Journal of Emerging Trends in Economics and Management Sciences: Home

Abstract:
South Africa is faced by a growing informal economy with black entrepreneurs constituting the majority. The government has spent large budgets but the size of informal black entrepreneurs remains significantly high. The objective of this paper is to understand the factors behind the formalisation willingness of South African black owned SMMEs. The conversion rate of informal businesses into the formal economy is insignificant considering the potential carried by small businesses in championing the inclusive and sustainable economic growth objective especially when they are formalised. Cross-sectional data was collected using a questionnaire from 390 in Johannesburg and Pretoria using stratified random sampling and clustered sampling. This study employed a multinomial logistic regression. The study found government support, corruption, employment compensation, family labour, success perception, education status, age and financing as key drivers on willingness of SMMEs to formalize their operations. The implications of our findings warrant the government to foster more financial supporting pillars to match up huge volumes of informal business that lack funding opportunities. Institutions of higher learning should also take the initiative of having incubation centres and innovation hubs to facilitate capacity building as that can cultivate willingness to mainstream. The purpose of the study was to find determining factors of positive willingness to mainstream and it very significant as it specifically target black entrepreneurs who are highly concentrated in the informal sector. Finding factors that instigate positive willingness impact on improved graduation rates of SMMEs and that also impact on improved success rate of small business in the country. Improved success rate of small business has positive effects on employment and economic growth.

Keywords: Mainstreaming; Transition; Informal; Multinomial Logit; Willingness

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