Modeling economic behaviour in South Africa's informal urban retail trade sector : the case of Port Elizabeth

Even though South Africa‟s historical inequalities are addressed, serious economic disparities are still evident. The informal economy is not flourishing as it should be, especially when compared to other fledgling democracies on the continent and this poses a policy question since most of the participants of this sector are from the previously disadvantaged section of the population. One policy dilemma that comes to the fore is about how to ensure that there is increased productivity in the sector so that the sector‟s contribution to the national economy can be enhanced. While the actual share of the economy contributed by the informal economy is difficult to ascertain there is evidence that this constitutes less than one fifth of South Africa‟s GDP. Within the informal economy trading appears to be the dominant economic activity. Despite the importance of the informal trade the sector has not attracted the needed attention in the literature either locally or internationally. The area that has received much attention by researchers has been the informal financial sector. Drawing on a standard revenue model for the informal trade sector this study examines the factors that explain differences in the performance of the retail trade businesses; given that these can be identified an effort should then be made to explore the policy measures that can improve the performance of these firms. The study is based on a sample of 300 informal retail traders in the Port Elizabeth environ. The regression analysis presented in this study suggests that residential area, capital, labour, inventory and age of a business are important determinants of an informal retail trade firm‟s revenue. Very few informal retailers indicated that they had businesses training. The survey results show that having a supplier close to the business assists in reducing transport costs, hence the increase in profit margins. Shelters and storages were found to be very useful in the operation of informal businesse