No. 75: Competition or Co-operation? South African and Migrant Entrepreneurs in Johannesburg

International migrant business owners in South Africa’s informal sector are, and have been for many years, the target of xenophobic attacks. This has led to public debates about their role in the South African economy and competition with their South African counterparts, with allegations including that they force the closure of South African businesses, harbour ‘trade secrets’ that give them the edge, and dominate the sector. As a result, at national government level there has been increasing interest in curtailing the rights of international migrants, particularly asylum seekers and refugees, to run informal enterprises.\nThis report explores the experiences of 928 international and South African migrant entrepreneurs operating informal sector businesses in Johannesburg. It compares their experiences, challenging some commonly held opinions in the process. The report compares each group, what kind of businesses they operate, and where they do business. It investigates their motivations for migration, employment and entrepreneurial experience prior to and after migration, as well as their motivations for setting up their businesses. It goes on to examine how they set up their businesses, rates of business growth, contributions to local and household economies, and challenges faced, before looking at various interactions between South African and international migrant entrepreneurs in the informal sector of Johannesburg. The main findings are as follows: The informal sector in Johannesburg in large and its full extent is unknown. However, the representative Gauteng City-Region Observatory Quality of Life Survey 2015 found that of the 9.6% of respondents who owned a business in the city, 59% operated in the informal sector. Challenging allegations that the sector is dominated by international migrants, only 19% of informal sector business owners in Johannesburg were international migrants. The remainder were migrants from another South African province (25%) or were born in Gauteng (56%). International migrants were mostly men (70%0, while South African men were slightly over-represented (58%). The overwhelming majority in both groups were black Africans and most were between 25 and 45 years old. South Africans showed higher levels of education with few having had no formal schooling and a significantly higher proportion with completed secondary school and tertiary education. The majority of international migrants were from Southern African Development Community (SADC) countries (65%) or the rest of Africa outside the SADC (22%). The largest cohort of South African migrants came from Limpopo (25%), Mpumalanga and KwaZulu-Natal (18% each). The overwhelming majority of all participants had migrated to provide for their family. South Africans were more likely to have wanted to look for a formal job (82% versus 67% of international migrants). However, they were also more likely to have intended to start their own business (52% versus 40%). Although it is often thought that international migrants have more entrepreneurial experience than their South African counterparts, this was the first business endeavour for the majority of both groups. Only 5% of international migrants and 1% of South Africans had run an informal business prior to migrating and 13% and 5% another informal business since arriving in Johannesburg. Informal sector enterprise and entrepreneurs are often seen as survivalist – driven by necessity into starting a business. Yet there are multiple reasons, including entrepreneurial, why people start businesses and the availability of social capital may enable these ambitions. Others seek social recognition and some have altruistic motivations. The survey asked interviewees to rate a series of statements that might have influenced their decision to start a business and an average weight for each factor was calculated. The factors were then grouped and an average score calculated for each category. There was little difference between the scores of South African and international migrants. Although wanting to give their families greater financial security was the strongest motivator for both groups, survivalist reasons/financial benefits and security did not score highest (3.6 for international migrants and 3.7 for South Africans). The category of entrepreneurial orientation/intrinsic rewards scored highest for both (4.2 for South Africans and 4.1 for international migrants). Both groups scored 2.8 in the category of social capital/altruism/status, while South Africans were more concerned with employment considerations (2.6 versus 2.3). For both groups of migrants there was a time lag between arrival in Johannesburg and starting their businesses, indicating that most had engaged in other economic activities before getting started. There were differences in the types of business pursued. The type of business may influence or be influenced by the amount of start-up capital needed, existing skills, profitability and scope for expansion. International migrants (59%) were more likely to be engaged in retail and wholesale trade than South Africans (45%). South Africans were more likely to provide services (53%) than international migrants (30%), while international migrants were more likely to make or manufacture goods (12%) than South Africans (2%). South Africans in the retail sector focused on selling food, particularly fresh fruit and vegetables and cooked food. International migrants focused on other aspects of retail trade. Most relied on personal savings to start their businesses (85% of international migrants and 90% of South Africans). Only 4% of South African and 2% of international migrants had secured a loan from a bank. International migrants were more likely to draw on social capital as 25% (compared to 13% of South Africans) started their business with people from their hometown or family, and 24% had secured a loan for start-up capital from relatives compared to 19% of South Africans. Amounts of start-up capital were low. South Africans were more likely to start with smaller amounts and 82% compared to 60% of international migrants started with ZAR10,000 or less. International migrants were more likely to have used between ZAR10,001 and ZAR20,000 (20% compared to 13%) and over ZAR20,000 (21% compared to 4%). The amount of start-up capital used can influence the success as well as the type of the business. Indicators of business success are profits are growth. Profits are affected by the type of business pursued, the amount of start-up capital used and re-investment in the business. The profits of most (86% of South Africans and 72% of international migrants) fell below the personal and small business income tax thresholds set by the South African Revenue Services (SARS) for the year in question. The average monthly profit after business deductions was ZAR2,000 or less for 35% of South Africans and 25% of international migrants. And 81% of South Africans had net monthly profits of ZAR5,000 or less, compared to 66% of international migrants. However, the incomes of these entrepreneurs, including South Africans, compared relatively favourably with black African incomes in Johannesburg and Gauteng province as a whole. The difference between the amount of start-up capital and the current value of the business was used to investigate business growth. There was evidence of growth even at the low end. So, although 19% of international and 24% of South African migrants said the current value of their business was ZAR5,000 or less, double the proportion had used ZAR5,000 or less in start-up capital. Overall, there was less growth in South African businesses; however, those who had started their businesses with higher amounts of capital grew their businesses at a similar rate to international migrants. Thus, initial capital investment and re-investment of profits rather than nationality may be key to understanding the success of informal businesses. The type of business pursued may also influence how much and how fast a business can grow. Informal businesses are often seen as separate from or in competition with the formal sector and as separate from the tax system. The overwhelming majority of participants, regardless of nationality, sourced supplies from formal sector outlets such as wholesalers, factories, supermarkets and the Johannesburg Fresh Produce Market where they are charged VAT. Thus they contribute to the tax base and formal sector profits. South Africans were more likely to buy from supermarkets and small shops, which are likely to charge higher prices that can cut into profits. The informal sector entrepreneurs in this survey provided a total of 1,926 full- or part-time jobs for others. International migrants (43%) were more likely than South Africans to provide employment to others. Comparing those in both groups who did provide jobs, international migrants provided almost twice as many job opportunities as South Africans: six per business compared to three. South Africans were more likely to employ family members (40% of employers and 25% of employees) compared to international migrants (30% of employers and 23% of employees). Over a third of international migrant enterprises (35%) employed South Africans. In total, 42% (503 people) of nonfamily employees of international migrants were South Africans. Informal sector entrepreneurs contribute to local economies through renting business premises and some derive additional income through renting premises to others. South Africans were slightly more likely to own or be part-owners of their business premises (24% versus 21% of international migrants). They were also more likely to occupy premises without paying rent (45% versus 22%). International migrants were more likely to rent premises from a South African company or individual and pay more rent than South Africans. Some 53% of the South Africans interviewed rented business premis

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