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Sep 21, 2012

Structural inequality constraining prospective microenterprise sector

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Kate Philip discusses how structural inequality has marginalised the entry of microenterprises into the informal sector. Camerawork and editing: Darlene Creamer.
Power|Systems|South Africa|Local Economic Systems|Philip
power-company|systems-company|south-africa|local-economic-systems|philip
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Enduring structural inequality, a remnant of the apartheid State, has continued to present the most marginalised of South African society with a major barrier to entry into the micro- enterprise and informal sectors.

Since 1994, structural inequality in local economic systems has not only endured in the South African context but has also been reproduced in newer, more complex ways, says adviser in The Presidency Kate Philip.

“Explanations for South Africa’s underdeveloped microenterprise sector in the face of rampant unemployment have typically focused on the lack of requisite skills and entrepreneurship, the historical exclu- sion of black people, access to credit, issues around ease of market entry and regulation barriers. While these issues are relevant, more attention should be paid to the impact of structural inequality on economic opportunity on the margin,” she asserts.

Philip advocates that three legacies dictate the deeply structural nature of local inequality.

Firstly, the highly concentrated structure of the core economy, with high levels of monopoly, capital intensity and increasing levels of vertical integration, has created what some refer to as two economies – the formal and informal economies.

Secondly, the critical legacy of spatial inequality, which has created ‘apartheid cities’, brings with it considerable economic costs, which are borne disproportionately by the poor.

“The third key legacy is the significant inequality of all human developmental indicators across socioeconomic divides,” says Philip.

These dimensions negatively reinforce each other and have ultimately resulted in the current economic marginalisation.

Capital-intensive industries, a feature of the South African economy, exclude small enterprise participation and are a focus of corrective economic policy mechanisms – such as the introduction of competition policy, the reduction of prospective tariffs, and the formulation of sector strategies – in the core economy.

Moreover, Philip emphasises that it is difficult for smaller enterprises to compete with the manufacturing and distribution power of large-scale producers.

“Branded goods and purchases from branded stores are often the choice of poor people because brands provide a level of quality assurance,” she points out.

Small-scale producers have to compete with price, quality and brand recognition, which is not always possible.

In addition, engaging in formal business- to-business transactions and formal value chains requires a certain degree of business sophistication, which is lacking quite often in the microenterprise environment.

“Any strategy that relies on poor people self-employing their way out of poverty won’t succeed because of the structure of the economy. The bar is simply too high,” Philip warns.

Edited by: Martin Zhuwakinyu
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