Informal sector targeted in crackdown on illegal immigration

Buried away in a recent inter-ministerial committee statement on migration, the government – ostensibly to get a grip on illegal migration – is looking at ways to register small businesses and the informal sector.

That seems innocent enough, since foreign ownership of small township businesses is one of the key complaints from anti-immigrant groups like March and March that are calling for illegal foreigners to leave the country by 30 June.

Different studies show that 30-60% of spaza shops in many townships are owned by foreign nationals from countries such as Zimbabwe, Somalia and Ethiopia.

In some townships, it’s higher than this, creating obvious tension with locals.

This is no small market: research by Accenture in 2023 put the number of spaza shops in SA at 150 000 with annual turnover around R178 billion.

That’s a tantalising figure for the SA Revenue Service (Sars), which presumably sees very little of this in the way of taxes. Nor do municipalities get much in the way of licensing fees.

Listen/read: South Africa’s R1trn sector: Spaza shops, taxis and backrooms

The problem is that the informal sector, which may be far larger than many have assumed, would rather continue flying under the radar of the alphabet agencies that want to monitor it – Sars, the Companies and Intellectual Property Commission (CIPC), the Department of Small Business Development and the municipalities where they operate.

Failed regulation attempts

This is not the first time the government has proposed roping the informal sector into the regulatory net. Previous attempts have been made – with dismal results.

After several deaths from tainted food purchased at unlicensed shops, the government last year embarked on a new campaign to register informal businesses under the guise of food safety.

Many questioned how food safety is improved by registering with the CIPC and Sars, since health inspectors are already authorised to enter premises and conduct inspections where food is prepared, sold or stored.

“We all know that adding more regulation always makes it harder for people to start and operate businesses,” says John de Wit, co-founder of the Small Enterprise Foundation (SEF), which supports roughly 180 000 micro entrepreneurs with loans and training.

“While the government is trying to prevent illegal migration, it should not also increase the burden on South Africa’s poor by making it harder for them to start and operate income-generating businesses.”

Government embarked on a small business registration drive in 2020 during Covid-19, offering small-scale entrepreneurs government loans on easy terms, provided they registered their businesses with the local municipality.

Just 12% of entrepreneurs surveyed by the SEF took the bait on that occasion.

Read:
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De Wit offers an explanation for small-scale entrepreneurs’ reluctance to participate in these registration drives.

“In addition, we also know that bribery is rife in our country, so applying regulations to insist that informal sector businesses must register creates a dreadful opportunity for officials to use this requirement to extort bribes from our country’s most disadvantaged citizens.

“We would encourage government to address illegal action in appropriate ways and not use a blunt instrument which brings harm to millions of our people.”

The registration of informal businesses is one of four workstreams being implemented by government to crack down on illegal migration. The others are:

• Urgent improvement of borderline infrastructure;
• Access to health, social services and education; and
• Review of processes and procedures for asylum seekers and refugees.

The push for a small business register has been ongoing for years.

In 2013, the department announced a campaign to formalise informal businesses through registration, training and access to finance. It had limited success from traders who feared higher taxes and bureaucratic meddling.

This was followed by a new campaign in 2018 to encourage street traders to register with the CIPC as part of an effort to combat counterfeit goods. Again, the uptake was poor.

This was followed by the Covid-19 registration drive – another failure – and more recently the food safety clampdown.

The latest proposal is framed as part of a wider crackdown on illegal immigration rather than a standalone formalisation drive.

The government has stressed that it is not targeting foreign nationals unfairly but enforcing existing laws.

Informal trader organisations are concerned that increased registration requirements could further marginalise small operators who already struggle with red tape and costs.

Read/listen:
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The inter-ministerial committee says it will engage stakeholders, including traditional leaders and civil society, in the coming weeks to explain the plans and gather feedback.

This latest move reflects the government’s view that better regulation of the informal sector is necessary for both economic governance and immigration control. Whether this campaign is any more successful than the previous ones is doubtful.