Benefits and limitations of the informal economy in promoting sustainable and inclusive local economic development: A Stellenbosch case study

Abstract

ENGLISH SUMMARY: Poverty, inequality and unemployment are major challenges facing South Africa. The government is struggling to create jobs in the formal economy, as economic growth rates are low and falling. The informal economy, on the other hand, provides livelihoods to thousands of people, but it is poorly understood and therefore poorly supported. Within the context of the developing world, promoting and supporting the informal economy is imperative. This study therefore sets out to: (i) investigate the benefits and limitations of the informal economy in promoting sustainable and inclusive local economic development; (ii) assess Stellenbosch Municipality’s approach to the informal economy and the impact this approach has on livelihoods and local economic development and; (iii) review a number of comparative cases to find best practices. The study is informed by both a literature review and a case study methodology. The case study methodology includes document and newspaper analysis and interviews whilst a review of comparative case studies is used to draw lessons from other municipalities. The study found that despite several ways in which the informal economy could contribute to sustainable and inclusive local economic development, it is generally disregarded or undervalued in such discussions. Furthermore, Stellenbosch Municipality’s approach to the informal economy has had a negative impact on the participants’ livelihoods and local economic development through its top-down approach and the exclusion of the informal sector in the LED process. However, Stellenbosch Municipality is now looking at implementing ways to engage and support the sector. The findings suggest that the local economic process of Stellenbosch has the potential to create a vibrant informal economy to meet all local requirements for reducing poverty, inequality and unemployment in a way that also restores the environment.

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