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2 Licensing laws and informal sector

This chapter presents the findings of recent studies on the informal sector in each surveyed country. Particular attention is given to:

  • Licensing laws which are most commonly infringed by informal sector businesses;
  • The compliance costs which arise when an informal business graduates to become a registered or formal business; and
  • Unlicensed street traders, and unlicensed liquor bars (‘shabeens’).

2.1 Botswana

2.1.1 Characteristics of the informal sector

The significance of the informal sector to economic and social development in Botswana has been frequently emphasised in research reports and in National Development Plans. However, there has been some disagreement as to how the informal sector can best be defined. A survey in four Botswana communities (Francistown, Maun, Mochudi and Selebi-Phikwe) commissioned by the Ministry of Local Government and Lands reported on 298 informal sector business ventures in categories such as retail sales, clothing, manufacture, repairs, construction, transport and handicrafts. The report identified some fundamental constraints experienced by these businesses, such as inadequate capital and access to credit, poor technical skills and equipment, a lack of basic accounting management skills, as well as severe marketing problems.

The report also identified a problem in defining who or what constitutes the informal sector: „The Terms of Reference suggest that a definition of the informal sector is critical for the

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proper pursuit of the study. We made an effort at such a definition at the very beginning of this project, namely, ‘small-scale, family or household based enterprises seeking in that way to support the family’. This definition remains intact at the end of the study, with the proviso that it is vague and imprecise. We feel that it is not really possible to be more precise. Our definition is at least consistent with the definitions we have met in the literature …" [Alexander, p 4].

Other studies have favoured a definition which regards a business as ‘informal’ if it is unregistered, and/or unlicensed:

„Some scholars on Botswana informal sector economy define the informal sector economy in terms of size. Hence they include within the informal sector economy small scale enterprises .....[but] the majority of researchers and scholars ... seem to define an informal sector economy in terms of registration and licensing .... [which brings] its own methodological problems because it means that even hawkers, street vendors etc become included in the formal sector economy." [Nengwenkhulu, quoted in Somolekae, p 49]

The informal sector is regarded by the Government in its various National Development Plans as having an important role to play in job-creation and in meeting the demand for goods and services for low-income population groups [see for example Government of Botswana, 1991, para 7.111]. A vibrant informal sector also contributes significantly to the enterprise culture of the society, encouraging the emergence of entrepreneurship and self-reliance in future generations.

2.1.2 Informal sector and the law

The main laws which informal sector businesses infringe in Botswana are: the Trade and Liquor Act (which makes it unlawful to carry on a wide range of businesses without the

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necessary licence), and/or planning regulations (which require that premises be approved before they are used for business purposes), and/or tax laws, labour laws, and environmental health regulations.

2.1.3 Compliance costs for an informal business obtaining a licence

The monetary cost of the different types of licence varies considerably. For example, the cost of licences under the Trade and Liquor Act varies from P10 to P200. The entrepreneur’s costs increase where professional assistance is required to obtain a licence. Some licensing procedures such as shops are relatively straightforward, whilst others (for example, those associated with the sale of liquor, or manufacturing) are more technical and may require professional advice or representation.

Applications for the various Trade and Liquor Licences must be made on the correct form, which requires information about matters such as the applicant’s proposed source of funding, details of any premises to be used (including whether the premises have been inspected by the Health Inspector), etc. The procedure requires that the application must be advertised in the Government Gazette, and in a local newspaper. A frequent complaint by business owners is that they will not be granted a licence unless they have already signed a lease for the business premises (this procedure requires the tenant to commit himself to a lease before he knows whether the licence application will be successful).

Applications for Industrial Licences (required by manufacturing enterprises) are more bureaucratic and time-consuming. Such applications have to be made to the National Licensing Authority. The application procedure requires that:

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  • The application must be made by a company locally registered with the Registrar of Companies
  • The share certificates of the promoters should be submitted
  • There should be a Project Description which outlines the product to be manufactured, and gives details of proposed marketing, financing, technical support and land/plant/premises needed.

2.1.4 Unlicensed street traders

This issue is not so controversial in Botswana as it is in other countries in the region. Hawking and vending are amongst the activities that are reserved for citizens, and there are regular reports that foreigners are operating as unlicensed street traders. Although the reserved activities rule remains, the government has recently announced that certain categories of hawkers and vendors will no longer require licences.

2.1.5 Unlicensed liquor bars

Although ‘shabeens’ exist in Botswana, the isssue has not attracted much attention from either policy makers or law enforcers.

2.2 Mauritius

2.2.1 Characteristics of the informal sector

There has been no specific study of the informal sector made in Mauritius. However, every five years the Central Statistical Office (CSO) conducts a census of economic activities of small establishments in the non-agricultural sector to estimate the role and economic contribution of the sector to the economy of the country. The first phase report of the 1997 Census of Economic Activities has recently been published by the CSO. The study

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covers the non-agricultural small establishments defined as units employing 9 or fewer persons. A total of 47,800 small non-agricultural production units - 25,600 establishments and 22,200 itinerant units engaged in some 100 different types of activities have been covered in the census. However, these were registered or licensed businesses rather than unlicensed.

Apart from unlicensed street traders, other forms of home-based and small income-generating activities have sprang up throughout the country engaged in tailoring, embroidery, catering, repairs, decorations, and other workshop services.

2..2.2 Informal sector and the law

The absence of data makes this issue difficult to evaluate, but it may be supposed that - as elsewhere - the laws which informal businesses in Mauritius most commonly infringe are the licensing laws, tax laws, labour laws, and environmental health regulations.

2.2.3 Compliance costs for an informal business obtaining a licence

The compliance cost arising from the graduation of an informal business to a registered or formal business are those associated with the formalisation process; namely, the cost of obtaining the various permits and license. This cost can be measured in terms of both money and time (opportunity costs).

The monetary cost includes the fees payable for the various permits and licenses such as:

  • Land conversion tax, in case of agricultural land being used for other purposes, such as residential or industrial
  • Building permit fee, payable on the basis of the built up area development permit fee, generally is of a fixed value

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  • Company license variable depending on the issued share capital
  • Trade/manufacturing license fee payable on the basis of the type of business to be operated
  • Costs of publications in the press following the application for a development permit to the local authority

On issue of a permit, a fee of Rs 500 is payable to the local authority. The fee payable for the trade or manufacturing license is determined by the type of activity, the number of persons to be employed and the use of electric motor and its power rating. The fees payable are subject to review by the local authorities.

Obtaining a local government permits also entails a long procedures and is time consuming and cumbersome. Small businesses lack specialist staff to devote to the obtaining of multiple permits/clearances. It is generally estimated that it can take an average of six months to start a small business, although in some cases this can be reduced to four months while in others it can take more than twelve months.

Drawings of the proposed building/workshop must be made to scale in order to obtain a development permit for the construction of a workshop for the production of goods by means of machinery and equipment. Details of the type of machinery and the electrical power to run the workshop machinery are also required.

Apart from the project details, promoters or applicants are required to submit to the local authority a proof of public notification in three daily newspapers on three consecutive occasions with a view to soliciting any objection to the proposed project. The applicant will also have to serve through the court officer a notification on contiguous owners and

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immediate neighbours of the proposed project, within a radius of 50 metres to inform them of the promoter’s intention to start a project. If within a delay of 15 days no such objection is received, then the authorities proceed with the application, obtaining the various clearances from other services and departments as appropriate - including from the police department, fire and health services.

The approval of the Development Permit and its issuance is done only after a thorough examination of all information, and providing there is no objection to the proposed project by the neighbours. The local authorities must also investigate safety and environmental issues in terms of any ‘nuisance’ factor - noise, dust, waste and so on. The time taken for such processing is usually 4 - 6 weeks provided all details and information are available in proper form. Permits are sometimes issued conditionally and on a temporary basis. It is not uncommon that the approval and issue of development and/or license permits takes a much longer period of time, particularly, when objections have been received or when the local authorities have reservations over the environmental impact, or the potential nuisance to neighbours.

2.2.4 Unlicensed street traders

The 1997 survey conducted by the CSO has also revealed that some 11,500 hawkers and retailers operating at market places and fairs were license holders. By definition itinerant units, estimated at 27,200 include hawkers and other street traders, leaving about 10,500 units without license, with an estimated employment of 52,500 persons. The growth of street traders and hawkers can be attributed to the import liberalisation policy, the removal of duties on textiles and garments, and the expansion of the textile/garments manufacturing in the country.

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Statistics on the number of unlicensed street traders are lacking., although it is evident that a large number of women engaged in these activities. The economic transformation of the country has also seen an increasing trend in the number of "moonlighters" Ð that is, those having more than one job. Factors such as rising living costs, need to maintain living standards and the emergence of an ‘enterprising culture" have contributed towards the expansion of the informal sector. During the festive periods, a large number of unlicensed traders spring up business at street corners or on pavements which create undue congestion in the already narrow streets in the towns and city of Port Louis.

In recent times, local authorities have become more accommodating and have erected temporary structures in selected areas for the festive seasons. A small fee for the rental of such sheds is charged by the authorities. Local authorities have also licensed a large number of traders to do business at market places and fairs organised on fixed days in both rural and urban regions.

2.2.5 Unlicensed liquor bars

The sale of alcoholic is subject to strict control and license fees are high. Infringement of the laws would entail severe punishment including fines and imprisonment, and and no cases of unlicensed liquor bars would appear to exist.

2.3 Namibia

2.3.1 Characteristics of the informal sector

Small businesses are the major source of employment and income in Namibia. They provide some form of employment

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(part-time or full-time) and income to approximately 160,000 people (approximately one-third of the nation’s workforce).

The informal, unregistered, business has different characteristics to those of the formal or registered business. Informal business activity is estimated to comprise: retailing: 50%, manufacturing: 5%, catering: 30%, trades and services: 15%. The informal sector includes a large number of people in rural areas who sell the agricultural produce which they grow or the handicrafts they make, on a part-time basis. The income they derive from these activities is typically very low.

The pattern of activities of formal sector businesses differs markedly from the informal sector. Retailing and catering are not so common in the formal sector as they are in the informal sector. Small-scale mining is an important formal sector business activity, accounting for 35% of small businesses.

It is also estimated that a large majority of part-time entrepreneurs and roughly half the number of full-time entrepreneurs are women. Most are engaged in low profit but time-intensive activities, such as, selling cooked food, home brewing, sewing and crafts. The formal sector is particularly poor in providing employment for women. Less than 1% of women in Namibia own a formal businesses.

2.3.2 Informal sector and the law

Since the abolition of most licensing laws. legal obstacles are not regarded as a major problem by most Namibian entrepreneurs. However, certain activities still experience considerable problems - in particular small-scale mining, hotels and tourism enterprises - where local authority officials report regular infringements of municipal registration requirements.

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2.3.3 Compliance costs for an informal business obtaining a licence

Registration of a small business with the Receiver of Revenue costs N$50. Since the abolition of most licensing laws, this is the major step in the process of graduation from an informal business to a formal business. Bureaucratic obstacles to establishing and registering a business still remain at the local authority level.

For those occupations which still require a licence, the application procedures vary greatly. Complaints about delays and unnecessary bureaucracy in issuing transportation licences have led to a review of the presently applicable legislation. A decentralised licensing regime is proposed.

2.3.4 Unlicensed street traders

Hawkers still require a permit from the local municipality, except those selling periodicals or newspapers.

2.3.5 Unlicensed liquor bars

A new Liquor Licensing Bill is currently before Parliament. The Bill proposes to replace the former judicial procedure with an easier process of application, and to target the control of unlicensed liquor outlets.

2.4 South Africa

2.4.1 Characteristics of the informal sector

The definition of the informal sector in South Africa has been a subject of much discussion. Rogerson (1991, p. 2-3) briefly discusses this contention and points to a call by Peattie (1984)

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that future discussions of the ‘informal sector’ topic start by barring use of the term ‘informal sector’" as it was an utterly fuzzy concept which can beguile and engulf innocent researchers into a 'conceptual swamp'". However, according to Rogerson, the one central feature of most definitions is that the informal sector is „unregulated by the institutions of society, in a legal and social environment in which similar activities are regulated".

The informal sector is not included in the current Department of Trade & Industry definitions, but comes within two categories of enterprise, the 'survivalist enterprise' and the 'micro enterprise':

  • A survivalist enterprise is one in which the income generated is less than the minimum income standard or the poverty line. There are no paid employees and asset value is minimal. Economic activity is mainly directed at providing minimal means to keep the unemployed and their families alive. This group includes hawkers, vendors, subsistence farmers, etc. (Ntsika Enterprise Promotion Agency, 1997, p. 9).
  • The major criterion for a micro-enterprise is that the turnover is less than the VAT registration limit, which is presently R150 000 per year. Micro enterprises usually lack formality in terms of registration for tax purposes, labour legislation, business premises and accounting procedures. The category includes enterprises with informal characteristics, such as spaza-shops, mini-taxis, and household industry. It is unlikely that there will be more than five paid employees, which is the employment limit. There is a thin dividing line between the smallest and least capable of this category and the survivalist sector (Ntsika Enterprise Promotion Agency, 1997, p. 9).

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There is uncertainty over the size of the informal sector. It has been estimated that towards the close of the 1980s, at least thirty percent of the total South African labour force was engaged in some form of informal work (Kirsten, 1991, in Rogerson, 1994 p. 15). By the mid-1990s, estimates suggested that the country's micro enterprise sector employed as many people as the total employed in agriculture, mining and manufacturing combined (Rogerson 1994, p. 15). Another source reported that South Africa's informal sector accounted for some 75 per cent of all business entities and involved about 3.5 million members of the labour force, excluding subsistence agriculture (The Sunnyside Group, 1994, p. 6).

A rapid expansion took place in South Africa's micro-enterprise economy in the mid-'90s as shack settlements mushroomed around the country's major metropolitan centres. However, although shack settlement areas are often regarded as the zones of greatest spatial growth of new informal enterprise, the advance of the informal sector was probably widespread across all South Africa's cities, towns and rural areas (Rogerson, 1994, p. 15). The major reason advanced to explain the rapid growth of the sector during the 1980s and especially since the beginning of the 1990s was declining formal employment and retrenchment of workers resulting from slow growth in the economy. Growth in the sector was further stimulated by the country's democratisation process which allowed access to economic opportunities hitherto inaccessible to the majority of the South African population (Martins, 1998, p. xiii).

In metropolitan areas there are several categories of common informal sector operations:

  • Street or pavement-centred activities, including flea markets, hawkers, taxi drivers, street barbers, and shoe shiners;

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  • home-based enterprises such as child-minding, spazas, shebeens, backyard repair shops, garage workshops, hairdressers and the showing of videos;
  • increasingly formalised ventures located at fixed business premises such as small-scale manufacturers and liquor taverns; and
  • the micro-enterprise fresh produce economy.

The country's rural economies have also seen growth in non-farm activities which include a diverse range of activities such as craft manufacture, brewing, brick-making, traditional healing, dagga cultivation, the collection of medicinal herbs or fuel-wood, the production of building materials and involvement in palm wine tapping (Rogerson, 1994, p. 16).

2.4.2 Informal sector and the law

The main laws which informal sector businesses infringe in South Africa are the licensing laws, and/or planning regulations, and/or tax laws, labour laws, and environmental health regulations.

2.4.3 Compliance costs for an informal business obtaining alicence

The country consultant reports that none of the studies that show a positive disposition by small firms towards the new regulatory environment give any indication of costs involved either in terms of acquiring the license itself or complying with the requirements of its operation. Even the most recent legislative review conducted by Ntsika do not cover this aspect. Riley's study only states that: "...the data suggest that microentrepreneurs are not overly burdened by regulatory matters" (p. 29). The ERU/BEES study, which is the only one that raises the issue of license costs/fees, only notes as follows,

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in respect to its findings as cited in the table above: "Perhaps not surprisingly, given that few entrepreneurs will be paying income tax or licence fees, high taxes and/or licence fees are not considered an important problem" (p. 49)

2.4.4 Unlicensed street traders

On this matter, it is reported that the effect of deregulation has been felt in terms of expanding the number rather than the size of businesses. This meant that what was achieved was business replication of survival businesses rather than growth through intensification or internal developments of expanding businesses (Rogerson, 1993d, in Rogerson, 1994, p. 20).

Ntsika also reports that in Cape Town, the management of street trade has been outsourced to Muslim-controlled associations, as a result of which there was "racist exclusion of African operators in Cape Town". This practice, Ntsika observes, could lead to an outbreak of trader wars and violence (Ntsika, 1999).

2.4.5 Unlicensed liquor bars

A study of Soweto's liquor industry has concluded that "deregulation alone is not sufficient to improve the livelihood of the shebeen community" (Matshego, 1991, in Rogerson, 1994, p. 20).

2.5 Tanzania

2.5.1 Characteristics of the informal sector

Although there is little data on Tanzania’s informal sector, it is believed that:

  • it employs the majority of the working population;

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  • most such businesses employ just the business owner;
  • informal sector businesses are survivalist rather than profitable

2.5.2 Informal sector and the law

Laws commonly breached include the licensing laws and tax laws.

2.5.3 Compliance costs for an informal business obtaining alicence

Approximately 70% of businesses in Tanzania do not obtain the necessary licence, mainly because of the bureaucratic system for processing applications. The cost of the different types of licence varies considerably.

2.5.4 Unlicensed street traders

The country consultant reports that unlicensed street traders in Tanzania operate in breach of trading codes, health and safety laws, and street regulations.

2.5.5 Unlicensed liquor bars

It is reported that unlicensed liquor bars attract criminals, prostitutes and drug dealers.

2.6 Zambia

2.6.1 Characteristics of the informal sector

The emergence of a large informal sector in Zambia is attributed to the continuing decline in the country’s economic

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performance, which has considerably reduced formal employment. A high level of migration from rural to urban areas has resulted in a concentration of informal sector activity in urban centres. Although the government has yet to develop a policy to guide any intervention in the sector, it established what it called a ‘Vendor’s Desk’ at the State House, which was intended to provide a conduit for vendors and other informal sector operators to voice their problems and air their views to government. The location of this desk at the State House meant that it was practically inaccessible to those whom it was intended to serve, and it was subsequently moved to a more practical location and headed by a deputy cabinet minister.

While both policy makers and academics acknowledge that the informal sector is growing at a fast rate, there is no clear and precise national definition of the informal sector as Mukuka explains:

"Most attempts to define the informal sector have been descriptive, providing its characteristics rather than defining it." (Mukuka, 1999. p.7)

The description used by the International Labour Organisation is adopted in the Zambian National Poverty Reduction Plan for 1999-2004:

"According to ILO, the term informal sector refers to very small scale units producing and distributing goods and services and consisting largely of independent, self-employed producers in urban areas of developing countries, some of whom also employ family labour and /or a few hired workers and apprentices, which operate with little capital, or none at all; which utilise a low level of technology or skill; which therefore operate at a low level of productivity; and which generally provide very low irregular incomes and highly unstable employment to those who work in it …

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they are informal in the sense that they are for the most part unregulated and unrecorded in official statistics, they tend to have little or no access to organised markets, to formal credit institutions, to formal education and training institutions or to many public services and amenities; they are not recognised , regulated or supported by the government; they are often compelled by circumstances to operate outside the law, they are almost invariably beyond the pale of social protection, labour legislation and protective measures at the work place.....

The informal sector producers and workers are generally unorganised and in most cases beyond the scope of action of trade unions and employer organisations and they often live and work in appalling, often dangerous and unhealthy conditions, even without basic sanitary facilities, in shanty towns of urban areas." (quoted from the National Poverty Action Plan, 1998)

Statistics indicate that in 1983, out of a labour force of 2,246,207, only 361,800 were in formal employment (CSO and NCDP, TNDP Oct 1979). This represents 16% of the total labour market. By 1993, the Priority Survey II reported that the informal sector accounted for 71.9% of the 2.8 million labour force. The survey also indicated that 54% of those in the informal sector were self-employed and of these, 77% were women. The survey further established that the urban informal sector is dominated by trading activities. Subsequent indications are that more men are entering the informal sector due to the continuing retrenchments and redundancies.

A 1997 study of the Lusaka Urban District informal sector indicated that 75 percent were engaged in trading activities and of the remaining 25 percent, 11 percent were in manufacturing, 8 percent in service, 2 percent in transport, 2 percent in finance and the remaining 2 percent in construction.

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Informal Sector Operators conduct their business in various locations. Until recently, most petty traders were operating along the roadside. However, following a controversial clamp down on street vending by the local authorities, traders have resorted to operating in traditional areas such as markets or outside their homes. In rural areas, traders can still be seen operating along the roadside.

2.6.2 Informal sector and the law

Although the informal sector has potential for economic growth and employment creation and despite its large size, it has mainly been regarded as a nuisance by the authorities and despite legal reforms, the current institutional and regulatory framework is biased against informal sector activities.

The Small Enterprises Development (SED) Act of 1996 is an example of such bias. In section IV, paragraph 20 and item (2), the Act states that "the Trades Licensing Act shall not apply to an Enterprise registered under this Act". Small and micro businesses are thus technically exempted from the requirement to obtain a license, provided they are registered with the Small Enterprises Development Board (SEDB) at a cost of K60,000. The Small Enterprises Development Board demands that a business seeking registration with the Board must be first registered with the Registrar of Companies making the process of accessing the incentive cumbersome, slow and costly. This anomaly suggests that little has been done to harmonise business laws which apply to the informal sector. Discussions held by the country consultant with Local Council authorities indicate that any person involved in a trading and manufacturing transaction, regardless of the size or status of the business, is considered to be obliged by law to obtain the relevant operating license.

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Section 2 of the Trades Licensing Act of Zambia obliges any person trading or involved in any manufacturing activity at any level to apply for a license or show documented proof of exemption from holding such a license. The Act states that "Any person who contravenes the provisions of this section shall be guilty of an offence". This implies that Hawkers, Pedlars, Tuntembas (movable stalls) and other informal sector operators should acquire a license permitting them to operate.

In terms of the Public Health Act and the Food and Drugs Act, any business premises and processes have to be certified hygienic by the relevant local authority. Most informal sector operators dealing in food processing and food serving cannot meet the provisions of this Act and as a result infringe the law.

Interviews conducted by the country consultant with informal sector operators suggest that most of them have little or no knowledge of the trade licensing laws. Local Authorities attribute this infringement of the law by informal sector operators to the liberalisation of trade practices in Zambia. The sentiments below summarise the general position of the City Council in Lusaka as regards infringement of licensing laws by the informal sector.

"The advent of a free market economy in Zambia brought along a care free attitude among various players in the informal sector, who imagined that this meant that they were free to trade without licenses. The Council is slowly changing this perception and encouraging all to acquire one form of license or the other. Although the scourge of street vending has largely been controlled, it is refusing to go completely. However, it’s a question of time before the vendors nightmare is firmly put to rest"

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2.6.3 Compliance costs for an informal business obtaining a licence

Some informal sector businesses have potential for growth and when they do grow, it becomes difficult for them to continue operating ‘illegally’ without a licence. There are however certain costs and procedures that arise with business formalisation.

The licensing authorities under the Trades Licensing Act are local authorities (city councils, municipalities, township councils and district councils). A person who intends to apply to a licensing authority for a trading (wholesale) licence or a trading (retail) licence must give notice of such intention. The notice must be in a prescribed form and must be published in the government gazette and in two issues of a newspaper circulating in the district where it is intended to sell the goods under such licence at least fourteen days before the application. The licensing authorities may in certain cases exempt applicants from complying with this requirement where the applicants are already holders of the relevant licences.

When a notice of intention to apply for licence is published, any person who wishes to object to the issue of such a licence must within twenty one days from the last publication of the notice of intention give his objection in a prescribed from to the licensing authority and to the applicant named in the notice. Grounds of the objection must be stated clearly.

An application for a licence must be made in the prescribed form to the licensing authority for the area in which the applicant intends to carry on the activity to be licensed. The application must be accompanied by the prescribed fees. On receipt of the application, a licensing authority has power to take evidence on oath or affirmation, to summon any person to give evidence in respect of such application or to produce any

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book or plan relating thereto. It can also make any investigation as may be necessary.

The various registration bodies are listed below, together with the average length of time for registration and the cost:

  • Business Name Registration is conducted by the Registrar of Companies (One month, K18,000);
  • MSE Registration is conducted by the Small Enterprise Development Board (One month, K60,000);
  • Manufacturing Licenses are issued by the Local Council (One month, K180,000);
  • Trading Licenses (Retail) are issued by the Local Council (One month, K90,000);
  • Trading Licenses (Wholesale) are issued by the Local Council (One month, K180,000);
  • Agents Licenses are issued by the Local Council (One month, K20,000);
  • Licences for Market Stall, Hawkers & Pedlars are issued by the Local Council (One month, K20,000); and
  • Liquor Licences are issued by the Local Council (up to six months, K80,000).

Most of these documents cannot be processed concurrently. It would therefore take an operator between three and six months to process all the relevant documents, at a cost between K100,000 and K350,000. This is a considerable sum for an informal sector operator.

2.6.4 Unlicensed street traders

According to a study on Informal Sector Activities in Lusaka Urban District, lack of suitable business premises is a major reason why informal sector businesses operate in streets. Operators from Lusaka City Centre Market and Freedom Way feel that the issue of suitable premises will take time to resolve.

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Until such a time, the operators position themselves at strategic places in order to ‘catch’ customers. (Tolosi and Nawiko, 1997). An officer from the Lusaka City Council noted that: "Unlicensed street vendors face a myriad of problems like; confiscation of their goods by law enforcement officers and constant harassment by the same"

For several years, it has been recognised that there are major conflicts of interest between informal sector operators, particularly street vendors, and the local authorities in Zambia (see Imboela who recommended that local authorities should devise ways to register such traders so that they operate in specified areas where they can be licensed and regulated). The conflict finally came to a head in April 1999 when the City Council authorities removed almost all the street vendors from the Lusaka Streets. This action provided the impetus for Councils in the other towns to start the exercise of removing unlicensed street vendors from urban centres. Most of the streets are now clear of congestion caused by street vendors. However, whilst the urban centres look cleaner, most of the street vendors are now without any income. The designated market places are not sufficient in terms of either space or situation to provide markets for the vendors who were forced to leave the streets. A report on a Savings Scheme for Informal Sector Operators by a community based organisation in Lusaka highlights the plight of the street vendors:

"In May 1999, Lusaka City Council moved street vendors from all streets and this made business difficult for our members. Most of our members lost goods and they had nothing to continue with their businesses. Those who had money to continue their businesses had no space in the market. This happened to all members in town and to other members who were selling outside Matero, Mandevu and Lilanda Markets. It

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has taken our members a long time to settle down and have spaces in the markets."

Following the removal of unlicensed vendors from the streets, Lusaka City and other towns are cleaner and more presentable. The street vendors produced a lot of garbage, which remained uncollected for days and presented a health hazard. On several occasions, this lead to out-breaks of disease in Lusaka (Tolosi and Nawiko). However, a direct consequence of this forced removal is that thousands of street vendors have lost their source of income. More than 70 percent of the labour force in Zambia operates in the informal sector, and of these more than 50 percent are involved in street-trading. In a radio interview, one former street vendor explained that the ‘kantemba’ was his only source of income and that he might resort to stealing in order to feed his family.

2.6.5 Unlicensed liquor bars

Whereas unlicensed street vending has been checked in Zambia, the same cannot be said of unlicensed liquor traders (‘shebeens’) whose activities are subtler and less easy to detect. In Zambia, most shebeens operate from residential areas under cover of darkness. Law enforcement agents have difficulty detecting them as their customers drink in cars or inside boundary walls. There is an understanding between the shebeen owners and their patrons that at the slightest indication of ‘danger’, everyone disappears.

Shebeens contravene not only the licensing regulations by trading in liquor without a license, but they also breach the zoning regulation by operating in residential areas. Most of them are a nuisance to their neighbours who have to suffer the loud music and unruly behaviour of their patrons.

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2.7 Zimbabwe

2.7.1 Characteristics of the informal sector

In Zimbabwe, prior the 1980s, the informal sector was regarded a nuisance that had to be barely tolerated. This attitude began to change when formal employment became scarce and many thousands of people turned to informal self employment as an alternative source of income in the late eighties and early nineties.

In Zimbabwe, the informal sector comprises those enterprises which are not registered under the Companies or Co-operatives Acts, irrespective of whether or not they are licensed by the local authorities. The general characteristics of the informal sector are that:

  • the enterprises are family owned
  • the sector is easy to enter and exit
  • operators rent space from individuals with property, or local authorities.
  • operators undertake small scale operations
  • the sector is labour intensive
  • the enterprises are staffed by the owner, or relatives or a small number of employees
  • operators use their own financial resources, and
  • the sector operates outside the fiscal framework of the economy.

The informal sector operates in almost all sectors of the economy and equally in urban and rural areas. Its operators are found in manufacturing, mining, retail trade and a wide variety of service the industry. Informal sector operators are found nearly everywhere in both designated and undesignated areas which can identified as follows:

  • traditional markets known as "musikas" in high-density suburbs.

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  • people’s markets in low-density areas
  • street pavements in the central business districts of cities and towns
  • parks and open spaces in urban areas
  • roadside: along the busy roads in the country
  • flea-markets: open air or covered
  • residential houses, and
  • special designated areas: especially for those in production door frames, carpentry, stone carvers etc.

2.7.2 Informal sector and the law

The most infringed are those laws considered to be restrictive by the informal sector, including:

  • Regional, Town and Country Planning Act (Chapter 29:12);
  • Urban Councils Act (Chapter 214);
  • Rural Councils Act No 8 of 1988;
  • Shop Licences Act (Chapter 14:17);
  • Factories and works Act (Chapter 14:08)
  • Public Health Act (Chapter 15:09); and
  • Liqour Act (Chapter 14:12).

According to the Harare municipal officials and the Hawkers and Vendors Association of Zimbabwe (HAVAZ), the most infringed regulations are:

  • trading /operating without license (hawker, vendors etc);
  • trading/operating in prohibited areas;
  • trading/operating outside designated areas;
  • sale and consumption of liquor in unlicensed premises;
  • non-compliance with public health regulation regarding the sale of prepared food; and
  • trading in areas outside those prescribed by the licence.

2.7.3 Compliance costs for an informal business obtaining alicence

The license application procedure is that:

  1. The applicant should publish in a newspaper circulating in the licensing area of the licensing authority to which application will be made of his intention.
  2. First publication should not be more than 42 days or less than 28 days before the date of meeting at which the application is to be heard. Second publication shall not be less than 7 days or more than 14 days after the first publication.
  3. Within 7 days of the last publication, the applicant is supposed to lodge with the licensing authority, an application for a new license. If this is not done, then the notice is withdrawn and the applicant needs to start afresh.
  4. The application should be accompanied by:
    • A fee, documents, plans, and specifications, as may be prescribed.
    • Proof that the provision of any other enactment relating to the trade or business for which the license is required has been complied with.

Fees vary according to the type of licence. The fee for obtaining a licence to operate a vending machine varies according to the location of the business - the fee in an urban area is $100, and in an rural area - $50.

2.7.4 Unlicensed street traders

Unlicensed street traders tend, more often than not, to operate from prohibited or undesignated areas. For this reason, they are considered a nuisance by other members of the public. Since they operate unlawfully, they are usually accused of obstructing or interfering with traffic in urban areas or littering the areas from which they sell their wares. As they operate without

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licences, they are victims of police raids. If arrested for infringement of the licensing bye-laws, apart from forfeiting their wares, they are also liable to pay a fine which, for the first offence, amounts to Z$50 in Harare. This increases with the number of times the offence has been committed by that particular individual. Public opinion is divided as to how this group of traders should be treated.

2.7.5 Unlicensed liquor bars

‘Shebeens’ are unlicensed households which sell alcohol. In Zimbabwe, this type of liquor outlet is quite popular in most urban areas mainly because of convenience of location(in residential areas). Shebeens are patronised by people from various social strata. All shebeens operating in Zimbabwe are, without exception, illegal because they are unlicensed in terms of the Liquor Act (Chapter 14:12).

The operation of unlicensed liquor bars raises several issues:

  • From the point of view of local authorities, the existence of unlicensed liquor outlets means lose of sources of revenue for their budgets;
  • Some regard shebeens as havens of immorality, promiscuity and crime;
  • Some regard shebeens as a nuisance because their clientele disrupt peace and tranquillity. They also become a health hazard because sanitary facilities are inadequate.

Although they are illegal, shebeens are a source of income, or supplementary income for a substantial number of people. Shebeens are frequently raided by the police and their owners are fined for selling liquor without a licence. Even if the shebeen owners were prepared and willing to obtain licences, their applications would fail because the zoning laws prohibit this.

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2.8 Conclusions

Although reliable data on the informal sector is generally lacking, it appears from the country reports that:

  • Within most countries, there is an unresolved debate as to the most appropriate definition of the informal sector;
  • Informal sector businesses most frequently tend to infringe licensing laws, tax laws, labour laws, and environmental health regulations;
  • In many countries, the compliance costs for an informal business that seeks to obtain a licence are the result of bureaucracy and procedures rather than unreasonable fees; and
  • Unlicensed street traders are the most ‘visible’ category of informal sector activity, and as such are most likely to attract the attentions of law enforcement agencies.

© Friedrich Ebert Stiftung | technical support | net edition fes-library | November 2000

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