A key output for each of the REDI3x3 funded projects is the production of a publishable working paper. The papers below are those published by the project, since its inception in the later half of 2012.
A total of 78 papers were commissioned, most of which are in the process of being finalised. These will be added to the list below, as they are completed.
The Competition Act’s objectives encompass addressing anti-competitive conduct in the interests of broader based participation in the economy. This paper considers literature on competition and inclusive growth. The enforcement of the Act by the Competition Commission, Competition Tribunal and Competition Appeal Court is reviewed, with a particular focus on abuse of dominance. In particular, it analyses the standards applied by the Competition Tribunal and Competition Appeal Court in their rulings and the implications of the institutional structure and practices for hearings. The paper locates its assessment in the context of the challenges of developing a more inclusive South African economy.
In 2010, a team of researchers undertook a survey of informal micro-enterprises, piloting a new method for researching township businesses in a spatial context. Using a small area census approach, the objective was to identify all existing micro-enterprises within an area of sufficient size (approx. 2km2/10,000 households) to adequately reflect the spatial dynamics of business distribution whilst enabling the researchers to obtain a qualitative understanding of enterprise dynamics. In 2015 the researchers returned to the field to resurvey the area. The research sought to identify measurable evidence of enterprise growth and/or change through documenting all enterprise activities and again recording the spatial distribution of each business. The comparative dataset provides a unique opportunity to reconsider questions about the township informal economy and examine how previously identified businesses have fared over time; how sectors have performed in relative and comparative terms; and the factors that have influenced shifts in business dynamics including spatial distribution. The 2015 research found that the number of micro-enterprise activities had doubled (from 879 to 1798) with growth recorded in all but two sectors. The paper argues that the change represents a deepening of entrepreneurial activity in Delft. One of the main drivers of change are survivalist businesses in the fast moving consumer goods market segment; the majority of these micro-enterprises are run by middle-aged women. The research found insubstantial evidence of businesses relocating to the high street, though there is evidence of fluid adaptability and innovation in the positioning of businesses and their product focus.
This paper aims to better understand the obstacles and risks faced by informal sector firms in South Africa and the insurance by firms against this risk. The paper examines informal firms in Diepsloot, an urban township north of the city of Johannesburg. Based on a unique enterprise survey dataset for the township, this paper firstly assesses factors driving the incidence and cost of crime against these enterprises. Second, it examines existing methods of risk-mitigation against crime-related events, with a focus on the access to formal risk-mitigation instruments. Finally, the paper evaluates the relationship between purchasing formal business insurance and firm performance. The findings show that crime is the most important perceived business environment obstacle for these informal firms, more important than other often emphasized obstacles such as access to credit. The paper finds that wealthier, better performing firms and those that rent non-residential business premises are more likely to experience losses due to crime. Importantly, we also show that there is a significantly positive relationship between being covered by business insurance and firm performance. This result has important implications for South Africa’s policies to improve financial access and enhance the efficacy of the informal sector, which is outlined briefly.
This paper focuses on migration into Cape Town primarily from the Eastern Cape. The main concern is with what happens once migrants arrive in an urban area, in this case Khayelitsha/Mitchell’s Plain. It provides information on routes to urbanization and the type of accommodation rural dwellers occupy once in the city. The employment status of migrants and non-migrants are compared to determine which group is more likely to be employed, unemployed and economically active. The paper can therefore contribute to debates about whether in-migration increases unemployment in urban areas. A comparison with 2001 Census data for the Western Cape Province is also provided. One of the major findings is that, in contrast to the census figures for the Western Cape and other studies, migrants to Khayelitsha/Mitchell’s Plain were less likely to be employed than non-migrants. They were more likely to be unemployed, especially when the expanded definition of unemployment is considered. This is because they are more inclined to be actively searching for work and therefore also more likely to be economically active than non-migrants. The explanation offered for these findings is that migrants tend to be younger than non-migrants and therefore more likely to move in search of work or better work opportunities than older people. The importance of non-economic factors on migration (such as family ties) is emphasised. The author calls for more research on the migration of children and migration studies with a gender focus.
After 1994 and amidst global trade liberalisation, the manufacturing sector, already highly capital intensive, became more capital intensive. Manufacturing’s share of GDP declined rapidly and employment losses were significant. Industrial policy has become a central pillar of economic strategy, with significant sectoral interventions in industries such as autos and garments. The heavy industries making up the core of the mineral energy complex have generally grown rapidly since 1994 (until recently). Light manufacturing has fared poorly, with clothing and footwear sustaining severe damage. Manufactured exports have shown pedestrian performance and downstream manufacturing has progressed little. The historic bias of incentives towards heavy industry remains a key problem. The apartheid era legacy of limited skills development has not been decisively addressed since 1994. Government has clearly stated the case for a more labour-absorbing growth path. However, an economy cannot efficiently shift its growth path without shifting its comparative advantage. To move to a more labour absorbing growth path, South Africa will need to compete more effectively in labour-demanding economic activities. A central challenge for South African industrial policy, therefore, is to consciously tilt the playing field towards labour-absorbing growth in order to mobilise the potential of an under-employed and poorly skilled workforce. If this is not done, a continuing decline in labour absorption and manufacturing employment is to be expected.
This paper interrogates the assumption that small and medium enterprises’ access to domestic value chains is associated with labour-intensive growth of these enterprises. It asks whether, and to what extent, institutional-contractual (legal) dimensions of the supply relationship may act as a dominant or overriding barrier to entry, sustainability and growth. The paper argues that the majority of suppliers are structurally coerced to pursue what the global value chain literature refers to as ‘production upgrading’, namely capturing more value through more automated production, as opposed to ‘functional upgrading’, which would involve building the capacity of their workers. This finding suggests that supermarkets’ procurement practices, rather than so-called inflexible labour laws, undermine the job creation potential of SMEs in the sector. Moreover, ‘social upgrading’ (passing down increased value appropriation to workers) is structurally precluded by the dual pressures that suppliers face – the insecurity of contract (their products are liable to be de-listed at any time) and the pressures on their production costs as supermarkets pass their costs and risks to suppliers through ‘rebate commissions’. The paper argues that the rise of private production and hygiene standards, enforced by some of the supermarkets, determine who is included and excluded from participating in food value chains. The cost implications of meeting these standards, and of the compliance checks, mean that informal, emerging businesses are effectively excluded from participating in these chains. The paper argues for the regulation of contracts between retailers and small suppliers, and for soft-law governance mechanisms such as an ombud, duties of disclosure and transparency, and representation of suppliers on policy-making bodies.
Very little is known about the evolution of labour productivity at the firm-level over the 20 years since the transition to democracy in South Africa. This paper aggregates 11 surveys of the manufacturing sector to investigate this in more detail. At an aggregate level real labour productivity has approximately doubled but much of this increase is due to within-industry changes, especially ‘catch-up’ by originally lower productivity industries. These increases in real labour productivity have been accompanied by increases in real wages. The within-industry changes seem to differ by firm size - smaller firms have become more labour productive relative to larger firms. This does not seem to be driven by changes in capital intensity across different sized firms but does seem to be associated with changes in real labour costs. Average real wages at smaller firms seem to be rising relative to larger firms. Analysis of comparable surveys suggests that one mechanism driving this is the exit of lower productivity, unskilled-labour intensive smaller firms. This exit is further correlated with the industrial bargaining structure and growth in import competition.
Little in-depth research has been conducted on the reasons why informal micro-enterprises in a township context in South Africa fail. Moreover, existing literature tends to focus solely on enterprise factors and deficiencies in business skill of enterprise owners. What has often been ignored, however, is a more holistic examination of how both enterprise-level challenges and deficiencies, and factors related to the household and broader socio-economic contexts of enterprise owners intersect to contribute to enterprise failure. Arising out of a wider longitudinal study of micro-enterprise in Delft South between 2010 and 2015, this paper provides a qualitative investigation of the reasons why some enterprises first identified in 2010 were subsequently closed by 2015. The paper presents evidence that among micro-enterprises which were operational for several years, a combination of broader socio-economic constraints (e.g. new forms of competition; increasing state regulation; crime and neighbourhood conflict) and unexpected household “shocks” (e.g. family sickness; death; imprisonment, retrenchment) play a crucial role in enterprise closure, in addition to deficiencies in business models or inadequate management skill. The paper also calls into question a simplistic and decontextualized understanding of enterprise “failure” since, for enterprises such as those included in case studies, despite their eventual demise there have been important benefits in household upward mobility, skills and educational acquisition, infrastructure and asset improvement over the life of the enterprise. Furthermore, their owners are often looking for fresh opportunities to start new enter-prises where they can apply the skills and lessons they acquired in their previous businesses.
This paper is based upon a component of an informal economy research study conducted by the Sustainable Livelihoods Foundation (SLF) on behalf of the City of Cape Town in 2014. The purpose of this study was to gain a stronger understanding of the Cape Town informal economy of metalwork (includes welding, metal fabrication, and tinsmithing) through a qualitative investigation and supply chain assessment. The assessment was undertaken of 30 informal metalwork retailers, their suppliers, related parties and customers in township residential and more formal industrialised settings across Cape Town. Although small in scale compared to informal foodservice or liquor trading, the informal metalwork sector is an important revenue generator in township economies in Cape Town. The trade has attracted a varied set of entrepreneurs who produce a range of products based on formally and informally attained skills. The results indicate these enterprises bring about enhanced opportunities for promoting value adding, skills development, and employment in the informal economy. Despite this, many metalwork enterprises could enhance business potential through development interventions that promote more suited manufacturing spaces and create enhanced trading locations. It would be prudent for local municipalities to accept the ‘informalness’ of these enterprises, provide appropriate infrastructure and town planning, and in particular to encourage clustering of independent metalwork enterprises to broaden their collective standing in the township economy.
Despite the high open unemployment in South Africa, the informal sector remains small. This paper aims to bring us closer to understanding the incentives and constraints of job-seekers who find employment in the heterogeneous informal sector. It does this by identifying two tiers in the sector (the survivalist and the growth oriented micro-enterprises) by using the data-driven k-medians clustering technique which finds natural groupings of jobs in the informal sector by using several work characteristics. Once the members of either tier of the informal sector have been successfully identified it finds the properties that facilitate entry into either tier of the informal sector. Growth oriented micro-enterprise entrants are more likely to have access to financial and human capital, which form barriers to entry some job-seekers. On the other hand, survivalist workers have been induced into the informal sector to find employment when other sources of income are lacking.