Qualitative analysis of transiting from informal to formal sector: The case of manufacturing and service businesses in Gauteng province of South Africa

Abstract

The objective of this paper was to establish challenges and benefits on formalisation in South Africa using a qualitative approach. To meet the objective, 15 interviews were carried out with owners of small businesses that had just formalized in Johannesburg and Pretoria. This study contributes to the existing knowledge on small business formalisation by bringing evidence from formalised businesses. The research does so through asking unique questions that cannot be answered quantitatively. Using themes for analysis, the study found conditional formalisation, high levels of bureaucracy, unsustainable fees, information asymmetry, credit or capital unavailability and corruption as key challenges being faced by emerging entrepreneurs. In addition, the study also identified increased chances to benefit from BEE, improved access to information to supply the public sector, improved chances of securing credit, increased credibility of the business and better access to markets as the benefits that entrepreneurs derive from formalisation. This study recommends that informal businesses be supported through skills training initiatives and expanded credit opportunities so that they can be of better size and capacity to formalise.

Keywords:

• formalisation
• tax evasion
• survivalists
• informal
• Small businesses

JEL:

• E24
• J81
• L26

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

The authors received no direct funding for this research.