The government’s plan to formalise 11,000 informal enterprises during the 2026/27 financial year is intensifying a long-running debate over whether township traders are truly ready for the financial and regulatory pressures that accompany formal registration. It has also raised concerns about whether the government is ready to meet them halfway.
The target was announced by Small Business Development Minister Stella Ndabeni-Abrahams during the Budget Vote 36 speech in Parliament on Tuesday, as part of a broader effort to integrate informal businesses into the formal micro, small and medium enterprise (MSME) ecosystem.
Ndabeni-Abrahams acknowledged the pressures already weighing on the businesses she wants to formalise.
“Geopolitical tensions, supply chain disruptions, and rising costs continue to reshape the global economy,” she said. “These pressures are felt most acutely by small businesses, farmers, and entrepreneurs across our towns, townships, and rural areas.”
Funding support versus compliance pressure
The Informal and Micro Enterprise Development Programme, which provides equipment and assets to micro-enterprises, supported 2,940 beneficiaries last year. This year’s target of 3,000 carries an allocation of R53.5 million, roughly R17,800 per enterprise.
The Township and Rural Entrepreneurship Programme received R710 million, with its funding cap raised from R1 million to R3 million. A Business Licensing Bill has completed consultations and will be tabled before Parliament imminently.
But business organisations warn that good infrastructure on paper means little if compliance arrives before support does.
The National Small Business Chamber has argued that formalisation becomes counterproductive when regulatory obligations, tax requirements, municipal licensing fees, inspections, and administrative penalties appear long before funding access or procurement opportunities materialise.
The Black Business Council has been equally pointed, arguing that informal enterprises must be treated as legitimate economic participants, not regulatory problems waiting to be solved, and that overregulation in communities already battling infrastructure instability and weak consumer spending risks suppressing the very entrepreneurship government says it wants to unlock. Both organisations have called for the same sequencing shift: support first, compliance second.
Township traders fear rising costs
The concern resonates on the ground. Nosipho Mkhabela, who operates a food stall in Umlazi, said the anxiety among township traders is less about formalisation itself than about timing.
“People hear the word ‘formalisation’ and think growth, but for many small traders it also means new costs, more paperwork and pressure we may not be financially ready for,” she said. “There’s fear that the government becomes stricter with compliance before businesses actually experience easier funding access or better opportunities.”
That fear has a statistical basis. The department’s own report, cited during Tuesday’s parliamentary debate, noted that only 18,700 of approximately 81,000 spaza shops are fully licensed, meaning tens of thousands of entrepreneurs remain in bureaucratic limbo, unable to access formal support, because municipalities cannot process applications effectively.
The unanswered question behind formalisation
Sindisiwe Zulu, founder of Soweto-based fashion business Root Republic Apparel, said the underlying question for most informal traders is simple: is formalisation worth it?
“Entrepreneurs are more open to formalisation when it creates real access to funding, infrastructure, procurement opportunities and business support,” she said. “If businesses only experience compliance pressure without economic benefits, many traders will remain hesitant.”
For the government, the challenge is proving that formalisation can function as a tool for economic inclusion rather than an administrative burden. The instruments exist. Whether trust in them does and whether support arrives before the compliance pressure does remains the unanswered question.
