The Informal Economy’s Informal Edge: Why Formalisation Could Stifle Entrepreneurial Spirit

While street food stalls, artisanal workshops, and other informal marketplaces have long been the lifeblood of many communities, authorities increasingly pressure vendors to conform to rigid regulations.

As this vibrant tapestry of entrepreneurial activity faces increased scrutiny, a critical question arises: Should these informal economies be forced into the mainstream?

The primary driver of this pressure is the contentious issue of land use zoning, which seeks to displace informal traders from conflicting land uses.

While this approach may appear logical on the surface, it overlooks the unique characteristics of these markets, which are deeply rooted in their ability to respond to the changing needs of their communities.

A STRAITJACKET OR FREE FLOW?

The constraints imposed by formal markets, with their meticulously planned urban landscapes, severely limit the adaptability and autonomy of traders.

While formal traders are often tied to fixed points, informal traders are constantly on the move

This can be a significant challenge for formal traders.

As informal traders typically seek customers outside planned markets, it can result in increased competition for formal traders.

Furthermore, formal traders are often unable to access new planned markets, which restricts their opportunities for growth and development.
The notion that formalisation is the panacea for the informal economy is misguided.

It often proves inaccessible and unjust to small-scale entrepreneurs who struggle to comply with bureaucratic requirements and the administrative burdens that accompany formalisation, rendering them unable to transcend their existing market limitations.

The additional burden of taxes can exacerbate this issue, particularly for small-scale entrepreneurs who rely on their income for economic stability.
The tendency to transition back to informal markets is a natural consequence of the constraints imposed by formal markets.

Unless we adopt a holistic approach that supports and mitigates the challenges faced by formal markets, this cycle of formalisation and informalisation will persist, with traders continually gravitating towards the freedom and adaptability offered by the informal sector.

In essence, supporting informal markets while addressing their challenges seems to be the only viable path forward.

The formalisation of markets will always be met with resistance from traders seeking to preserve their autonomy and flexibility.

VENDORS ON THE MOVE

Informal markets can thrive when zoning policies and regulations are designed to balance entrepreneurial freedom with public order and safety.
By setting aside specific areas for informal trading activities, cities can create designated zones that accommodate the reuse of buildings and spaces.
This approach enables entrepreneurs to respond to shifting consumer demands and to adapt to changing market conditions without formalising tax payments.

For instance, mixed-use zoning policies could allow vendors to operate in underutilised or vacant parcels of land, while also preserving existing residential or commercial spaces.

Designating informal trading zones in high-traffic areas, such as transportation hubs, can also be an effective strategy.

These zones can operate under relaxed regulatory frameworks, allowing for flexibility in accessing customers while respecting community concerns and traffic management.

To ensure uninterrupted access to customers, vendors could be encouraged to proactively seek out customers rather than being confined to a single space.

For example, a vendor selling fresh produce could set up a stall near a busy intersection, and then move to a different location based on customer demand and traffic flow.

This allows vendors to remain agile and responsive to changing conditions.

To optimise operations, cities can implement a range of strategies that should enhance vendor flexibility, customer access, and waste management.

By introducing rotating schedules, cities can assign vendors to different locations on various days or times, dispersing crowds and alleviating pressure on infrastructure.

This approach should reduce congestion and promote community harmony.

Identifying alternative locations for informal traders during peak hours or special events can redirect traffic flow, minimise bottlenecks, and ensure uninterrupted customer access.

It should also encourage responsible waste disposal practices among vendors.

THE WAY FORWARD

The informality of informal economies is not a temporary ‘aberration’ but a fundamental aspect of human economic behaviour.

Formalised traders, driven by the desire for autonomy and flexibility, are likely to transition back to informal markets unless regulatory frameworks are reformed to accommodate their needs.

The path forward lies in embracing the informal economy’s unique characteristics and creating an environment that allows adaptability, innovation, and entrepreneurship to thrive.

• *John Mofuka has a degree in town and regional planning and an honours degree in urban and regional planning. His academic research project explored the urban planning outcomes of formalising informal markets in Windhoek; mofukajohn@gmail.com