Introduction

In Grade 9 Economic and Management Sciences (EMS) you learned about the Sectors of the Economy in Entrepreneurship. We will continue learning about these sectors but focus on:

• the meaning and relationship between the three business sectors
• the meaning and importance of the formal and informal sectors
• the meaning and purpose of the public and private sector.

In Grade 11 we will link the three sectors and in Grade 12 we will focus on identifying the business sectors and the classification of the challenges according to the three business environments.

6.1 Primary, secondary and tertiary sectors

The meaning of the primary, secondary and tertiary sectors

Business sectors consist of businesses that are grouped together and classified into primary, secondary or tertiary sectors. How the business is classified depends on the nature of its product or service.

The purpose of the classification is to determine the contribution of each sector and industry to the South African economy. Businesses play a huge role in making a meaningful contribution within the different sectors.

The sectors can be classified as follows:

• The secondary sector is often referred to as manufacturing industries because valuable products are created/manufactured/produced so that these products can serve a meaningful function/purpose to customers/consumers.
• The secondary sector plays an important/critical role because not all resources in their natural state are functional/useful and require further processing.

The relationship between the primary, secondary and tertiary sectors

The sectors work together to create an economic chain of production.

The primary sector gathers the raw materials, the secondary sector transforms the raw materials into useful goods. The tertiary sector sells the goods or services and supports the activities of the primary and secondary sectors.

Let us have a look at how a product such as BREAD reaches the table of a consumer.

However, the relationship between the three sectors is not a linear one.

The primary sector also depends on the secondary sector for manufactured goods such as machinery and equipment.

The primary and secondary sector also depends on the tertiary sector to provide services such as insurance and transport.

6.2 The differences between the formal and informal sectors

Businesses operating in South Africa are divided into the formal and informal sector.

The formal sector is mainly characterised by small, micro, medium and large businesses with specific working hours and monthly salaries or weekly wages. These businesses have a specific aim of making a profit. Examples of businesses in the formal sector include mines, farms, manufacturers, construction, retailers, and insurance companies.

The informal sector consists of small businesses with long working hours and irregular income. These small businesses are mostly started by the unemployed people who need to earn an income to buy necessities or pay for things such as water and electricity. Examples of businesses in the informal sector include food and flea markets, street vendors, and spaza shops.

With increasing unemployment in South Africa, the informal sector is growing bigger since many people are using their entrepreneurial skills to generate some form of income to survive.

Meaning and differences of the formal and informal sectors and examples of each

Meaning of formal sector

Businesses in the formal sector are registered and pay taxes. These businesses are required to register with the Companies and Intellectual Property Commission (CIPC). Businesses have to register with the South African Revenue Services (SARS) and be liable to pay tax on turnover and profits at prescribed threshold.

Meaning of informal sector

Businesses in the informal sector are not registered with CIPC and do not pay tax on profits to SARS.

The informal sector refers to those workers who are self-employed. Owners of businesses in the informal sector take responsibility for the success and failure of their businesses.

Differences between formal and informal sectors

FORMAL SECTOR	INFORMAL SECTOR
Businesses in the formal sector are registered with CIPC. Businesses pay tax to SARS on turnover and profit made.	Businesses in the informal sector are not registered with CIPC. Businesses do not pay tax on the profits of the business.
Formal sector activities are monitored by the government.	These businesses are not monitored by the government.
These businesses are controlled by the laws and regulations of the government.	Government laws and regulations pertaining to businesses do not apply to the informal sector, but must adhere to municipal regulations.
All contributions of these businesses are recorded in the total value of the goods and services produced in a country.	It is difficult to calculate its contribution to the total value of the goods and services produced in a country.
Employees are protected by legislation such as Basic Conditions of Employment Act, No. 75 of 1997 (BCEA), Compensation for Occupational Injuries and Diseases Act, No. 130 of 1993 (COIDA), Unemployment Insurance Fund (UIF), and so on.	Employees are not protected by any legislation and can easily be exploited.

The importance of the formal and informal sector

The importance of the formal sector

• Business activities are included in the GDP figures of the country.
• Companies pay taxes on their profits.
• People who are employed at companies pay personal income tax.
• Provides employment to highly skilled, semi-skilled and unskilled labourers.
• People working in the formal sector gain the necessary skills to start their own businesses.
• Provides a large variety of goods and services to satisfy consumers.

Interesting information on South Africa’s Formal Business Sector:

https://www.southafricanmi.com/south-africas-formal-business-sector.html

The importance of the informal sector

• Encourages entrepreneurship and self-employment.
• Provides employment opportunities for communities and contributes to poverty alleviation.
• People working in the informal sector gain work experience, which enables them to apply for jobs in the formal sector.
• People start informal businesses to supplement their income earned in the formal sector.
• It is easy to enter this sector and serves the needs of individuals.

The following article describes why the informal sector is important to growing the economy in South Africa. .

1Quote the importance of the informal sector from the case study above.

2Identify THREE types of industries that provides employment in the informal sector.

3Compare the employment in the informal sector and the formal sector.

6.3 The differences between the public and private sectors

In South Africa’s mixed economy, most businesses are privately owned and some businesses are state-owned. The privately owned businesses form the private sector and the state-owned businesses form part of the public sector.

The meaning and difference of the public and private sectors and examples of each

The meaning of the public sector

The public sector comprises of various business enterprises owned and managed by the government.

• It is composed of all levels of government and government-controlled enterprises. Also known as state-owned companies/enterprises (SOCs/SOEs). These refer to businesses that are owned and controlled by the government.
• It does not include private companies, voluntary organisations and households.

The meaning of the private sector

The private sector consists of business activity that is owned, financed and run by private individuals.

• Businesses in the private sector are privately owned by sole traders, partnerships, close corporations or profit companies. Their main aim is to make a profit.
• Some of these businesses exist in the formal or informal sectors.

Here is a link to the Public Entities in South Africa:

https://nationalgovernment.co.za/units/type/6/public-entity

The purpose of the public and private sector

The purpose of the public sector

The public sector plays an important role in South Africa’s economy. It:

• provides public goods and services such as water and electricity to meet the needs of its people
• improves the general standard of living of all its citizens
• ensures equal distribution of wealth
• provides infrastructure that supports private sector development
• provides various kinds of job opportunities
• intervenes in the economy to limit anti-competitive behaviour.

The purpose of the private sector

The private sector in South Africa’s economy:

• offers a large variety of goods and services to meet the demands of consumers
• give back by uplifting the community with Corporate Social Responsibility (CSR)programs. CSR relates to businesses that take responsibility for its impact on society and the environment
• provide businesses with the opportunity to create wealth for growth
• support public sector with a public-private-partnership agreement
• provide job opportunities for people who have different skills in all sectors
• provide employment and contributes to tax revenues.

The differences between the public and private sector

Read the news article on the future of the uncertainty of SOE’s with arguments against privatisation.

https://www.news24.com/news24/columnists/guestcolumn/opinion-soes-must-stay-state-controlled-and-out-of-the-hands-of-business-20200128

Read the news article on Sasol partnering with local government.

https://infrastructurenews.co.za/2014/08/12/sasolpartnering-with-local-government/

Mind map: Topic 6 – Business sectors

Use the mind map as a guide to consolidate the content covered in this topic. Be sure to study the content relevant to each heading.

1.2Complete the following sentence by using the words in the list below. Write only the word(s) next to the question number (1.2.1 – 1.2.3) in the ANSWER BOOK.

1.2.1Mr Yokwakha’s construction business is an example of the … sector.

1.2.2Examples of businesses in the … sector include spaza shops found in the township.

1.2.3Denel, a business owned and controlled by the government is an example of the … sector.

(3 × 2) (6)

SECTION B

QUESTION 2

2.1List any TWO examples of industries in the primary sector. (2)

2.2Elaborate on the meaning of the informal sector. (4)

2.3Read the scenario below and answer the questions that follow.

Cool Manufacturers (CM)

Cool Manufacturers specialises in the manufacturing of steel products. The steel products of CM are sold at Builders Paradise.

2.3.1Identify TWO business sectors in the scenario above. Motivate your answer by quoting from the scenario above.
Use the table below as a GUIDE to answer QUESTION 2.3.1

BUSINESS SECTORS	MOTIVATIONS
1.
2.

 (6)

2.3.2Explain the relationship between the TWO sectors identified in QUESTION 2.3.1 (4)

Scan this code for a summary overview of the content covered in this topic relating to the specific Key Learning Points

https://www.youtube.com/playlist?list=PLY8n0zQCEkpoSJuohXHcDHDsxpXbniaM6

PUZZLE: BUSINESS SECTORS

Across 2.The sector where goods and services are provided by the government. 4.An example of an industry in the secondary sector. 5.The sector that deals with the extraction of raw materials. 7.The sector where businesses are not registered. 8.Activity of the primary sector. 10.Activity of the secondary sector. 11.The sector that refers to services.

Down 1.Refers to the sale of state-owned businesses. 2.The sector that consists of businesses owned by individuals. 3.Give another name for state-owned company. 6.The sector that involves the process of transforming raw materials. 9.The sector where businesses are registered.