establishing and running a successful informal micro-business
A minor dissertation submitted in partial fulfilment of the requirements for the
award of the degree of Master of Social Science in Social Development
By
Calisto Kondowe
KNDCAL001
Faculty of Humanities
University of Cape Town
September 2013
Supervisor: Dr. Margaret Booyens
The copyright of this thesis vests in the author. No
quotation from it or information derived from it is to be
published without full acknowledgement of the source.
The thesis is to be used for private study or non-
commercial research purposes only.
Published by the University of Cape Town (UCT) in terms
of the non-exclusive license granted to UCT by the author.
University of Cape Town
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DECLARATION
1. I know that plagiarism is wrong. Plagiarism is to use another‟s work and pretend that it is one‟s own.
2. I have used the Harvard convention for citation and referencing. Each contribution to, and quotation in,
this essay from the work(s) of other people has been attributed, and has been cited and referenced.
3. This essay is my own work.
4. I have not allowed, and will not allow, anyone to copy my work with the intention of passing it off as
his or her own work.
5. I acknowledge that copying someone else‟s assignment or essay, or part of it, is wrong, and declare that
this is my own work.
Signature ______________________________
Name: _____________________________
Date: ______________________________
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ABSTRACT
In the era of rampant youth unemployment, governments are rethinking strategies to respond to
this global crisis. At the centre of these strategies is the promotion of youth-owned informal
micro-businesses. While literature acknowledges the challenges faced by youth in running their
informal micro-businesses, there is much less in the way of information that explores immigrant
informal businesses. This is a qualitative study aimed at exploring the circumstances and
experiences of youth immigrants when establishing and running a successful informal micro-
business. This study was conducted amongst youth owners of informal micro-businesses and
four service providers in Cape Town. Twenty in-depth interviews were done with these
participants. The four service providers represented a non-governmental organisation (NGO), a
government department, a commercial bank and a government funding agency. The study
indicated that the reasons why immigrant youth start their informal micro-businesses varied. For
the unemployed it was a solution to unemployment, some of those who were working did so
because they wanted to earn more, while others desired a flexible work environment. In addition,
the study showed that there are many challenges faced by immigrant youth during the
establishment and growth phases of their businesses. Challenges include difficulties in accessing
capital, securing an area from which to operate, cultural barriers, theft and robbery, and
customers who do not want to pay. Though most of these are similar to the challenges
experienced by young business owners in South Africa and elsewhere, there were, however,
other challenges that were unique to immigrant youth. In this regard, they could not get support
from any of the stakeholders mainly because they did not qualify for any funding or training
programmes from the service providers since they were immigrants. To deal with these
challenges youth employed several strategies, like the development of social networks,
marketing, taking advantage of the location and utilising their positive attitude to succeed. The
service providers interviewed had a limited knowledge of these challenges. This shows that there
is a lack of research conducted and thus they are not in touch with what is happening to these
youths. The study is thus important to policy makers and programme planners as it enables them
to learn from the challenges faced, so that policies and programmes can address stumbling
blocks faced by immigrant youths. The study also encourages stakeholders to rethink immigrant-
owned businesses which appear to be neglected at present.
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DEDICATION
I dedicate my work to those who inspired me to conduct this study:
To the youth who are in poverty, searching for economic empowerment and wanting to be
successful business owners, but are failing and yet still believe that even in such situations there
is light at the end of tunnel.
To stakeholders in charge of youth development programmes and policies, who know that
change is possible even amidst challenges, I also dedicate my work.
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ACKNOWLEDGEMENTS
Firstly I would like to thank the Lord God almighty for all the graces He given me to this day. I
placed my hope and trust in Him and I see that He never failed me. I express my gratitude in the
name of His son Jesus Christ.
From the bottom of my heart for this great project in my Masters course, I acknowledge and
thank my supervisor Dr Margaret Booyens for support and guidance. She was a supervisor, a
tutor, a counsellor and a colleague. It could have been an impossible mission without her
support, making the way easy by complementing my hard work with hers.
Special thanks to Canon Collins Trust for making the journey feasible through its funding and
encouragement along the way.
I would like to thank my mother, Ellen Kondowe, for all the support, love, prayers and
encouraging words she gave me.
I would like to thank my brothers Exavour Kondowe and Martin Kondowe for being there for
me.
I thank my friends, Maxwell Phiri, Mumba Soko, Yvan Yenda, Fungai Chandavengerwa,
Simbarashe Rakama and Mtokozisi Mpofu, all for all their love and encouragement. .
I want to thank my best friend, Felicity Makombera for her prayers and being a shoulder to lean
on.
I thank my grandmother Ennie Sitsiga for her encouragement and always making me to laugh so
that I take the stress away.
Finally, I thank the participants for their stories and participation in the study.
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ACRONYMS
BT Business Trust
DPLG Department of Provincial and Local Government
DTI Department of Trade and Industry
ILO International Labour Organisation
IMF International Monetary Fund
NGO Non-governmental Organisation
NSFAS National Student Financial Aid Scheme of South Africa
NYDA National Youth Development Agency
PGWC Provincial Government of Western Cape
RSA Republic of South Africa
SADC Southern African Development Community
SEDA Small Enterprise Development Agency
SEFA Small Enterprise Finance Agency
SETA Sector Education and Training Authority
StatsSA Statistics South Africa
UNESCO United National Education Scientific and Cultural Organisation
USC United States Chamber of Commerce
WB World Bank
WEF World Economic Forum
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TABLE OF CONTENTS
DECLARATION ......................................................................................................................................................... I
ABSTRACT .............................................................................................................................................................. II
DEDICATION ......................................................................................................................................................... III
ACKNOWLEDGEMENTS ........................................................................................................................................ IV
ACRONYMS ........................................................................................................................................................... V
TABLE OF CONTENTS ............................................................................................................................................ VI
CHAPTER 1: INTRODUCTION .................................................................................................................................. 1
1.1 INTRODUCTION ....................................................................................................................................................... 1
1.2 SETTING OF THE STUDY ............................................................................................................................................. 2
1.3 RESEARCH PROBLEM ................................................................................................................................................. 3
1.4 RATIONALE AND SIGNIFICANCE OF THE STUDY ................................................................................................................ 4
1.5 RESEARCH GOAL ...................................................................................................................................................... 5
1.6 MAIN RESEARCH QUESTIONS ...................................................................................................................................... 5
1.7 RESEARCH OBJECTIVES .............................................................................................................................................. 5
1.8 CLARIFICATION OF TERMS .......................................................................................................................................... 6
1.9 RESEARCH DESIGN AND METHODOLOGY ....................................................................................................................... 8
1.10 ETHICAL CONSIDERATIONS ....................................................................................................................................... 8
1.11 REFLEXIVITY ........................................................................................................................................................ 11
1.12 STRUCTURE OF THE RESEARCH REPORT ..................................................................................................................... 11
CHAPTER 2: LITERATURE REVIEW ......................................................................................................................... 13
2.1 INTRODUCTION ..................................................................................................................................................... 13
2.1.1 Literature review methodology ................................................................................................................. 13
2.2 UNDERSTANDING THE YOUTH CONCEPT ...................................................................................................................... 13
2.2.1 Defining youth by age ............................................................................................................................... 14
2.2.2 Youth as a series of transitions.................................................................................................................. 14
2.4 THEORETICAL FRAMEWORKS .................................................................................................................................... 14
2.4.1 Social exclusion theory .............................................................................................................................. 14
2.4.2 Human capital theory ................................................................................................................................ 15
2.4.3 Social capital theory .................................................................................................................................. 16
2.5 THE INFORMAL SECTOR ........................................................................................................................................... 17
2.5.1 Historical background to the informal sector ............................................................................................ 17
2.5.2 Understanding the informal sector concept .............................................................................................. 18
2.6 INFORMAL MICRO-ENTERPRISES IN SOUTH AFRICA........................................................................................................ 19
2.6.1 Youth and micro-businesses in South Africa .............................................................................................. 20
2.6.2 Immigrants and informal micro-businesses in SA ..................................................................................... 20
2.6.3 Reasons behind the establishment of informal micro-businesses by immigrants ..................................... 20
2.7 CHALLENGES FACED BY INFORMAL MICRO-ENTERPRISES ................................................................................................. 21
2.7.1 Financial challenges .................................................................................................................................. 21
2.7.2 Skills challenges ......................................................................................................................................... 21
2.7.3 Crime and violence .................................................................................................................................... 22
2.7.4 Language and networking challenges ....................................................................................................... 22
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2.7.5 Securing an area from which to operate ................................................................................................... 23
2.8 THE LEGAL FRAMEWORK IN SOUTH AFRICA ................................................................................................................. 23
2.8.1 Analysis of the policies and programmes .................................................................................................. 24
2.9 THE INSTITUTIONAL FRAMEWORK IN SOUTH AFRICA ..................................................................................................... 25
2.9.1 Analysis of the institutions ........................................................................................................................ 26
2.10 SUMMARY STATEMENT ......................................................................................................................................... 27
CHAPTER 3: METHODOLOGY ................................................................................................................................ 28
3.1 INTRODUCTION ..................................................................................................................................................... 28
3.2 RESEARCH APPROACH ............................................................................................................................................. 28
3.3 RESEARCH TYPE ..................................................................................................................................................... 29
3.4 RESEARCH DESIGN .................................................................................................................................................. 30
3.5 RESEARCH METHODS .............................................................................................................................................. 30
3.5.1 Research population .................................................................................................................................. 30
3.5.2 Sampling method ...................................................................................................................................... 31
3.5.3 Criteria for selection of the participants .................................................................................................... 31
3.5.4 Selection of service providers .................................................................................................................... 33
3.5.5 Summary of participants ........................................................................................................................... 34
3.5.6 Gaining entry and the selection of participants ........................................................................................ 35
3.5.7 Data collection .......................................................................................................................................... 36
3.5.7.1 Data collection method ........................................................................................................................................ 36
3.5.7.2 The interview schedule ........................................................................................................................................ 37
3.5.7.3 The factsheet ....................................................................................................................................................... 38
3.5.7.4 The digital recorder .............................................................................................................................................. 38
3.5.8 Pilot study .................................................................................................................................................. 38
3.5.9 Data analysis ............................................................................................................................................. 39
3.5.10 Data verification ...................................................................................................................................... 40
3.6 LIMITATIONS OF THE STUDY ..................................................................................................................................... 40
3.7 SUMMARY STATEMENT ........................................................................................................................................... 42
CHAPTER 4: PRESENTATION AND ANALYSIS OF THE FINDINGS ............................................................................ 43
4.1 INTRODUCTION ..................................................................................................................................................... 43
4.1.1 Profiling participants ................................................................................................................................. 44
4.1.2 Profiling service providers ......................................................................................................................... 45
4.1.3 Themes and categories ............................................................................................................................. 45
4.2 FORMAL AND INFORMAL SECTOR DICHOTOMY ............................................................................................................. 46
4.2.1 Regulation and the informal sector ........................................................................................................... 47
4.2.2 Reasons for operating in the informal sector ............................................................................................ 48
4.2.2.1 Complex requirements to join the formal sector ................................................................................................. 48
4.2.2.2 The tax burden in the formal sector .................................................................................................................... 49
4.2.3 The advantages of the formal sector ........................................................................................................ 50
4.2.4 Summary of the formal and informal sector dichotomy ........................................................................... 51
4.3 THE REASONS FOR STARTING INFORMAL MICRO-BUSINESSES ........................................................................................... 51
4.3.1 The informal micro-business as a response to unemployment ................................................................. 51
4.3.2 In search of better income ......................................................................................................................... 52
4.3.3 The attraction of self-employment ............................................................................................................ 53
4.3.4 Summary of the reasons for starting the informal micro -enterprises ....................................................... 54
4.4 THE CHALLENGES FACED BY IMMIGRANT YOUTH ........................................................................................................... 54
4.4.1 Challenges at the start-up ......................................................................................................................... 54
4.4.1.1 Cultural barriers ................................................................................................................................................... 55
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4.4.1.2 Securing an area from which to operate.............................................................................................................. 56
4.4.1.3 Lack of start-up capital ......................................................................................................................................... 57
4.4.2 Challenges in managing growth................................................................................................................ 58
4.4.2.1 Risk and security .................................................................................................................................................. 58
4.4.2.2 Customers who do not want to pay ..................................................................................................................... 59
4.4.2.3 Lack of business skills ........................................................................................................................................... 60
4.4.3 Summary of challenges ............................................................................................................................. 60
4.5 THE STRATEGIES EMPLOYED TO OVERCOME THE CHALLENGES .......................................................................................... 61
4.5.1 Building social capital ................................................................................................................................ 61
4.5.1.1 Developing networks to secure an area from which to operate .......................................................................... 62
4.5.1.2 Social capital to get start-up capital ..................................................................................................................... 62
4.5.1.3 Social capital for safety ........................................................................................................................................ 63
4.5.2 Marketing and public relations strategies ................................................................................................ 63
4.5.3 Exploiting location of business to their advantage ................................................................................... 64
4.5.4 Influencing their business with their attitude ............................................................................................ 65
4.5.5 Utilising their education ............................................................................................................................ 66
4.5.6 Manufacturing quality goods .................................................................................................................... 67
4.5.7 Summary of the strategies employed to overcome the challenges ........................................................... 67
4.6 SOURCES OF SUPPORT FOR INFORMAL MICRO BUSINESSES .............................................................................................. 67
4.6.1 Training support for immigrant informal micro-businesses ...................................................................... 68
4.6.2 Financial support for immigrant informal micro businesses ..................................................................... 69
4.6.3 Civil society organisations, government and immigrant-owned informal micro- businesses ................... 71
4.6.4 Summary of immigrant youth support ...................................................................................................... 72
4.7 SUMMARY STATEMENT ........................................................................................................................................... 72
CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS ....................................................................................... 73
5.1 INTRODUCTION ..................................................................................................................................................... 73
5.2 CONCLUSIONS ....................................................................................................................................................... 73
5.2.1 Objective 1: To ascertain immigrant youths’ and service providers’ understanding of the formal and
informal sectors of the economy in South Africa ............................................................................................... 73
5.2.2 Objective 2: To explore the views of immigrant youth and service providers as to why immigrant youth
start informal micro businesses ......................................................................................................................... 74
5.2.3 Objective 3: To explore the major challenges that youth face in running their micro informal businesses
........................................................................................................................................................................... 74
5.2.4 Objective 4: To ascertain the strategies that youth employ in order to overcome these challenges ........ 75
5.2.5 Objective 5: To identify the sources of support the youth draw on for their business .............................. 75
5.3 RECOMMENDATIONS .............................................................................................................................................. 76
5.3.1 Training organisations .............................................................................................................................. 76
5.3.2 Funding organisations ............................................................................................................................... 76
5.3.3 Young business-owners ............................................................................................................................. 76
5.3.4 All service providers in this study .............................................................................................................. 77
5.3.5 Policy landscape ........................................................................................................................................ 77
5.3.6 Recommendation for further research ...................................................................................................... 77
LIST OF REFERENCES ............................................................................................................................................ 78
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ANNEXURES
Annexure A: Interview schedule for youth
Annexure B: The fact sheet for youth
Annexure C: Interview schedule for service providers
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LIST OF TABLES
Table 2.1 Policies and programmes and their major objectives………………………….……..24
Table 2.2 Institutions that support informal micro enterprises…………………………………..26
Table 4.1 Profile of the participants……………………………………………………………..44
Table 4.2 Profile of service provider organisations…………………………………………...45
Table 4.3 Themes and categories………………………………………………………………...46
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CHAPTER 1: INTRODUCTION
1.1 Introduction
Youth unemployment has become a global crisis. It is a complex phenomenon and has worsened
recently as policy-makers around the world have consistently failed to come up with strategies to
address this problem (Turton & Herrington, 2012). In South Africa (SA), the youth
unemployment rate is at 48% (RSA, 2011). Though several studies have attempted to explain
this challenge, fewer solutions have been proposed to curtail this challenge (Berry, Blottnitz,
Cassim, Kesper, Rajaratnam & Van Seventer, 2002). Unemployment has adverse implications
for youth and precipitates vulnerability and marginalisation (International Labour Organisation
(ILO), 2006). In RSA thus immigrant youth are also affected by this challenge (Provincial
Government of Western Cape (PGWC), 2007). In addition, Borjas (2004) notes that immigrants
have higher unemployment probabilities than non-immigrants hence it is for this reason that this
study focuses on immigrant youth from southern African countries.
The RSA government‟s response to unemployment has been twofold. The first intervention is
supporting formal businesses so that they can grow and increase their labour absorption capacity,
and the second is by supporting informal businesses as a means to promote employment
(Rogerson & Preston-Whyte, 1991). This study focuses on the latter. The informal sector is seen
as a type of „safety net‟, providing employment and income-generating opportunities for those
excluded from formal sector employment (PGWC, 2007). This sector is increasingly becoming
significant in many developing countries as a means to absorb considerable numbers of
unemployed and underemployed citizens (Portes, Blitzer & Curtis, 1986). Moreover, it is
acknowledged as an important strategy that can leverage the energy of youth to expand the
creation and supply of jobs (Rogerson & Preston-Whyte, 1991). It is in the light of these
developments in response to unemployment that this study focuses on the informal sector.
Research about the informal sector has generated a body of knowledge which deepens an
understanding of these businesses (Rogerson & Preston-Whyte, 1991). The government of RSA
has implemented programmes, enacted policies and set up agencies targeting informal
enterprises. Studies conducted have, however, revealed that there are challenges that inhibit the
establishment and growth of these enterprises. Establishing successful informal enterprises in SA
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is cumbersome and complex (Tim, 2011). The constraints include access to financial services;
skills training; physical infrastructure and basic services; business-related infrastructure; and the
impact of regulations (Cupido, 2002; Berry et al., 2002; Rogerson & Preston-Whyte, 1991). This
study was an exploration of the circumstances and experiences of youth immigrants when
establishing and running a successful informal micro-business.
1.2 Setting of the study
RSA is a country in southern Africa. It has a population of about 52.9 million and of that
population 18.9 million are youth of ages 15 to 34 (StatsSA, 2013). This shows that youth
constitute a larger population than any other groups (children and adults). Added to this is an
influx of immigrant youth into South Africa. These live mainly in metropolitan cities. Cape
Town has attracted many immigrants because of its economic opportunities and many establish
informal businesses (Rogerson, 1997; PGWC, 2002). Because many of the African immigrants
to the Western Cape are illegal, it is not easy to establish the exact number of migrants presently
living in this province (City of Cape Town, 2010).
In RSA, the informal sector is relatively small by international standards (ILO, 2002). It accounts
for 20% of aggregate employment (PGWC, 2007). This sector accounts for about 12% of Cape
Town's economic activity and employs 18% of its economically active residents (City of Cape
Town, 2006). Moreover, informal sector workers are known for receiving a lower monthly salary
than those in the formal sector (PGWC, 2007). This shows that this sector still occupies a
peripheral place in the country`s economy. Moreover, an estimated 5.5% of enterprises in RSA is
owned by youth, yet they constitute a larger segment of the population. This reinforces the point
that youth have limited business opportunities (Curtain, 2004). The meaningful participation of
youth in the economic landscape remains a challenge for South Africa (Curtain, 2004).
The study was conducted in Khayelitsha which is located in the Western Cape Province. It is
Cape Town‟s biggest township and the second largest in South Africa (Business Trust &
Department of Provincial and Local government (BT & DPLG), 2007). It is part of the City of
Cape Town‟s Metro South East Region, commonly known as Cape Town‟s poverty trap (BT &
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DPLG, 2007). This township is situated far from the centres of economic opportunity due to its
distance from the city, and transport costs to travel to the city are high.
The majority of households (62%) lives in shacks or informal settlements, while 26% live in
houses on a separate stand and 6% of households live in informal housing (University of
Stellenbosch, 2011). In Khayelitsha overcrowding within particular areas and within households
is common (BT and DPLG, 2007). There is a high level of unemployment, violence, and
criminal activities. Its history, and the legacy of its apartheid planning as a dormitory town‟,
continues to shape its development needs (City of Cape Town, 2006). The unemployment rate in
Khayelitsha is 50.8% (BT & DPLG, 2007). Of the employed workforce, 44.1% is in relatively
unskilled occupations (University of Stellenbosch, 2011). Since there are few formal local job
opportunities in Khayelitsha, and a huge reliance on transport because of its distance from
economic nodes, a significant portion of the population, including immigrant youth, is involved
in informal businesses (PGWC, 2007).
1.3 Research problem
The study is done in the light of immigrant youth unemployment and the fact that the informal
sector is being used as a strategy to respond to this challenge, as explained in Section 1.1. It
explores the circumstances and experiences of youth immigrants when establishing and running
a successful informal micro-business. A great deal of research has been done to understand the
informal sector (Rogerson, 2007; Tim, 2011; Berry et al., 2002), but PGWC (2007) states that
research about the informal sector, has been somewhat lacking in the Western Cape. While
recent studies, for example Witbooi, Cupido, and Ukpere (2011) and Chikamhi (2011) have
investigated the informal sector in the Western Cape, Fatoki and Patswawairi (2012) argue that
few studies have been done in which immigrants have been targeted, thus immigrant
entrepreneurship remains largely unexplored. Moreover, USC (2012) argues that researchers are
familiar with the success stories of immigrants, but few realise how many immigrants have
started new businesses, and are unaware of their experiences and circumstances. This study thus
targets successful micro-enterprises in the Western Cape to explore experiences regarding the
journey travelled from establishment to growth as a successful informal micro-business. It aims
to hear the voices of business owners who seem to have been overlooked in previous studies and
ascertain their circumstances and experiences using a qualitative approach.
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1.4 Rationale and significance of the study
Sherifat (2011) states that an understanding of barriers and challenges faced in the process of
establishing a business is the first step towards improving the performance of the businesses.
Since it is hoped that the study will be used to inform policy makers around immigrant-owned
informal micro-businesses, exploring circumstances and experiences in establishment and
growth of these enterprises is imperative. The United States Chamber of Commerce (USC)
(2012) notes that few policymakers understand the importance of immigrant entrepreneurial
activities in today‟s economies, hence by exploring the circumstances and understanding the
circumstances this study can add value to and inform policies.
This study is driven by the need for the inclusion of youth in the economy. In the developing
world, high youth unemployment represents lost potential for national economic transformation,
and high numbers of economically frustrated youth may contribute to social instability (World
Economic Forum (WEF), 2012). Their inability to find employment creates a sense of
vulnerability, uselessness and idleness among young people (ILO, 2006). This notion
substantiates the fact that research focusing on the economic empowerment of youth is
necessary. There may be social costs related to youth exclusion if development programmes do
not focus on youth. Since the informal micro-businesses have become a strategy to respond to
unemployment, understanding youth-owned businesses in this sector from a social development
perspective may contribute to the reappraisal of programmes for economic empowerment of
youth. RSA‟s National Youth Development Agency (NYDA) (2011) notes that youth
development needs an intentional comprehensive approach that provides space, opportunities
and support for young people to maximise their individual and collective creative energies for
personal development as well as the development of the broader society of which they are an
integral part. This study aims to offer such an approach. The reasons for conducting such studies
are, first, that they can recapture the productive potential of underutilised youth in the economic
sphere (ILO, 2006). The second is that they can rekindle the productive potential of youth and
ensure the availability of suitable employment opportunities for them (Ryan, 2001). Third, a
focus on youth is imperative in that they are the drivers of economic development in a country
(ILO, 2006).
The promotion of youth businesses as a possible source of job creation, empowerment and
economic dynamism in a rapidly globalising world has, in recent years, attracted increasing
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policy and scholarly attention (Chagunta, 2002). Despite this, there has been no systematic
attempt to investigate youth entrepreneurial challenges in Africa (Chagunta, 2002). This has
resulted in a lack of an adequate understanding of the potential benefits of youth businesses as a
means of improving youth livelihoods. Immigrant youth in SA are trapped in a vicious cycle of
poverty due to unemployment. This has pushed a number of these immigrants to establish
informal micro-businesses (PGWC, 2007). Mead and Lindblom (1998) note that in southern
Africa it is estimated that 1% of new micro-enterprises make the transition to a successful
established small enterprise. This notion shows that there are many challenges faced by informal
micro-enterprises hence research is necessary.
1.5 Research goal
The broad goal of this study is to explore the circumstances and experiences of youth immigrants
when establishing and running a successful informal micro-business.
1.6 Main research questions
1. What is the understanding that immigrant youth and service providers have of the formal
and informal sectors of the economy in South Africa?
2. What are the views of immigrant youth and service providers about why immigrant youth
start informal micro-businesses?
3. What are the views held by immigrant youth and service providers on the major
challenges that immigrant youth face in running their informal micro-businesses?
4. What are the strategies that immigrant youth employ to overcome these challenges?
5. What are the sources of support that youth draw on for their business?
1.7 Research objectives
1. To ascertain the understanding of immigrant youth and service providers of the formal
and informal sectors of the economy in South Africa.
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2. To explore the views of immigrant youth and service providers as to why immigrant
youth start informal micro-businesses.
3. To explore the views of immigrant youth and service providers about the major
challenges that immigrant youth face in running their informal micro-businesses.
4. To ascertain the strategies that immigrant youth employ to overcome these challenges.
5. To identify the sources of support the youth draw on for their business.
1.8 Clarification of terms
This section defines some of the key terms that were used in this study. These terms are
contested but the researcher explains how they are used in the context of this study. The terms
are discussed in more detail in Chapter 2.
Youth
According to the South African National Youth Policy (NYP) (2009) youth are young men and
women between the ages of 14 and 35 years. The researcher targets youth of 26-34 years, a
smaller group than that specified in the NYP (2009). This is so because age influences
entrepreneurial activity and the prevalence of early-stage entrepreneurial activity tends to be
relatively low in the 18-24 years cohort and peaks among the 25-34 years cohort (Herrington,
Kew & Kew, 2010).
Immigrants
Immigrants are people who have left their countries of origin and have settled in another country
(Canadian Council for Refugees, n.d.). These people are classified into two categories: legal and
illegal immigrants. The illegal immigrants are those people who enter a foreign country but do
not meet that country‟s requirements for legal entry (UN, 2000). In this study the focus is on
legal immigrants who have permits to work in South Africa. These immigrants are from southern
African countries.
Informal sector
There are three schools of thought which define the informal economy. These are the dualist,
structuralist and the legalist school (see Section 2.5.2 for a discussion of these schools of
thought). In this study, the researcher uses the legalist definition which targets enterprises which
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are not registered with any government board, municipality or department (Small Enterprises
Development Agency (SEDA), 2010).
Informal micro-enterprise
Micro-enterprises are those employing four or less people (SEDA, 2010). This study targets
unregistered businesses which employ four or less employees.
Successful informal micro-enterprise
There is a narrow and a broader definition of success. Scholars who apply the narrow definition
commonly use employment growth as a parameter (Mead & Liedholm, 1998). Other scholars
link success with survival/duration in business (Van Praag, 2003). In addition, some scholars use
profit as an indicator of success (Robb & Fairlie, 2007). Lumpkin & Dess (1996) argue for a
comprehensive measurement of success which goes beyond a single indicator since alternative
measures of firm performance may vary depending on the type and size of these firms. In this
study the researcher focuses on the number of years that the business has been operating which is
a minimum of two years for viability purposes. Sawaya in Berry et al. (2002) argues that in
South Africa viability is measured after 42 months though it varies with contexts, hence this
study targeted 2 years. The perceptions of the owner were also considered: whether they believed
that their business is successful and were not considering leaving the business whenever a job
opportunity arises.
Manufacturing business
These are businesses that use tools or capital equipment in a production process in which raw or
intermediate products are used to produce final (or intermediate) goods for use or sale as
intermediaries, or as final products, either domestically or internationally (SEDA, 2012). This
study is concerned with informal enterprises that manufacture goods locally.
Unemployment
The narrow definition states that only those people who take active steps to find employment,
but fail to do so, are regarded as unemployed (Reserve Bank of South Africa (Resbank), n.d.).
The expanded definition, on the other hand, includes everyone who desires employment,
irrespective of whether or not they have actively tried to obtain employment (Resbank, n.d.).
Statistics South Africa uses both definitions, but currently the strict definition is regarded as the
official one. Both definitions are used in this research, depending on the issues being discussed,
but the researcher mostly relies on the official narrow definition.
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Strategies
A strategy is a business approach to a set of competitive moves that are designed to generate a
successful outcome (Summer, 2009). A strategy becomes necessary for the direct achievement of
the main goal in the face of opportunities and challenges (Summer, 2009). In the face of
challenges, strategies are courses of actions employed to overcome these challenges, and in the
face of opportunities, they are courses of actions taken by individuals to exploit opportunities to
their advantage.
1.9 Research design and methodology
Marshall (1996) argues that the choice of a research design is determined by the research
question, not by the preference of the researcher. The reason for conducting this research is
rooted in the intense interest of the researcher in exploring youth immigrants from southern
African countries that are running successful informal micro-businesses, their current
circumstances and experiences. The researcher intended to hear the voice of these youth and
selected service providers, hence qualitative research was necessary. The researcher believes that
such information about experiences and circumstances is subjective and cannot be explored
through surveys or positivist methods. A purposive sampling technique was applied to select the
twenty immigrant youths and the four key informants. In-depth interviews were conducted with
the use of an interview schedule and were recorded. The researcher transcribed the data
collected and used data analysis methods to construct the themes and categories that emerged
from the study using Tesch‟s (1990) data analysis method cited in De Vos and Fouché (1998).
The research design and methodology used is explained in detail in Chapter 3.
1.10 Ethical considerations
Halai (2006) states that sound research is a moral and ethical endeavour and should ensure that
the interests of those participating in that study are not harmed as a result of the research being
undertaken. Several researchers emphasise that ethics are the cornerstone in conducting effective
and meaningful research (Best & Kahn, 2006; Field & Behrman, 2004; Trimble & Fisher, 2006).
In this study ethics were not detached from the whole research project. In fact, the researcher
considered this aspect as a critical component in all stages. It formed the foundation of the
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research process. The goal of the study, the questions to be explored, the objectives to be met
and the steps to be followed were set, all bearing in mind that the moral integrity of the
researcher is a critically important aspect that ensures that the research process and researcher‟s
findings are trustworthy and valid. Above all, since the study involved subjects, as Strydom
(2011) states, the research should be based on mutual trust, acceptance, cooperation, promises
and well-accepted conventions and expectations between all parties involved in the research
project. The researcher endeavoured to ensure this kind of cooperation and trust with the
participants. Since ethics was a key component in the study, it is imperative that the researcher
discusses them in this chapter.
Informed consent and voluntary participation
It is generally agreed by social science researchers that informed consent is a prerequisite for all
research involving identifiable subjects (Richards & Schwartz 2002). Halai (2006) states that
researchers are expected to obtain informed consent from all those who are directly involved in
research or in the vicinity of research. He states that this principle relates to respect for
participants and the assurance that they are not coerced into participation. It also prevents the
researcher from having access to information prior to consent being granted. In this study the
researcher informed participants about key elements of the research, such as the purpose for,
procedures and time period of the study. The researcher solicited voluntary participation from
the first contact with participants until the day of interviewing. Verbal consent was asked for in
the process of gaining entry during which the researcher explained the study to the participants
that he had contacted in the first instance through face-to-face conversations. The researcher also
gained the consent of participants through verbal agreements telephonically, as timeous follow-
up calls were also made. Participants were also reminded that participation was voluntary at the
start of the interview. In the interview schedule there is a clause stipulating that participation is
voluntary and the participants have the right to withdraw from the study prior to or during it (see
Annexure A and Annexure C). Consent was not a once-off event undertaken at the start of a
project, it was rather a process negotiated throughout the course of the study, as Halai (2006)
puts it. This was done so that participants did not feel obliged to participate but could withdraw
from participating in the study if they wanted to.
Deception of subjects
Corey, Corey and Callahan (1993) note that deception involves withholding information in order
to lure respondents to participate, or offering incorrect information in order to ensure
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participation. The researcher clarified the objectives of the research to the participants. Some
participants asked if they would benefit financially from participating in the study. The
researcher ensured that their hopes were not raised in this regard, and explained that the study
was being done for academic purposes, though it may influence policy and benefit some
immigrant entrepreneurs like themselves in time if some of its findings were considered by
policy implementers. The researcher, nevertheless, made it clear that he was not part of the
implementation body. He provided comprehensive and correct information to participants so that
they clearly understood what their participation entailed.
Confidentiality
Confidentiality of the information divulged by participants is central to ethical research practice
in social research (Wiles, Crow, Heath & Charles, 2006). The researcher felt obliged to pay
special attention to confidentiality issues. Gilgun (2010) notes that the setting in which research
is conducted may be an important factor in considering a potential invasion of privacy and
confidentiality. The researcher, thus, gave participants the option to choose where they wanted
the interviews to be conducted. Eighteen of the twenty youth participants chose to be interviewed
at their places of business. Two participants indicated that they wanted the interviews to be
conducted at their homes. Service providers preferred the interviews to be conducted in their
offices. In addition, the researcher conducted the interviews alone and unaccompanied, so as to
avoid any threat to privacy and confidentiality. Furthermore, the researcher assured participants
that their data was held in strict confidence and their anonymity protected. Participants were
given an opportunity to choose the name that they wanted to be called during the interview.
Though all of them preferred their own names, only pseudonyms were used on transcripts and in
the report. In addition, the bank and the NGO that were interviewed requested that their
organisations should not be mentioned which the researcher adhered to. The names of the four
service providers interviewed and their positions have been kept anonymous. Only names of two
service providers are mentioned, namely a government department and a government agency.
The digital recorder was used strictly for research and was not shared with anyone else. All
records about this research study were kept locked up so that no one could listen to the recorded
interviews or read the transcripts other than the researcher‟s supervisor.
Participants access to the research report
Participants were informed that an electronic copy of the final report would be made available to
them. Another electronic and hard copy would be available in the UCT Library.
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1.11 Reflexivity
While conducting this study the researcher was aware of his own biases as an immigrant youth
studying in Cape Town, South Africa. He was aware that he could have been more inclined to
believe what immigrants were saying, rather than being critical of their comments. The
researcher undertook a literature review so that preconceived ideas about an immigrant‟s
challenges regarding informal micro-enterprises could be unlearnt. This enabled the researcher to
learn that experiences of immigrants are diverse and different due to the context. This allowed
the researcher to have a mind open to new and fresh learning from the study. The guidance of a
supervisor was helpful in this regard, through commenting on work submitted and motivating the
researcher to deepen the analysis. These steps reduced possible biases of the researcher.
1.12 Structure of the research report
Chapter : Introduction
This chapter highlights the focus of the study. The researcher presents the background of the
study, the setting of the study, the research problem, rationale and significance, the research goal,
main research questions, objectives, clarification of key concepts, and the layout of the research
report.
Chapter 2: Literature review
The chapter sheds more light on the body of knowledge in which this study can be located. The
chapter discusses and lays out the theoretical framework of the study. It includes a discussion on
the background of the informal sector, legal frameworks, as well as programmes and policies
that have been implemented relating to informal micro businesses in South Africa. Finally a
review of various agencies, organisations and institutions dealing with youth micro informal
businesses is presented.
Chapter 3: Methodology
The chapter explains the research design, sampling process and procedure, data collection
procedure and tools as well as the data analysis method which was used. The discussions include
the rationale behind the selection of a particular method or tool. The chapter ends with a section
on the limitations of the study.
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Chapter 4 Presentation and analysis of the findings
Following an analysis of data gathered, the researcher outlines the research findings. These are
presented in the form of themes, categories and sub categories that emerged from the analysis.
The findings are presented, compared with literature and discussed, with relevant quotations
from the participants included to support the findings.
Chapter 5: Conclusions and recommendations
The chapter draws conclusions from the study. It also sheds light on the extent to which the
objectives of the study were achieved. Recommendations are offered for the consideration of the
immigrant youth, government and NGOs, as well as areas for future research.
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CHAPTER 2: LITERATURE REVIEW
2.1 Introduction
Since this study focuses on youth, the researcher defines the concept youth at the outset. This is
followed by a section outlining the theoretical approaches that underpin the study. It was
imperative to apply the social exclusion theory since it relates to marginalisation of youth in the
economic landscape (see Section 1.3). The human capital theory and the social networks are
relevant in that they unfold the skills and strategies relevant for a business to succeed. The
informal sector is contextualised and an analysis of the challenges is stated. The researcher also
discusses previous research conducted on this phenomenon followed by an emphasis on the
policies, programmes, agencies and service providers designated to support these businesses in
South Africa. The following section discusses how the review of literature was done.
2.1.1 Literature review methodology
As part of the planning process the researcher conducted a literature review which involved
surveying of important articles, books and other sources pertaining to the research topic. Some
online material was used so as to access the current debates surrounding youth unemployment
and informal micro-businesses in South Africa. An in-depth review of youth policies and
programmes targeting this phenomenon was done and was enhanced by visiting the government
departments‟ official websites to check their projects and programmes. This was done mainly to
contextualise the study.
2.2 Understanding the youth concept
In principle it seems easy to define „youth‟. In reality however, the term is contested and there is
no single definition for it. The concept varies from culture to culture and from one society to
another and within societies (Chagunta, 2002; Muzwake, 2005). The concept is also used
differently by different governments, NGOs and the public in general (Mkandawire, 1996).
Moreover, this group is faced with several social, economic and developmental challenges (see
Section 1.4).
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2.2.1 Defining youth by age
Defining youth by age is adopted mostly by countries that make it relevant to the historical and
current issues that need to be addressed. The age range 15 to 24 is often used by the United
Nations. The National Youth Policy 2009-2014 defines youth by age, from 14 to 35. This
definition is inconsistent with the definition of youth as contained in the African Youth Charter
(AU, 2006), which defines youth as those between the ages of 15 and 35 years. Moreover, the
Children‟s Act (2005) defines a child as someone below the age of 18. This shows that some
youth between 14 to 18 years are considered children. This indicates the complexity of defining
youth. Muzwake (2005) argues that many young people in Africa are hindered pursue
independence or sustain themselves (see Section 1.4). Though broadening the age limits was
argued to be inclusive, youth are not a homogeneous group; the challenges and opportunities
affecting their lives may be broadly similar but are characterized by important differences
(World Bank (WB), 2006).
2.2.2 Youth as a series of transitions
The WB (2006) defines youth as a series of transitions from childhood to adulthood. This
transition takes place through a process of intense physiological, psychological, social, and
economic change. It is marked by the acquisition of various adult statutes marked by events such
as employment, leaving school, marriage and voting, among others deriving from unique
contextual circumstances. Among other transitions the WB defines youth as a transition from
school to work which this study targets. This transition is not easy especially in Africa where
unemployment limited business opportunity hinder this transition (see Section 1.4).
2.4 Theoretical frameworks
In this section the researcher discusses three theories that underpin this study, namely, social
exclusion, social capital and human capital theories.
2.4.1 Social exclusion theory
Reducing social exclusion as an aim of youth programmes is a laudable goal of development
practitioners, but the definition of, and normative justification of strategies and programmes
reducing, social exclusion are complex. Toye and Infanti (2004) define social exclusion as a
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concept used to describe broadly both the structures and the dynamic processes of inequality
among groups in society which, over time, impact on society. Social exclusion can occur as a
result of a wide variety of factors, including unemployment, poor health, a lack of education or
affordable housing, racism, fear of differences, or political disempowerment (Guildford, 2000).
These factors impact on access to critical resources that determine the quality of membership in
society. There is a proven link between youth unemployment and social exclusion (Ryan, 2000).
Regarding this study, one would see that the position of immigrants is especially dire as they
lack access to capital to start their small businesses (USC, 2012). As mentioned in Section 1.4,
the target group in this study is excluded from the economic landscape, because they are youth
(see Section 2.6.1) as well as because they are immigrants (see Section 2.6.2), hence using this
lens to study such a marginalised group provides deeper insights as to the circumstances and
experiences they face.
2.4.2 Human capital theory
Human capital is defined as the knowledge, skills, competencies, and attributes embodied in
individuals that facilitate the creation of personal, social and economic (Brüderl, Preisendörfer &
Ziegler, 1992). Human capital theory suggests that individuals drive economic benefits from
investment in education and skills (Spulber, 2009). Human capital attributes, such as personal
characteristics, age, years of education and training, work experience of the owner manager and
industry specific experience, determine the level of success of the business. Human capital acts
as a resource that enables the success of an enterprise since it enables owners to act in new ways
(Coleman, 1988). According to Cooper, Gimeno-Gascon and Woo (1994), management know-
how and background of the person contribute positively to success or failure of the enterprise.
This notion is supported by Brüderl et al. (1992) who argue that there is a general belief that
business owners with human capital endowments will be more likely to own surviving firms.
This theory is vital in this study, since several studies have shown that human capital
endowments are inseparable from the success of a business. There are different categories of
skills, namely personal, technical, business operations and management skills (Smith & Perks,
2006). A combination of these skills is necessary for the success of an informal micro-enterprise.
Vosloo (1994) states that personal skills like good organisational talents; good problem-solving
abilities; good communication skills; the ability to handle stress effectively; good leadership
qualities; a high degree of independent decision-making, and negotiation skills are necessary for
success. Marketing skills are also important, as Richardson (1996) states that customer focus is
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now the most important determinant of business success, and consequently marketing is a
powerful force in today's society. Kuratko and Hodgetts (1989) put more emphasis on technical
knowledge, stating that it enables one to „understand how specific things work‟. This is
necessary knowledge, especially in the manufacturing industries where one needs to know to
process knowledge or how to manufacture the relevant product and all the steps that need to be
taken to do so (Smith & Perks, 2006). Furthermore, skills can lead to the manufacture of quality
goods. Moreover, Garvin (1998) notes that businesses can be successful if their owners adhere to
the level of quality desired by their customers.
King and Abuodha (1995) note that educated business owners are generally more responsive to
policy measures than uneducated owners. Added to the notion of education is the importance of
skills and experience in the industry that the youth operate in. Rogerson (2001) notes that
education and training account for the success of enterprises in South Africa. Ebony
Development Alternatives (1995) in Rogerson (2001) notes that its research established that
successful enterprises are those whose owners had prior industry experience, usually with larger
enterprises. Further, a basic level of education as well as some essential technical knowledge is
of fundamental importance.
The literature has emphasised the positive contributions of the owner to the success of the
business. In addition, Berry et al. (2002) state that it is the skills, behaviours and attitudes which
individuals have contributed to personal effectiveness that are the key to the survival and growth
of new enterprises. Brockhaus in Witbooi, et al. (2011) reviewed a number of psychological
attributes necessary for the success of new business start-ups. The personal attributes mentioned
were willingness to take a greater degree of risk (Alam in Witbooi, et al., 2011). In his research
Witbooi et al. (2011) concludes that personal attributes are inseparable from the success of the
enterprise in Africa. This shows that human capital is essential for studies about focusing on
successful enterprises.
2.4.3 Social capital theory
The role of social networks in markets and economic action, outcomes and institutions is widely
acknowledged and has been studied for decades by social scientists, particularly sociologists
(Richardson, 1996; Coleman, 1988). Although there is no single, coherent social capital theory,
three assumptions are commonly made. It is argued that social capital depends on the number of
contacts, individuals with a willingness to offer help, and resources available (De Graaf & Flaph,
1988). It is evident that the requirements for business success have changed dramatically from
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those of the past decade (Richardson, 1996). Businesses are beset with competition and there is a
need for marketing and building relationships in order to access customers. Customer focus is
now the most important determinant of business success alongside marketing, which is the
segment of management practice that deals with company-customer relationships (Richardson,
1996). In addition, Cupido (2002) and Albright (2000) in Witbooi et al (2011) notes that social
intelligence plays a critical role in the success of a business. The skill of networking and
branding builds relationships, not only with current stakeholders, suppliers and customers but
also with prospective individuals who may want to do future business with you (Cupido, 2002).
This is supported by Buttle (1998) who points out that personal referral through social networks
has an impact on customer behaviour. Networking by immigrants, however, is limited to co-
ethnics and most immigrant entrepreneurs are not members of regional chambers of commerce
(Fatoki & Patswawairi, 2012).
Social capital also facilitates entrepreneurship and start-up and network formation (Chung &
Gibbons, 1997; Coleman, 1988). In his 2000 research on clothing enterprises Rogerson found
that, in the majority of cases, start-up capital was secured either from family, friends or from the
entrepreneur‟s own savings. He argues that there is a need for networks of support for businesses
to succeed. This theory enables the researcher to analyse using the lens of networks as a resource
for the success of their businesses.
2.5 The informal sector
The informal sector is believed to be a major contributor to employment creation (ILO, 2006). It
accounts for about 60 to 80% of employment (ILO & WTO, 2009). Though a great deal of
research has been conducted about this sector, an understanding of it is contested. In this section,
the researcher outlines the emergency of the informal sector globally in the following
subsections, and examines the definitions of and the schools of thought around this sector in an
attempt to analyse it.
2.5.1 Historical background to the informal sector
The informal sector as a concept was conceived in the 1970s. It was perceived as marginal and
peripheral to the mainstream economy and not linked to the formal sector or to modern capitalist
development (Becker, 2004). It was rarely supported, and sometimes actively discouraged by
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policy makers and governments (ILO, 1972). Additionally, it was believed that this sector would
disappear once sufficient levels of economic growth and modern industrial development were
achieved in developing countries (Becker, 2004). In recent years, however, the informal sector
has increased to the extent that 70% of the workforce in Sub-Saharan Africa is employed in the
informal economy (Becker, 2004). In fact, Zindiye & Mwangolela (2007) observe that the
informal economy can lead to social and economic transformation in emerging economies. Many
governments, RSA also in recent years, are preoccupied with making appropriate policy
frameworks and strategies aimed at the development of the informal economy. This is due to the
acknowledgement of this sector as an employment creation strategy (see Section 1.1).
2.5.2 Understanding the informal sector concept
Sherifat (2011) argues that the informal economy in developing countries should be analysed as
a sector that emerges as a result of crisis. The definition is widely contested. For instance, it is
referred to as the „irregular economy by Ferman, Stuart and Hoynman (1987), the subterranean
economy by Guttmann (1977) and the underground economy (Simon, 1982). These definitions
show that the sector has been viewed negatively throughout history and may indicate why it is
mainly operated by the marginalised and vulnerable groups in society.
There are three schools of thought that can help to define the informal sector. These approaches
are the dualist approach, the structuralist and the legalist approach (Rao, 2011). The dualist
approach considers the informal sector as comprising marginal activities, distinct and unrelated
to the formal sector (ILO, 1972). This approach is based on the fact that informal activities
emerge due to limited opportunities in the formal sector. Surplus labour, low economic growth
and high population growth may act as catalytic agents for the underprivileged to operate in the
informal sector, thereby providing income for the poor and a safety net in times of crisis (ILO,
1972; Castells & Portes, 1989). The structuralist school is mainly concerned with the
relationship between the formal and informal sectors. This approach views informal activity as
closely linked to the formal sector, though the relationship between these two sectors is not
always functional. Exploitation and competition mostly ruins the relationship, hence these two
sectors are referred as to the „centre‟ and „periphery‟ respectively (Bhorat et al., 2001).
Furthermore, it is excluded from exporting its products, though not the case in RSA which makes
raising money through official channels difficult (Schiebold, 2011). In contemporary economies
there is less interdependency but much marginalisation, exclusion and segregation (Bhorat,
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Leibbrandt, Maziya, Van der Berg & Woolard, 2001). The third and most commonly used
approach is the legalist school.
Rao (2011) notes that the legalist school views the informal sector as being comprised of micro-
entrepreneurs who choose to operate informally to avoid the costs, time and effort associated
with formal registration. This sector comprises businesses that are not registered. De Soto (1989)
argues that the economy will continue to produce informally as long as government procedures
are cumbersome and expensive. Maloney (2004) suggests that informal entrepreneurs
deliberately avoid regulations and taxation and may deal in illegal goods and services. One
cannot, however, generalise that all enterprises are not registered by design so as to cut costs.
The next section discusses the informal enterprises in South Africa.
2.6 Informal micro-enterprises in South Africa
Research done in South Africa regarding informal micro businesses has shown that this is not a
new phenomenon in the country. According to The Presidency (2003) the informal sector has
grown significantly since 1996. In 1996, around 19% of those employed were in the informal
sector of the economy, rising to 26% by 1999 (SEDA, 2006). The government saw much
potential in investment in the informal sector as an economic empowerment vehicle (see Section
1.1). As a result of this positive contribution, significant attention and investment, ranging from
the establishment of state-initiated projects to supportive legislation, and a variety of funding
mechanisms and incentives through the DTI were promoted (The Presidency, 2003). Statistics
show that by 2003 2.3 million people owned at least one unregistered company (DTI, 2003).
Despite the noted contributions (see Section 1.1) of new micro-enterprises, their failure rate in
South Africa is one of the highest in the world (Zindiye & Mwangolela, 2007). About 75% of
new SMMEs in South Africa do not become established firms. Sawaya (1995) notes that the
probability of a new SME surviving beyond 42 months is less likely in South Africa than in any
other Global Entrepreneurship Monitor sampled country. This is due to the environment in
which they operate. It is the adoption of the free market system that has marginalised the
informal sector which has to compete with established enterprises (NYDA, 2011). This indicates
that much needs to be done in order to make the South African economy conducive for emerging
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informal micro-enterprises. The next two sections briefly discuss youth immigrants and micro-
businesses in South Africa, the focus area of this research.
2.6.1 Youth and micro-businesses in South Africa
Increasing the number of youth owned businesses is important if issues of economic
empowerment are to be addressed (see Section 1.2). In South Africa data from FinScope 2010
indicate that of those between the ages 16 and 35 who venture into business, 29% do so because
they are unemployed while only 14% do so because an opportunity has arisen for them (NYDA,
2010). In many instances businesses that have been started out of desperation have been found to
have failed before reaching maturity (NYDA, 2011). Data show that out of the total of 2050
youth-owned business surveyed only 279 were registered (NYDA, 2011). This shows that the
largest proportion of unregistered businesses is owned by youth. It also may indicate that there
are a plethora of problems that are unique to youth which affect them when it comes to
registering formally.
2.6.2 Immigrants and informal micro-businesses in SA
There are a growing number of immigrants who run informal micro-businesses in SA (Rogerson,
2007). The businesses of immigrants from Sub-Saharan Africa represent a new critical element
in the informal economy of post-apartheid South Africa (Peberdy & Rogerson, 2000). These
authors note that there are a number of immigrants who are involved in informal micro-
businesses. They are mainly involved in retail businesses, while others are in the production
sector (Rogerson, 2007). However they face serious obstacles (see Section 2.7). Having
discussed the informal micro-business context in South Africa, the next section deals with the
main reasons why such enterprises are established.
2.6.3 Reasons behind the establishment of informal micro-businesses by immigrants
There are a number of reasons why youth immigrants start informal micro-businesses.
Unemployment is predominantly the major reason why immigrants start informal micro-
businesses (see Section 1.1 and 1.3). Since immigrants are at a disadvantage in the labour
market, and if they are employed, often have less prestigious jobs and lower earnings compared
with their South African counterparts (Borjas, 1994; Aguilera, 2005). It is with this view that
USC (2012), Owusu (2005) and Agupusi (2007) argue that informal businesses are established
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as an alternative to working for low wages, as a key strategy for economic growth, job
generation and poverty reduction.
Other reasons noted in the literature include the need for achievement and the desire for
independence (Kalitanyi & Visser, 2010). Moreover, self-employment and a desire for
independence trigger immigrants to start new ventures (Moreland, 2006; Kirkwood, 2009). This
shows that the reasons for starting a business vary from individual to individual.
2.7 Challenges faced by informal micro-enterprises
Challenges faced by informal micro-businesses are diverse and vary due to the nature and
location of the micro-enterprises (Cupido, 2002; Rogerson, 2001). These challenges include lack
of institutional support, access to finance, skills, access to lucrative markets and access to
suitable working space as well as cultural challenges.
2.7.1 Financial challenges
Lack of financial support is the second most reported contributor to low new firm creation and
failure, after education and training in South Africa (Olawale & Garwe, 2010). Since many new
ventures are started because of high unemployment (see Section 2.7), it is clear from the onset
that capital to start and manage the micro-business may not be available. In addition, there are
challenges associated with accessing capital from sources of support (Cupido, 2002). Financial
institutions are unable or reluctant to assist with finances because they are risk averse, and no
financial institution is prepared to take risk unless the expected rate of return is high (Cupido,
2002). FinMark Trust notes that only 2% of new SMMEs in South Africa are able to access bank
loans (Nieman & Nieuwenhuizen, 2009). Foxcroft, et al. in Berry et al. (2002) found that 75% of
applications for bank credit by new businesses in South Africa are rejected. This is because they
lack collateral security for them to secure loans.
2.7.2 Skills challenges
As discussed (see Section 2.4.2), it is less likely for someone without relevant skills and
experience to start a new venture. The possibility of skills rests on training and education. This
seems unlikely in South Africa due to the education system which has failed to transform the
lives of youth and to impart skills which are necessary for them to be competitive in the labour
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market (Altman, 2008). Moreover, Olawale & Garwe (2010) states that skills challenge is that
major contributor to business failure. A lack of education and training can lead management
incapacity (see Section 2.4.2).
2.7.3 Crime and violence
Businesses are the largest organised group suffering from crime and violence in SA (Gape, 1999;
Isaacs & Freidrich, 2007). The Presidency (2008) notes that, by international standards crime is
one of the four major constraints to enterprise operation and growth in SA. Emerging immigrant-
owned businesses are likely to be victims of crime. About 30% of enterprises of all sizes
surveyed for the WB‟s Investment Climate Report: South Africa (2005), said that crime was a
major or very serious problem, and enterprises of all types were likely to rate crime among the
top four constraints to doing business (The Presidency, 2008). Emerging businesses in informal
settlements like Khayelitsha are likely to be victims of crime because violence, theft, robbery
and other deviant behaviours are rampant in that area (PGWC, 2007).
2.7.4 Language and networking challenges
Language and networking challenges are largely experienced by immigrants. Immigrants are a
potentially vulnerable group, and they take time to assimilate with the local community (Bosma,
van Praag & de Wit, 2000). De Varennes (n.d.) argues that immigrants who may not master the
official language(s) are detached from traditional support and family networks, exposed to a
society with ways of life or cultures which they may find at times alien may face problems that
can leave them disoriented and disturbed. In addition, Bowles and Colton (2007) when
describing the challenges of immigrants in New York city state that immigrants contend with
challenges that go above and beyond those faced by other business owners. These authors state
that, among other challenges, language barriers are the major problem faced by immigrants
starting businesses. Sometimes local populations may not appreciate or understand the impact
and value of immigrants on economies and societies (De Varennes, n.d.). This creates tension
between this group and the locals. In South Africa, immigrants face challenges especially due to
the xenophobic tendencies of the local population. A number of studies suggest that many South
Africans are uneasy about immigrants (Leggett, 2003).
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2.7.5 Securing an area from which to operate
In his 2002 study, Cupido concludes that new ventures struggle to secure an area from which to
operate. The Informal Trading Policy and Management Framework (2004) of the City of Cape
Town, stipulates that anyone wanting to access an area of operation must have a South African
identity document. This can pose a problem for immigrants when trying to secure an area from
which to operate. This section focused on the challenges faced by informal businesses. The next
section deals with the legal frameworks in South Africa that support informal micro businesses.
2.8 The legal framework in South Africa
The government has a role to play in enhancing the success of informal micro-enterprises. Berry
et al. (2002) attach great importance to government promotion programmes for their growth. The
role of the government is threefold, namely, to promote micro-businesses, create enabling
environments and enhance competitiveness and capabilities at enterprise level (Nieman &
Nieuwenhuizen, 2009). The RSA government has enacted legislation, policies and programmes
to perform these functions. This section discusses the legal frameworks that have been enacted to
drive the micro-enterprise sector. Table 2.1 overleaf outlines the policies and legislation.
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Main objectives of the Act/Policy/Programme/Strategy
This was the basis for the government on its positive route to creating an enabling
environment for emerging and expanding SMMEs. Its main focus on the black owned
SMMEs and those who were disadvantaged from the past. The Act led to the
formation of the Small Enterprise Development Agency (RSA, 1996).
The framework intends to develop the sector and its participants into a commercially
viable and dynamic economic sector. It aims to provide appropriate infrastructural
support and entrepreneurial development services (City of Cape Town, 2004).
At the heart of this strategy is promoting entrepreneurship, enabling better access to
finance and markets, infrastructural facilities and business support programmes.
These are focused on improving quality productivity and competitiveness and
facilitation of technology transfer and commercialisation (RSA, 2008).
This policy was designed to integrate youth development into the mainstream of
government policies and programmes. It aims to strategically locate youth units/
directorates in such a manner that government departments both provincial and
national, and municipalities take direct responsibility of youth development issues.
This strategy commits the DTI and its relevant stakeholders to promote economic
empowerment of young people in RSA (RSA, 2009). It has three major objectives:
first is to ensure that entrepreneurial skills, talent and experience are nurtured among
youth, second is to ensure that youth are recognised as a key target group of need, and
a resource in the development of small enterprises within national, provincial and
local economies and, finally, to maximise access to financial and non-financial
resources for youth who are in business or planning to enter into a business (RSA,
2009).
The purpose of this policy is to create an enabling environment for the promotion of
youth economic empowerment. Create youth owned enterprises and employment, and
to promote youth entrepreneurship & skills development among the youth (RSA,
2012).
Table 2.1 Policies and programmes and their major objectives
2.8.1 Analysis of the policies and programmes
It is evident that many policies and strategies are in operation. Many scholars, however, have
critiqued them, stating that they replicate each other, and have done little to create effective
agencies to help support business owners to start up and grow their business (Tim, 2011). The
propounded critiques are presented below.
Irrelevant legal frameworks
Some of the legal frameworks are irrelevant to addressing the current challenges facing the
South African economy hence they need to be revised so as to face the new challenges of today‟s
economy (Gichuru, 1997). The City of Cape Town Informal Trading Policy and Management
Framework fails to support immigrants in business, yet Rogerson (1997) states that a number of
immigrants are operating informal micro-businesses in RSA.
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Good policies but less action taken
Less effort has been made to transform these policies into a reality (Tim, 2011). Though the
NYP (2009) established directorates for youth economic empowerment in most municipalities
and in provincial and national departments, there is a lack of practical evidence of the
transformation and empowerment of youth, especially regarding entrepreneurship and small
businesses (National Treasury, 2011). There is a need for these directorates to transform plans
into practice (Tim, 2011).
Inadequacy of these policies
These policies are inadequate to address the complex challenges which the informal micro-
businesses may face (Tim, 2011). The Integrated Small Enterprise Development Strategy does
not have targets for youth, but for only small businesses in general. The policy is inadequate to
help and support informal enterprises to survive the sometimes unfair competition from formal
business (NYDA, 2011). Policies have failed to mainstream youth economic participation in
micro-businesses, thereby turning a blind eye to the challenges and needs of youth, who may
have more specific needs than do the general populace (NYDA, 2011). The following section
discusses the institutions of support for informal micro businesses in South Africa.
2.9 The institutional framework in South Africa
The government has set up institutions to support new ventures. It has also embarked on an
integrated approach through public/private partnerships to gain support from all the sectors of the
economy in order to support the informal sector (DTI, 2009). The private sector and NGOs are
also major driving forces for the success of micro-enterprises. The table below explains these
institutions. This is followed by an analysis of these institutions (see Section 2.9.1).
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Institution
Major Function
Department
of Trade
and
Industry
(DTI)
The DTI has a long history of transformation. From 1933 it was known as the Department of Commerce
and Industry until in 1984 when it changed to what it is today. It was set up to facilitate economic growth,
the heart of which is job and wealth creation. It has established institutional frameworks to support micro-
enterprises. Inside DTI are the Enterprise and Industry Development Division, the Enterprise
Development Unit, the Enterprise Organisation and the Trade and Investment South Africa, all of which
are mandated to support enterprises in their respective fields (DTI, 2008).
City of Cape
Town
The municipality has a role to facilitate the formation of informal trader associations for the ease of
cooperation (Elindini Municipality, n.d). The municipality has the Economic Development Department
(EDD) with the responsibility of promoting economic growth, of projects and programmes, such as
entrepreneurship and informal trading business support facilities (City of Cape Town, n.d).
Small
Enterprise
Finance
Agency
(SEFA)
The Small Enterprise Finance Agency (SOC) Ltd, commonly known as SEFA, was established in 2012
through the Industrial Development Amendment Act, 2001 (DTI, 2012). This agency is mandated to
regulate lending and credit guarantees to SMMEs and to support the institutional strengthening of
financial intermediaries (SEFA, n.d).
The National
Youth
Development
Agency
(NYDA)
It was established in 2008 under the National Youth Development Agency Act (54 of 2008) to create
opportunities for youth employment and youth entrepreneurship by developing, funding and supporting
effective programmes. The agency was established in response to the high youth unemployment in the
country. In response to this the agency has training centres that were established that can assist youth in
imparting them with skills that may help them to be employable. In response to entrepreneurship, this
agency the grant programme, which offers loans to youth who want to start entrepreneurship initiatives or
start small businesses (RSA, 2008).
Commercial
Banks
Commercial banks play an important role in supporting emerging entrepreneurs and informal micro-
businesses. Banks provide start-up capital credit, information and advice micro-enterprises (Nieman &
Nieuwenhuizen, 2009). Some banks run mentorship programmes, assisting in the writing of business
plans, legal advice and financial management skills (Nieman & Nieuwenhuizen, 2009).
NGOs
There are several NGOs that offer support to youth enterprises in Cape Town. NGOs can provide
business advisory services on transformation, motivation, role modelling, business orientation and
facilitate entrepreneurial projects to young people through networks (De Soto, 2000).
Table 2.2 Institutions that support informal micro-enterprises
2.9.1 Analysis of the institutions
There are many institutions that offers support for micro businesses as outlined above. In spite of
the availability of these institutions, however, Tim (2011) notes that the micro-business culture
in South Africa remains low, hence the need to ask ourselves critical questions about the
effectiveness of these support agencies. Several studies have shown that populations in emerging
market democracies are excluded from participating in the formal economy because poorly
designed institutions prevent them from doing so (De Soto, 2000). Turton and Herrington
(2012) argue that early stage entrepreneurship is low in RSA and is 9% among youth of ages 25
to 34. De Soto (2000) identified that, weak institutions is the primary barrier to business growth
and he argues that development of institutions for business reforms targeted at challenging
barriers needs to be implemented. De Soto (2000) further argues that there is a need to establish
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connections with informal sector associations at the grassroots level for policies to be made
meaningful to these organisations. Below is a discussion of the shortfalls regarding policies
relating to informal micro businesses in South Africa:
Lack of coordination and duplication
As has been illustrated above, the government has many institutions whose duties and
responsibilities tend to overlap (Tim, 2011). Rogerson and Reid (1997) quoted in Berry et al.
(2010) note that there is poor co-ordination of service providers which results in a replication of
services.
The bureaucratic structure and inefficiency
Berry et al. (2002) argue that the bureaucratic structure of government agencies negatively
impacts micro-businesses, who struggle with red tape in trying to obtain finance. Government
lending schemes, were shunned by banks due to a high default rate, poor quality of applications
and a claims process marred by red tape (Tim, 2011).
Lack of outreach by these institutions
Bloch & Kesper (2000) quoted in Berry et al. (2002) note that there is a lack of outreach to
micro-enterprises. Both emerging and established micro-businesses show little awareness of the
existence of support initiatives. Many emerging SMMEs interviewed in Gauteng in Berry et al.‟s
(2002) study had never been in contact with, or even heard of, any support institution.
Criteria for getting support
Though commercial banks are closer to the people since their branches are located across the
country they are, however, not prepared to take risks unless the expected rate of return is high
(Rogerson & Reid, 1997). The requirements to access loans remain rigid and difficult
2.10 Summary statement
This section has, through an examination of the relevant literature, highlighted the theories that
underpin the study, the challenges faced and strategies employed by informal micro-businesses
and the legal environment and support institutions for them that exist in SA. The next chapter
outlines the methodology that was used in order to establish the circumstances and experiences
of youth immigrants when establishing and running a successful informal micro-business.
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CHAPTER 3: METHODOLOGY
3.1 Introduction
The goal of the study was to explore the circumstances and experiences of youth immigrants
when establishing and running a successful informal micro-business. Understanding the realities
of young people is not just a question of having the right research instrument, but there is the
fundamental question about the approach that is taken (Wyn & White, 1997). In the light of this,
it was imperative for the researcher to select the methodology that enabled participants‟ voices to
be heard. De Vos, Strydom, Schulze and Patel (2011) argue that the research process must, as far
as possible, be controlled, rigorous, systematic, valid and verifiable, empirical and critical for the
data to have meaning relating to the researched phenomena. The researcher‟s process to answer
the research questions in section 1.5 was thus done systematically. Additionally, the researcher‟s
choices on this journey were not haphazard. Selecting the research approach, research type,
research design, sampling procedure, data collection methods, tools and data analysis procedure
was as far as possible informed by the questions to be explored and the goal of the study which
forms the discussion in this chapter. Like any other process, however, this study had limitations
that could have impacted the study. In the light of this, the chapter ends with a section clarifying
the limitations of the study and explains how these were dealt with to avoid pitfalls.
3.2 Research approach
Marshall (1996) argues that the choice of research approach is determined by the research
question, not by the preference of the researcher. Since this study aimed at getting the subjective
interpretations of participants regarding their circumstances and experiences from
commencement to the running of informal micro-enterprises, a qualitative study rooted in the
intense interest of exploring, analysing and unfolding a phenomenon was imperative (Fouché &
Delport, 2005). Within the context of the exploratory study the qualitative approach was relevant
(Strydom, 2005). The study aimed at exploring the „why‟ and the „how‟ issues around immigrant
youth-owned informal micro-businesses, hence, employing a qualitative exploratory approach
was imperative.
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The qualitative exploratory approach is grounded within the interpretive epistemology, which
emphasises subjective meaning of social action (Fouché & Delport, 2005). Bryman (2001) gives
priority to this approach in that it involves seeing the world through the eyes of the participants.
Blaikie (2000) notes that the approach seeks to gain the insider view rather than the outsider
view. Heath, Brooks, Cleaver, and Ireland (2009) give credibility to the use of qualitative
research in issues relating to the youth, stating that it is a friendly approach. In today‟s society,
meanings of young people‟s attitudes and actions are all too often either assumed or based on
adult interpretations (Heath et al., 2009), thus hearing the voice of youth in this context has an
empowering objective. The approach allowed the researcher to hear the subjective voice of the
immigrant youth themselves. Moreover, since most immigrant youth are excluded and
marginalised as Borjas (2004) argues, a qualitative study broke this barrier from the onset and
was a step towards inclusion. The approach provided youth with opportunities to talk about their
experiences and concerns in establishing and running informal micro-businesses in their own
way. According to Kothari (1985), this approach unleashes the intricate phenomenon that may
not be conveyed in a quantitative approach. It uncovered and contributed to an understanding of
experiences in establishing and running successful informal micro-businesses. Moreover, it
facilitated the researcher gaining information about the perceptions of service providers and, the
own interpretations, meanings and understandings of immigrant youth about their situations and
circumstances regarding the establishment and running of their informal micro-enterprises. This
approach is also based on the fact that knowledge is contextual and situational (Mason, 2004). It
thus enabled the researcher during the interviews with service providers to follow up responses
along lines relevant to the context of the immigrant youth who operate informal micro-
enterprises. Using this approach, the researcher was able to explore a wide array of dimensions
like challenges faced, success stories, support structures and strategies employed in the
establishment and running of informal enterprises from the perspective of both service providers
and youth.
3.3 Research type
The researcher used applied research because the study aims to generate information that could
be used by policy makers and programme planners. Kothari (1985) states that applied research is
done to answer specific, practical questions: for policy formulation, administration and an
understanding of a phenomenon. As mentioned in Section 1.1 and 1.3, this study was done in the
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context of the global youth unemployment crisis, and targets informal businesses which are
currently used to respond to this challenge. It is thus problem-oriented and conducted to provide
potential clarification regarding immigrant owned informal micro-businesses. Since
understanding the challenges faced by immigrant youth running informal micro businesses is
somewhat complex, as explained in Section 1.1, applied research was critical to since it can
influence institutional policies and practices to enhance an understanding of these businesses.
3.4 Research design
Delport, Fouché and Schurink (2011) refer to a research design as decisions that a researcher
makes in planning the study. Since this was a qualitative study, the design was more than just a
set of worked-out formulas (Delport et al., 2011). In a subjective exploration, the research
design serves as a strategic framework for action that functions as a bridge between research
questions and implementation of the research (Fouché & Schurink, 2011). In this study the
choice of the design was influenced by the goal of the study, research questions, and research
type and approach. It was appropriate for the researcher to use a qualitative research design for
the purposes of this study.
3.5 Research methods
3.5.1 Research population
Research population is an aggregate or totality of all the objects, subjects or members that
conform to a set of specifications or possess the attributes in which the researcher is interested
(Strydom, 2005; Polit & Hungler, 1999). In this study all immigrant youth from southern African
countries engaged in informal micro-businesses in Khayelitsha formed the population. However,
as it was not feasible to interview the whole population, a clear sampling method and the setting
out of relevant criteria for selection of participants was important (see Section 3.5.3). Even in
respect of service providers, since they are diverse and many, the researcher had clear-cut criteria
for selection (see section 3.5.4).
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3.5.2 Sampling method
Sampling method should be ethical and feasible (Mason, 2002). Within the context of this
qualitative study, a purposive sampling method was feasible and ethical. This is the most
common sampling method in qualitative research where the researcher actively selects the most
productive sample to answer the research questions (Marshall, 1996). Marshall argues that this
sampling technique is influenced by the researcher's practical knowledge of the research area,
available literature and evidence from the study itself. In reality, however, this is more than just a
demographic stratification of epidemiological studies, though age, gender and social class might
be important variables (Marshall, 1996). It has to conform to a set of specifications which
enables one to gather rich data. In this study youth participants and service providers were
chosen using criteria (see Section 3.5.3).
The researcher also employed snowball sampling method to get the desired number of
participants. Strydom (2011) states that snowball sampling is used when studying the „can be
hard-to-reach‟ or hidden population. Since the researcher was able to get only 11 participants
through site visits, employing snowball sampling method was imperative (see Section 3.5.6).
This technique involved participants recommending useful potential candidates for study
(Marshall, 1996). Snowballing was used through probing participants about other immigrant
youth involved in informal manufacturing micro-businesses in Khayelitsha.
3.5.3 Criteria for selection of the participants
Miles and Huberman (1994) state that a more homogeneous sample is likely to generate rich
information on the phenomena studied. In this study, criteria for selecting participants was vital
because, although it was anticipated that the participants would be heterogeneous, the researcher
strived for a more homogeneous sample with characteristics which would as far as possible
advance the achievement of the goal of the study and answer the research questions. It is in the
light of this argument that the researcher could not select participants haphazardly but made a
strategic selection using those specific attributes. Below are the attributes of the sample that were
used:
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Geographical location:
The participants were chosen from Khayelitsha, because of high poverty levels in the area. The
majority of people in this area are unemployed and majority of those employed work in the
informal sector (see Section 1.2).
Nationality:
The participants were immigrant youth from southern African countries. The researcher targeted
southern African immigrant youth because immigrants in SA come from different regions and
may have different challenges and experiences. For this reason a sample of youth immigrants
with similar attributes due to countries which they come from was targeted. PGWC (2007)
argues that a large number of immigrants in SA from southern Africa, though statistics are not
available due to the reasons given in Section 1.7.
Immigrants status:
The participants who made up the sample had a relevant work permit. This was deliberate, since
the challenges faced by undocumented immigrants, or refugees may be different.
Age:
The participants were aged from 25 to 34 years, based on the fact that the prevalence of
entrepreneurial activity tends to be relatively low in the 18 to 24 years cohort and peaks among
the 25 to 34 years cohort (Herrington, Kew & Kew, 2010). Targeting youth in the same age
bracket (25 to 34 years) was done since they may face similar circumstances in the transitional
period.
Nature of business:
The businesses that were chosen were in manufacturing businesses. This was done because this
sector provides a locus for stimulating employment creation and economic empowerment (DTI,
2013). Since this research was done within the context of youth unemployment, focusing on the
manufacturing sector was vital.
Informal micro-business:
The study targeted businesses which were unregistered by any state department or agency which
qualifies them as being informal. Since they were micro-businesses, they were those employing
fewer than four employees including the owner (see Section 1.7).
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Successful informal business:
The researcher used both broad and narrow measures of success. The researcher targeted
businesses that had been in operation for at least two years which shows their viability. The
perceptions of the owner were also considered as to whether they believed that their business
was successful and would not leave the business in case an employment opportunity arises (see
Section 1.8).
Gender:
The researcher initially wanted a gender balanced sample, since the experiences may vary on
account of gender. This was not possible due to the challenges of getting women who fitted the
selection criteria, so the interviews were conducted with available participants, namely 18 males
and two females. According to Turton and Herrington (2012), 61% of early-stage entrepreneurs
are male while 39% are female. Women are still marginalised and still experience barriers of
entry (Rao, Venakatachalam & Joshi, 2012). The researcher was comfortable using this uneven
sample since the focus was on circumstances and experiences related to immigrant youth,
regardless of gender. Using these participants did not divert the focus of the research.
Co-owned businesses:
The researcher was aware that some businesses may be co-owned. In such instances the
researcher interviewed one person in the business who owned a greater percentage of shares, or
the one nominated by the business to take part in the study. Only one individual was interviewed
per business.
3.5.4 Selection of service providers
As this was an applied research endeavour, it became imperative to investigate the service
providers who are stakeholders in micro-businesses so as to be equipped with the perceptions
they had of the researched phenomenon. The researcher first reviewed literature to gain an
understanding of the stakeholders in the informal micro-business sector in SA, and to be sure
that additional information needed to be collected from service providers. Since the previous
research in this field did not target immigrants (see Section 1.3), it was vital to get the insights of
service providers on this almost new phenomenon.
Nieman and Nieuwenhuizen (2009) state that micro-enterprise support is built on the greater role
played by the private sector in provision of financial and non-financial services. Secondly,
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government departments should provide an enabling policy environment, critical support
services and capacity-building services that will facilitate the increased services to this sector.
Thirdly, government-owned and controlled agencies are involved in direct implementation of
support programmes. Finally NGOs provide business advisory services and can lobby the
government on behalf of these businesses (De Soto, 2000). Selecting the right informants was
central to this study. The informants chosen were people who not only understood immigrant
informal micro-businesses, but came from the four stakeholder groups explained above. This
provided in-depth information, informing the study from an expert point of view. In addition,
this allowed for data triangulation, clarifying the findings from the youth. This is why the
researcher chose organisations to represent a government department, an NGO, a government
agency and a commercial bank. The researcher did not attempt to identify the population of each
of the four groupings of service providers since they are large and their functions may be diverse.
The following four service providers were simply decided on by the researcher for the reasons
provided:
The private sector
The private sector was represented by a commercial bank which provides funding and training
programmes for SMMEs.
The NGO
An NGO was selected which had mentoring, funding, training and enterprise development
programmes for emerging businesses.
A government agency (NYDA)
The NYDA was chosen as it funded youth-owned businesses and had training and mentoring
programmes for youth owned businesses (see Section 2.11).
A government department (DTI)
This department is in charge of trade and industry in South Africa. It designs and implements
programmes and policies relating to small businesses. It was selected for this reason.
3.5.5 Summary of participants
The research used 20 immigrant youth participants who met the set criteria (see Section 3.5.3),
and four service providers, making a total of 24 participants. Samples for qualitative
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investigations tend to be small, for reasons that they try to answer the why and the how. Results
may not be generalised (Marshall, 1996). The researcher found these 24 participants to be
sufficient for the study objectives to be met.
3.5.6 Gaining entry and the selection of participants
One of the challenges in conducting research successfully is the ability to gain access to the
world of the potential participants (Feldman, Bell & Berger, 2003). Successful execution of the
design and data gathering is usually determined by the accessibility of the setting and the
researcher‟s ability to build up and maintain relationships and agreements with gatekeepers and
participants (De Vos, Strydom, Schulze & Patel, 2011). In this study this process entailed
identifying and encouraging potential immigrant youth and service providers to participate.
Gaining access however was not a simple task. The process requires some combination of
strategic planning, hard work and luck (Khotari, 1985). The researcher therefore put in place a
series of periodic visits to Khayelitsha. The first was in February 2012 to see the nature of
informal micro-businesses. Since Khayelitsha is an area associated with violence, the researcher
asked a friend who stayed in that area and had access to networks of young immigrants operating
informal micro-enterprises, to accompany him. This was also done for purposes of safety and
gaining entry. The researcher talked to a number of immigrants running informal micro-
businesses around the Khayelitsha train station area to develop rapport with them. The fact that
the researcher had knowledge of the local culture and was able to speak the local language at a
basic level facilitated the entry process. Accessing participants was not a once-off event. It was
rather a cyclic iterative process which was done at all the stages of the research. Fiedman et al.
(2003) states that participants prefer to provide information to someone they trust. In the light of
this, once a participant was selected the researcher maintained an open channel of
communication through periodic telephonic calls and visits.
Once the researcher had decided to focus on businesses in the manufacturing sector, he made a
second visit in March 2012 to do the initial selection of participants. The researcher managed to
recruit 13 participants on this single visit, moving from one business to another. The 13
participants were three females and ten men.
A third visit made in September 2012 revealed that only 11 of the 13 participants were still
available. Two participants were no longer operating in the area (one male and one female). The
researcher then undertook snowball sampling through the 11 available participants and was able
to recruit five more. The researcher then made a last visit for the year in December 2012, to tell
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the participants about the expected data collection date in March 2013. In February 2013 the
researcher visited the 16 participants to connect with them prior to interviews. In March 2013 a
pilot study was conducted with two of the 16 participants. A week later, the researcher visited
the recruited participants and through snowball sampling recruited six more participants who
agreed to be part of the study, making a total of 20. These were operating businesses at
Khayelitsha station. On this last visit the researcher set up appointments for the interviews with
the participants in April. During all the visits, relevant ethics were explained to participants (see
Section 1.9).
Access to service providers set in Section 3.5.4 was also not easy. The researcher targeted a bank
that he was familiar with; the NGO was one that he knew provided services to youth located in
Cape Town after researching on the internet. The government department and agency were
selected for the reasons in Section 3.5.4. The process started by searching for contact details of
the participants on their websites. The organisations were contacted telephonically in February
2013. The researcher was given the contact email address of the manager over the phone. He
then set up an appointment with the manager through the email. On the first appointment an
explanation of the research was given to the participants. An appointment was set up for
interviews in March. A follow-up call was made to the participants prior to the appointment date
as a reminder. During the course of all communication and contacts, the ethical considerations
were explained to the participants.
3.5.7 Data collection
This section discusses the data collection method and tools used and the rationale behind such
choices.
3.5.7.1 Data collection method
As this study was a qualitative study only qualitative data collection method was applicable. The
researcher used in-depth interviews. Greeff (2011) defines in-depth interviews as attempts to
understand the world from a participant‟s point of view, to unfold the meaning of people‟s
experiences, and to uncover their lived world prior to scientific explanations. Heath et al. (2009)
states that in-depth interviews provides a channel for the expression of opinions and experiences
of oppressed groups which other methods like questionnaires do not provide. In this study in-
depth interviews helped the researcher to gain knowledge about the perceptions and experiences
of participants at the start-up and growth phases of their enterprise. An understanding of such
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experiences could have been difficult to explore using questionnaires since they limit
participants in explaining their story. In-depth interviews allowed for a conversation between the
researcher and the participants. They helped the researcher and the participants to be actively
involved in the conversation. Additionally, it provided a more relaxed atmosphere in which to
collect information. Participants felt that they were not limited as regards their response to
questions that were asked. All the questions were open-ended and were followed up with probing
questions to gain clarity. Moreover, the process gave freedom to the participants to air their
views which, in turn, gave them control over the interview.
As far as the interviews with the young entrepreneurs were concerned, the shortest took
approximately 30 minutes and the longest an hour and twenty minutes. Eighteen interviews were
conducted at the participants‟ place of operation and two were done at their homes. The
interviews of the service providers took about 45 minutes to 1 hour. They were interviewed in
their offices. All the interviews were conducted in English, after confirming with the participants
that they were comfortable to converse in English. Heath et al. (2009) assert that in-depth
interviewing is relevant to research about youth since open-ended questions give modes and
discourse familiar to youth and they may give opportunities for them to ask questions if they feel
so which avoids a „question answer‟ approach to interviewing. The youth participants and
service providers asked questions of clarity and at times requested the researcher to elaborate.
They also asked for the rationale behind some of the questions the researcher asked. This was
evidence that this method gave the participants liberty to air their thoughts, thereby allowing
them to be partners in, rather than objects of the study. To improve the quality of data collection
process, the researcher first conducted a pilot interview so that deficiencies and mistakes could
be addressed before the actual interviews (see Section 3.5.8).
3.5.7.2 The interview schedule
An interview schedule is a set of questions written to guide interviews (Khotari, 1985). Because
this was a qualitative study, the interview schedule was used as an instrument to engage
participants and designate the narrative terrain. Mason (2002) is of the view that the interview
schedule forms the backbone of a qualitative design. The researcher worked with the supervisor
in designing the interview schedules for the youth and key informants. The researcher used a
language that is comprehensible and relevant to immigrant youth in informal micro-businesses.
Leading questions were avoided as this could distort data. The schedules had open-ended
questions. The schedules started with the introduction section and ended with the concluding
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sections. These two sections were important in seeking consent and reinforcing ethics. The
introductory section enabled the researcher to seek consent, explain that participation was
voluntary, and to explain the aim of the study. In the concluding section confidentiality was
reinforced. The researcher adopted a logical structure by grouping questions into sections and
proceeding from the general to the specific. The questions were arranged from simple to
complex. Additionally, questions were made simple and jargon was avoided as far as possible. In
the discipline of Social Research it is recommended that research questions, design and methods
are compatible (Bailey, 2005). Following this notion, the researcher arranged the interview
schedule for the immigrant youth into five sections (see Annexure A) while that of the service
providers had three sections (see Annexure C). These sections were influenced by the main
research questions and the objectives of the study. Those questions responding to a similar
objective and research question were grouped together. The structure of the interview schedule
was communicated to the respondents through a brief introductory outline of the areas to be
covered, so that they would know where the conversation was going. The schedule was used in
a flexible way, as a guide. The researcher did not need to use all the listed probing questions.
They were stipulated simply to serve as a reminder to the researcher about what data needed to
be collected.
3.5.7.3 The factsheet
To ensure that correct information about youth participants was captured, the researcher made
use of a factsheet as a record. The factsheet recorded, but was not limited to age, gender, nature
of business, country of origin and number of years in the business. Such information was useful
to ensure that the criteria for selection were complied with (see Annexure B). The participants
were asked to fill in the biographical information at the beginning of the interview.
3.5.7.4 The digital recorder
The researcher used a digital recorder to record all the interviews. Consent was given before
recording interviews. This made possible to capture all the data from youth participants before
transcribing and analysing it. The interview process for youth participants flow in a smooth
manner since the interview was not distracted by taking notes.
3.5.8 Pilot study
Cochran and Cox (1992) state that a good research strategy requires careful planning and a pilot
study is often part of this strategy. A pilot, or feasibility interview, is a small experiment
designed to test tools and gather information prior to a larger study in order to improve the
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latter‟s quality and efficiency (Lancaster, Dodd & Williamson 2004). The pilot study was
conducted to reveal possible deficiencies in the design, proposed instrument and data collection
procedure so that these can then be addressed before time and resources are expended on a large
scale study. In this study the pilot interview was conducted two weeks before the full study. The
researcher interviewed two participants based on availability. The researcher then listened to the
recorded interview to re-visit the interview and to self-reflect. The researcher set up a meeting
with his supervisor to discuss the lessons learnt. The pilot study provided vital information as to
the clarity of the instrument and how long each interview could take. The pilot study showed that
interviews were likely to be a minimum of 45 minutes. The instrument was found to be user-
friendly and the flow of questions was coherent. Moreover, the researcher learnt that the
questions were clear since all of them were understood. The researcher learnt to improve voice
projection and to improve his probing skills. The researcher‟s confidence and efficiency in
responding to the participants were boosted. Strydom (2005) states that information emerging
from a pilot study can enable a tentative estimate to be made of the cost and length of the main
investigation. This study gave the researcher insight on the feasibility of the study as it showed
that only costs of photocopying the interview schedule, time and transport were needed. The
study was found to be feasible and the researcher planned for these requirements in advance.
3.5.9 Data analysis
Patton (2002) defines data analysis as a process of reducing the volume of raw information,
sifting significance from trivia, identifying significant patterns and constructing a framework for
communicating the essence of what the data reveal. The gathered data was transcribed, which
was a process of transforming data into written text before analysis started. The researcher
transcribed the interviews himself to ensure confidentiality, the recorded voices and the
transcripts were kept locked up in a secure place. Pauses and other noticeable behaviours were
transcribed as well. Notes taken during the service providers‟ interviews were written out clearly.
In executing the analysis process the researcher inspected and analysed data with the goal of
highlighting useful information which is necessary for suggesting conclusions. The researcher
used Tesch steps (1990) in De Vos and Fouché (1998). The steps which were followed are given
below:
Step 1: The researcher read the transcripts to have a holistic understanding of data collected.
Step 2: After all the transcripts were read the researcher selected and read one particular
interesting transcription with the view to understanding the participants‟ responses in relation to
the objectives of the study.
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Step 3: The researcher studied the transcriptions in order to identify themes. After finding
themes, the researcher discussed them with the supervisor to get her input.
Step 4: In this step the researcher used individual themes as the unit for analysis and not the
physical linguistic units like word, sentence, or paragraph.
Step 5: Identifying themes on all transcripts: the researcher took all the transcripts and repeated
Step 3 carefully to clarify the categories and sub-categories by looking at their
interconnectedness. Categories were generated inductively from the transcripts by the researcher.
Step 6: The researcher finalised the themes, categories and sub-categories that emerged.
Step7: The researcher assembled data under explicit themes, categories and sub-categories.
After identifying themes the researcher coded data. Consistency was checked, in most cases
through an assessment to see if there is consistency in and interconnectedness of data in each
theme.
Step 8: The researcher compared themes, categories and sub-categories with transcripts to check
for data which has been left out. Coding consistency was checked and coding revised in a cyclic
iterative process until sufficient coding consistency was achieved (Miles & Huberman, 1994).
3.5.10 Data verification
Without rigour, research is worthless, becomes fiction, and loses its utility (Morse, Barret,
Mayan, Olson & Spiers, 2002). The determination of whether information gathered during the
process of data collection is complete and accurate is thus important. Because this is a qualitative
study the results cannot be generalised (Babbie & Mouton, 2010). To test the trustworthiness of
this study, one needs to observe the research standards and methodology applied by the
researcher. Since the study has a clearly laid out methodology, it is practical to apply the
research to a similar context. Confirmability is determined by checking the internal coherence of
the research product, namely, the data, the findings, the interpretations and the recommendations
(Wolcott, 1990). The researcher checked the internal coherence through proofreading. The
researcher ensured that the study was coherent and that the recommendations were well thought
out and informed by the findings.
3.6 Limitations of the study
The researcher acknowledges the fact that there is no study that is perfect and without
limitations. This section discusses the limitations of the research design and methodology.
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Research approach
A qualitative approach is confined to subjectivity thus findings are unique to the relatively few
people included in the research study. This may make the study vulnerable to the presence of
biased views of the participants (Grinnell & Unrau, 2008). Good qualitative research hence
depends on the honesty of the participants. This may be problematic if participants decide to be
dishonest. Because the researcher followed ethical guidelines and built relationships of trust with
participants, it is hoped that such possible biases were limited.
Sampling
The subjective nature of non-probability sampling does not permit making inferences, which
might apply to the entire population (Strydom, 2005). Though it cannot be generalised (see
Section 3.5.2), it can generate valuable and a deeper understanding of the phenomenon studied.
Data collection method
In-depth interviews allowed the interviewer to clarify and probe around. However, the drawback
to in-depth interviewing is that it depends heavily on the competency of the researcher‟s
interviewing skills (Wolcort, 1990). In addition, Plummer (2001) states that qualitative
interviewing also is dependent on the respondent‟s capacity to verbalise, interact, conceptualise
and remember. Moreover, such interviews can be time-consuming since many questions may be
asked (Khotari, 1985). Furthermore, there could have been problems relating to some
participants failing to understand the questions due to language problems, since English is not
their home language. Little data could have been gathered in cases if language became a barrier.
The researcher had to use simple conversational English in the schedule to facilitate
conversation. Whatever the participants did not understand was clarified. To improve his
competency, the researcher was trained in 2011 during the Honours Course by the supervisor
through role playing on how to conduct in-depth interviews. In addition, the researcher
conducted a research project in his Honours year. Lastly, he conducted the pilot study to learn
lessons to ensure that he was understood by the participants. It is hoped that such training may
have enhanced data collection methods.
The digital recorder
The use of a recorder allowed the researcher to capture or record verbal data which facilitated the
process of transcribing. This apparatus was viewed with suspicion by service providers and they
did not agree to be recorded. The researcher had to take notes during the interviews.
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Data analysis
Qualitative data analysis often takes time, is strenuous and can easily be influenced by the
researcher‟s personal biases and idiosyncrasies. Important information said explicitly or
implicitly may be overlooked by the researcher due to these biases. This may compromise the
accuracy and credibility of research findings. To limit this problem, the researcher used Tesch‟s
(1990) data analysis procedure and followed the steps rigorously and thoroughly so that the data
gathered emanated from the data collected.
3.7 Summary statement
This chapter has discussed the research methodology and the rationale for choosing such a
journey, the possible limitations of the methodology and how the researcher managed to deal
with these limitations. The next chapter focuses on the presentation and analysis of the findings.
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CHAPTER 4: PRESENTATION AND ANALYSIS OF THE FINDINGS
4.1 Introduction
The study brought insights into the circumstances and experiences of youth immigrants
establishing and running a successful informal micro-business in Khayelitsha, Cape Town. As a
preamble the study required the researcher to solicit the participants‟ understanding of the
informal sector. The study indicated that participants defined this sector is basing on registration.
Informal micro-businesses were not started by default but there were several push and pull
factors. Most of them desire to join the formal sector because they acknowledge the benefits
associated with this. The journey to establish the business was succumbed with a plethora of
challenges. These youth also indicated that they did not get support from the service providers
due to a number of reasons. Though, these challenges could have led to business failure,
however this was not the case with immigrant youth. They employed several strategies to deal
with these challenges for them to succeed. The analysis of these findings is the central discussion
in this chapter.
From the onset, a profile of each participant is tabulated below (see Table 4.1). This is followed
with a brief clarification of the content in the table. Table 4.2 profiles the service providers and a
section to clarify it. Table 4.3 presents themes and categories that emerged from the study.
Finally, a presentation of findings and analysis follows this table
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4.1.1 Profiling participants
Pseudonym
Age
Gender
Country of
Origin
Education
level
Year of
establishment
Previously
employed
Nature of business
Gerald
30
Male
Zimbabwe
Tertiary
2008
Yes
Carpentry
John
31
Male
Zimbabwe
Tertiary
2010
Yes
Carpentry
Petty
31
Female
Zimbabwe
Tertiary
2004
No
Sewing business
Privi
31
Female
Zimbabwe
Tertiary
2004
Yes
Sewing business
Chamvari
27
Male
Malawi
Tertiary
2010
Yes
Carpentry
Tatenda
26
Male
Zimbabwe
Tertiary
2008
Yes
Upholstery
Dana
30
Male
Zambia
Tertiary
2007
No
Leather processing
Tariro
27
Male
Zimbabwe
Tertiary
2010
No
Leather processing
Taziva
26
Male
Zambia
Tertiary
2009
Yes
Creative business
Fidza
32
Male
Zimbabwe
Tertiary
2008
No
Leather processing
Tari
31
Male
Zambia
Tertiary
2009
Yes
Creative business
Muto
26
Male
Zimbabwe
Tertiary
2010
No
Carpentry
Temba
29
Male
Zimbabwe
Tertiary
2010
No
Upholstery
Rugaba
30
Male
Zimbabwe
Tertiary
2010
No
Leather processing
Reason
30
Male
Malawi
Tertiary
2005
No
Leather processing
Shanda
31
Male
Zimbabwe
Tertiary
2010
Yes
Creative business
Lino
27
Male
Zimbabwe
Tertiary
2009
Yes
Creative business
Kudzai
26
Male
Malawi
Tertiary
2009
Yes
Upholstery
Sam
32
Male
Zimbabwe
Tertiary
2005
Yes
Upholstery
Simba
27
Male
Zambia
Tertiary
2007
Yes
Upholstery
Table 4.1 Profile of the participants
Eighteen of the participants were men and only two were women, as there were only two women
that met the selection criteria for the study. The aim was not to exclude women. The possible
reasons to this are explained in section 3.3.5.1. In addition, this can reinforce the view of Rao,
Venakatachalam and Joshi (2012) that there is a gender dimension to the challenges of the
informal sector. Although the purpose of the study was not to explore the dimensions of the
challenges, it helps to clarify the sample that was used.
As seen in the table, participants indicated they had acquired tertiary education. The educational
qualifications of the participants could have played a role in determining the success of these
immigrant youth since Berry et al. (2002) argued that education and training can contribute to
and enhance the success of an enterprise.
These participants come from three countries in southern Africa: Malawi, Zambia and
Zimbabwe, with the majority from Zimbabwe. The age bracket of the participants was 26 to 31
years. This was in accordance with the reasons set out in section 3.3.5.1.
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The businesses in which these immigrant youth were involved were the sewing business;
carpentry; upholstery; leather goods and creative businesses. Creative businesses included
making pottery, decorating flowers, and crafting chairs. Leather goods included making belts and
African shoes.
4.1.2 Profiling service providers
Participant
Nature of the
organisation
Services provided
Org B
A banking and
financial lending
organisation
Commercial banks play an important role in supporting emerging
entrepreneurs and SMMEs. This bank show support to emerging SMMEs
and entrepreneurs through schemes to not only fund but also provide
mentorship, assist in writing business plans and legal advice (see Table 2.2).
Org D
DTI
*
Org F
NGO
This NGO designs and implements high-impact enterprise development. It
offers a range of business support programmes like, skills development,
business growth and mentorship solutions through their proven and effective
programmes, as well as through tailored support and bespoke business
development solutions (see Table 2.2).
Org N
NYDA
*
Key
* ……see Table 2.2
Table 4.2 Profile of service provider organisations
Service providers represented each major sector of the economy (see Section 3.5.4).
4.1.3 Themes and categories
This section will tabulate themes and categories that came out from the analysis of the data that
was generated through the interviews. These themes and categories are used to frame the
discussion that follows in Table 4.3.
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Themes
Categories and sub-categories
4.2 The formal and informal sector
dichotomy
4.2.1 Regulation and the informal sector
4.2.2 Reasons for operating in the informal sector
4.2.2.1 Complex requirements to join the formal sector
4.2.2.2 The tax burden in the formal sector
4.2.3 The advantages of the formal sector
4.2.4 Summary of the formal and informal sector dichotomy.
4.3 The reasons for starting informal
micro-businesses
4.3.1 The informal micro-business as a response to unemployment
4.3.2 In search of better income
4.3.3 The attraction of self-employment
4.3.4 Summary of the reasons for starting the informal micro enterprises.
4.4 The challenges faced by
immigrant youth
4.4.1 Challenges at the start-up
4.4.1.1 Cultural barriers
4.4.1.2 Securing area from which to operate
4.4.1.3 Lack of start-up capital
4.4.2 Challenges in managing growth
4.4.2.1 Risk and security
4.4.2.2 Customers who do not want to pay
4.4.2.3 Lack of business skills
4.4.4 Summary of challenges.
4.5 The strategies employed to
overcome challenges
4.5.1 Building social capital
4.5.1.1 Developing networks to secure an area from which to operate
4.5.1.2 Social capital to get start-up capital
4.5.1.3 Social capital for safety
4.5.2 Marketing and public relations strategies
4.5.3 Exploiting location of business to their advantage
4.5.4 Influencing their business with their attitude
4.5.5 Utilising their education
4.5.6 Manufacturing quality goods
4.5.7 Summary of the factors behind success.
4.6 Sources of support for informal
micro-businesses
4.6.1 Training support for immigrant informal micro-businesses
4.6.2 Financial support for immigrant informal micro-businesses
4.6.3 Civil society organisations, government and immigrant owned informal
micro-businesses.
4.6.4 Summary of immigrant youth support
Table 4.3 Themes and categories
4.2 Formal and informal sector dichotomy
Participants‟ perception of the basis of the difference between the formal and informal sector
was that the informal sector entails those businesses not registered with a government
department or agency. On the one hand the formal sector is perceived as being composed of
registered businesses, difficult to join due to complex procedure and regulations. On the other
hand, the informal sector is composed of unregistered businesses with fewer restrictions to join
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and operate in. Youth business owners felt that it is more advantageous to operate in the formal
sector than in the informal sector and the reasons for this are discussed in Section 4.2.2.3.
4.2.1 Regulation and the informal sector
Most of the participants indicated that the informal sector consists of businesses not registered
with any government department or government board. A minority stated that the informal sector
comprises businesses that are normally run by the poor.
The informal sector refers to the unregistered businesses and the formal businesses are the
registered ones. (Gerald)
The informal sector is mostly run by the poor who cannot afford to register their businesses.
(Petty)
The key informants were in agreement with the youth. They mentioned that regulation is the
basis of the difference. They emphasised that informal businesses do not pay tax. They also
mentioned that these businesses are predominantly survivalist enterprises run by people
responding to economic shocks. This can be linked to what Petty mentioned that the informal
sector was made up of businesses linked to the poor.
This is the unregistered businesses which provide basis for one to join the formal sector. These
businesses do not pay tax and normally are operated for survivalist purposes. You can start it with
less capital. (Org N)
Unregulated and unregistered businesses, some of which are quite large and successful. (Org F)
Registration forms the basis of differentiating between the two sectors. It is the basic
characteristic that differentiates the two. Literature has defined the formal sector as economic
activities that occur within the purview of state regulation (Maloney, 2004). StatsSA (2003) also
supports the notion that informal businesses are unregistered. The view that the informal sector is
run by the poor, as held by Petty implies that it is composed of survivalist enterprises. The view
that the informal sector is run by the poor and marginalised groups, is supported by researchers
like Muller (n.d), who argues that the informal sector accommodates the unskilled and the
uneducated.
On the contrary, however, as noted by Org F, not all businesses in the informal sector are
survivalist, some are large and successful. This indicates that not all businesses in the informal
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sector are survivalist. Some are opportunity based and are successful, hence informal sector
businesses should not be mistaken as a term referring to survivalist businesses. This is supported
by Nieman and Nieuwenhuizen (2009) who argued that informal sector businesses are operated
on a basis of opportunity rather than necessity.
4.2.2 Reasons for operating in the informal sector
There were several reasons as to why immigrant youth choose to operate in the informal sector.
For most of them there were barriers to entry into the formal sector. The formal sector was found
to be complex with rules and regulations while the informal sector was accessible and feasible to
the immigrant youth, with fewer restrictions and legal requirements. More than just rules were
the misconceptions that immigrants have about the cost of registering their businesses and tax.
4.2.2.1 Complex requirements to join the formal sector
The informal sector was easier for them to enter and operate than the formal sector since
requirements to start were achievable and reasonable to the immigrant youth. Joining the formal
sector is complex due to the rules and procedures that need to be followed hence the informal
sector was a feasible option for the participants. A number did not have the necessary
documentation for them to register at the time they established their businesses.
For us foreigners, it is easy for us to operate in the informal sector. It is difficult for us to register
formally. The department needs a business permit which I do not have; I only have the work
permit. (John)
When I started this business I had no work permit till last year when I got it, hence it was not
possible for me to register the business. (Tatenda)
Service providers also noted that the formal sector requires many procedures. Most of the youth,
therefore, join the informal sector because of its feasibility. Operating in the informal sector is an
advantage in some ways, as one does not need to join any professional body, or submit annual
reports to the government which is cumbersome. Org D. mentioned the complexity of the
procedures necessary for businesses to be considered formal. He stated that for companies to be
considered formal, they not only have to register with the Companies and Intellectual Property
Commission (CIPC) but need to register with SARS to get a tax clearance certificate and with a
body which their business belongs to. This may be costly and time-consuming.
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When I say registered, that means they need to be registered with CPIC first and the SARS for
them to get a tax clearance certificate. They also need to be registered with a board which they
belong to. You see there are a whole lot of channels that the businesses need to undergo for them
to become formal. They also need to submit annual turnover reports. (Org D)
The youth and service providers in this study mentioned that the formal sector is becoming an
increasingly complex sector which one cannot join without the required documentation. It is for
this reason that most of the participants operate informally. The informal sector is rather an
escape route from the complexity associated with the formal sector. For a business to be formal it
has to register with the three bodies mentioned above, making it a bureaucratic and cumbersome
process. The need to submit annual turnover reports to the government feeds into the strict
regulations of being formal. It is with these challenges in mind that De Soto (1989) argues that
the informal sector will continue to produce informally so long as government procedures are
cumbersome and expensive. Additionally, Rao (2011) outlines the position of the legalist school
which sees the informal sector as being comprised of micro-entrepreneurs who choose to operate
informally to avoid the costs, time and effort of formal registration, and that they continue to
produce informally so long as government procedures are cumbersome and expensive. It is
worth noting that not only immigrants face this challenge as Cupido (2002) notes that joining the
formal sector is complex, even for the locals, who were subjects of his study. The barriers to
register are evidence of the structural exclusion which youth face. In addition to these complex
rules is the tax burden, which is discussed in the following section.
4.2.2.2 The tax burden in the formal sector
The youth participants did not mention the issue of tax. Most service providers, however, were
of the opinion that businesses operate informally so as to avoid the payment of tax. Many
informal entrepreneurs may have only a limited knowledge of tax since they did not mention
anything relating to it. One service provider, however, mentioned that it is only through the
narrow understanding of paying tax that the informal sector can be seen as a non-paying sector.
Tax is, in fact, paid indirectly in the form of Value Added Tax (VAT), as noted by one service
provider. This is done through the purchase of raw materials and using their income to buy basic
necessities. The narrow view that informal businesses do not pay tax can thus be critiqued on this
basis.
There is no tax burden. They are not held up to the same requirements and expectations as a
formally registered business. (Org F)
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It also expands the tax base. Remember the people that operate in the informal sector buy in
shops and they pay VAT. (Org N)
Maloney (2004) supports the arguments of the service providers when he suggests that informal
entrepreneurs deliberately avoid regulations and taxation and may deal in illegal goods and
services. Moreover, Rao (2011) from the legalist school, views the informal sector as being
comprised of micro-entrepreneurs who choose to operate informally to avoid taxation. This
shows that tax may be causing businesses to operate informally, as service providers suggested.
4.2.3 The advantages of the formal sector
The immigrant participants indicated that if they were to join the formal sector they would be in
a better position to access some resources, like securing an area from which to operate. They
also argued that if one operates in the formal sector, one is able to get loans. The other advantage
mentioned was that formal businesses attract business customers in the formal sector. The youth
assumed that formal businesses can only buy from formal or registered businesses. Joining the
formal sector would enable them to attract big wholesalers so that they could supply them.
Though the informal business may be relevant to a poor community like Khayelitsha, most of
these immigrants desired to expand their markets beyond the local community but they believed
that this could only be achieved if their businesses were registered.
I would like to register my business, that will put me at an advantage in cases where I need a loan
or to operate in busy places like in town. (John)
I went to borrow funds from a bank but they could not assist since they need registered businesses
and surety. (Privi)
I would be happy to join the formal sector because if you are registered that can also attract a lot
of customers and you can supply big furniture companies. (Rugaba)
The service providers also noted that there are challenges associated with the informal sector and
they indicated that operating formally is at an advantage than operating informally. The
advantages articulated by the service providers are similar to the ones noted by the participants.
…..but also an opportunity to apply for government initiatives and funds, commercial loan
finance etc, which unregistered, informal businesses do not have. (Org F)
The above quotations show that formal businesses are also more inclined to assist formally
registered businesses. Anyone wanting to get a loan needs to have a registered business. The