- Young entrepreneurs and Batswana in general turn to informal ventures amid limited formal employment opportunities
TLOTLO KEBINAKGABO
Across Botswana, more youth and citizens are turning to home-based businesses as a means to earn a living. These ventures range from roadside food eateries and home beauty services to online retail and other small enterprises. Operating from homes or informal spaces, entrepreneurs face challenges such as limited stock, competition from larger firms, and regulatory hurdles, while seeking ways to sustain income and grow their businesses.
Labor Market Gaps
Kago Ngwato, an economist, says the rise of home-based and informal businesses reflects structural constraints in Botswana’s formal labor market. “Specifically, Botswana’s labour market has not grown fast enough to absorb all job seekers, especially youth. Informal self-employment then becomes a default survival strategy when formal jobs are scarce,” he said.
Low Barriers
Ngwato noted that informal enterprises benefit from low barriers to entry. “Home-based and informal enterprises require minimal capital, no registration costs and flexible hours. For many households, this reduces financial risk and enables income generation even with low start-up capital,” he said. He added that rising costs of formalisation—covering registration, licensing, compliant premises, and taxes—also make formalisation unattractive for micro-scale enterprises.
Economic Risks
Remaining informal, however, carries significant economic risks. “While informal businesses can be resilient and flexible, staying informal long-term carries substantial economic costs and risks such as limited access to finance,” Ngwato said. He explained that banks and formal lenders typically require registration, credit history, audited accounts, or collateral—requirements informal firms cannot meet.
Other challenges include low productivity, smaller scale, and limited technological adoption, leading to lower earnings compared with formal counterparts. Informal entrepreneurs also lack pensions, health insurance, and worker protections, leaving them vulnerable to shocks. “Without formal status, businesses can face expropriation of goods, fines or disruption if authorities enforce compliance suddenly,” Ngwato said. Furthermore, informal firms are often excluded from government and corporate contracts.
High Costs
High operating costs discourage formalisation. “Formalisation is often a cost–benefit decision,” Ngwato said. “Business owners usually compare the costs of formal entry—which includes rent, registration fees, licenses, and compliance—relative to expected benefits such as access to finance, markets, and legal protections. When costs are high and benefits uncertain or delayed, rational businesses remain informal.”
He explained that in urban areas like Gaborone or Francistown, commercial rents can double or triple fixed costs, creating what he called a “formalisation penalty” that keeps small firms informal.
Policy Reforms
Ngwato suggested measures to ease formalisation: tiered or minimal licensing fees, one-stop online registration, home-based enterprise concessions, targeted access to finance, business support programs, proportional regulation with risk-based inspections, and tax incentives for early formalisation. These steps, he said, would reduce barriers while gradually integrating businesses into the formal economy.