Stop policing informal traders: Six ideas to build an inclusive economy

Photo by R. du Plessis on Unsplash

South Africa’s informal economy is routinely framed as a structural challenge – a stubborn symptom of poverty, underdevelopment, and low tax compliance. Yet this perspective fundamentally misreads the terrain. The informal sector is not an economic waiting room or a market failure to be policed out of existence; it is an active economic engine powering millions of livelihoods despite systemic barriers.

What if, instead of treating informality as a problem to be solved, we recognised it as an engine of growth waiting to be unlocked? In the most recent Dunning Africa Centre webinar, we invited six experts to weigh in on the practical steps needed to turn informal enterprise into a catalyst for inclusive growth. Here’s what they said.

1. Design policy with the informal economy, not for it

"Do not think for the informal economy; think with it. Do not devise solutions on its behalf; work with its participants to develop them." — Alexio Musindo, International Labour Organisation (ILO) director for Country Office – Botswana, Eswatini, Lesotho, and South Africa.

Meaningful reform begins by giving the informal sector a legitimate seat at the decision-making table. Policy designed in isolation often misinterprets the needs of micro-enterprises and technical trades, treating them as underground operators rather than legitimate economic actors. Bringing trader associations, municipal officials, and business bodies into structured social dialogue ensures that regulatory frameworks solve real operational challenges rather than creating new barriers to entry.

2. Leverage indigenous financial systems and social capital

"Stokvels provide social as well as financial value... Research shows that 61% of stokvel members are entrepreneurs. We should see this sector as capable and well resourced, not as a powerless group waiting for rescue." — Dr Shevonne Henry, fractional NPO executive and associate member of the Dunning Africa Centre at Henley Business School Africa.

Traditional development models often treat informal traders as charity cases, ignoring the sophisticated financial ecosystems already funding community enterprise. South Africa’s multibillion-rand stokvel and cooperative networks run on established trust, relational accountability, and proven histories of contribution. Channelling public funding and development finance through these existing cooperative networks could create a sustainable pipeline for micro-enterprises to scale into semi-formal businesses.

3. Move from asset-backed lending to cash-flow assessment

"Traditional underwriting focuses on title deeds and formal financial statements... Lenders should recognise that track record and rethink how they assess credit, moving towards cash-flow-based underwriting." — Thabang Hleza, Executive Head of Investments and Business Development at Old Mutual’s Masisizane Fund

When conventional banks demand formal leases, audited statements, and fixed property as collateral, ten years of viable trading count for nothing. Overcoming financial exclusion requires lenders to replace rigid paper requirements with modern underwriting models. Evaluating real daily cash flow, digital payment records, and community savings histories allows lenders to fund viable enterprises without forcing them through administrative bottlenecks they cannot meet.

4. Build municipal infrastructure for the real economy

"In an economy where joblessness is a central problem, cities should identify spaces where informal activity can operate and provide supporting infrastructure: trader stalls, lighting, toilets and other basic services." — Dr Tanya Zack, writer, urban planner, and researcher.

Inner-city trading hubs and township markets generate multi-million-rand commercial turnover, yet municipalities often treat informal trading precincts as urban blight. Local governments must plan for the economy as it is on the ground today, rather than for an idealised, formal version. Providing secure stalls, continuous lighting, clean sanitation, and clear, predictable permit systems turns urban spaces where trading is already happening into functional commercial zones instead of criminalising daily trade.

5. Integrate informal enterprises into dominant value chains

"The informal and formal sectors are not disconnected; the problem is the adverse terms on which they are connected... A loan cannot save a business that remains excluded from customers and supply chains." — Dr Mike Rogan, development economist and Associate Professor in the Department of Economics and Economic History, Rhodes University.

Freeing up credit alone cannot sustain an informal business locked out of core markets. In an economy characterised by high corporate concentration, small traders face structural disadvantages when competing with massive retail chains. National industrial policy and municipal economic plans must work together, using public procurement quotas and supply-chain incentives to integrate informal suppliers directly into established value chains on fair, productive terms.

6. Consolidate business networks to connect enterprise development

"South Africa has many business chambers and trader networks. These should be consolidated and mapped... Large firms can contribute through skills transfer, access to their client bases and sustained mentorship." — Monde Ndlovu, MD of the Black Management Forum.

A fragmented ecosystem leaves informal operators unaware of available enterprise support and developmental finance. Mapping trader networks and business chambers creates clear channels through which resources, technical training, and corporate enterprise-development initiatives can flow. Instead of treating transformation as a checkbox compliance exercise, established corporations can offer meaningful mentorship, access to corporate supply chains, and structured pathways for township businesses to scale.

South Africa’s entrepreneurs are already on the ground, creating work where traditional markets have failed. Unlocking broad-based economic growth does not require the reinvention of enterprise; it requires dismantling the administrative walls that prevent hard-working entrepreneurs from stepping into the broader economy.