7 caps 4 businesses educator memorandum -...

Copyright © Classroom Masters 2013

1 Grade 7 EMS – Businesses Educator Memorandum

BUSINESSES

EDUCATOR MEMORANDUM

In this Entrepreneurship chapter learners will:

1. Explain the difference between formal and informal businesses. 2. Understand the advantages and disadvantages of formal and informal businesses. 3. Define natural disasters and health epidemics and explore their effects on businesses. 4. Differentiate between different types of businesses in the formal and informal sectors. 5. Explain the role of businesses as producers and consumers in the economy.

NOTE: To avoid the cumbersome use of ‘he or she’ and ‘his or her’, the learner will be referred to as ‘he’ or ‘his’. This does not reflect any sexism on the part of the authors, but is simply more practical.

All exercises with assessment rubrics use the following rating scale:

Key to Assessment rubric Level Description of competence Percentage

7 Outstanding achievement 80-100 6 Meritorious achievement 70-79 5 Substantial achievement 60-69 4 Adequate achievement 50-59 3 Moderate achievement 40-49 2 Elementary achievement 30-39 1 Not achieved 0-29



FORMAL AND INFORMAL BUSINESSES In South Africa we have many different businesses that fall into numerous industries. Within the primary, e.g. extraction of raw materials, secondary, e.g. manufacturing of products and tertiary industries, e.g. service businesses, we have formal and informal businesses. We often refer to formal businesses as the formal sector and informal businesses as the informal sector. Read the examples below and then fill in the table below by writing what formal and informal businesses are:

Formal Business: Informal Business: Registered with government Not registered with government Pays tax as its own entity Business does not pay tax on its profit Works from fixed address most of time Does not have permanent fixed address

Think of three examples in your community of both informal and formal businesses.

Informal Business Formal Business

Street hawker Taxi transport

Tuckshop / spaza shop

Doctor’s practice Shoe factory

Checkers

Now that you have listed a number of informal and formal businesses found in your community, you would have noticed that the informal businesses are much smaller and less structured. The informal sector plays a major role in the South African economy in that it brings products and services closer to where they are needed by consumers. The absence of shopping centres in townships for many years stimulated the formation of informal businesses in

My name is Travis. I own a tutoring company. My business helps pupils in school to pass their exams by sending tutors to their homes to help with any work they don’t understand. My business is registered with the government; in other words it is on the government’s list of businesses. My business pays tax to the government on the profit it makes. I work at a fixed address. I own a formal business. My name is Martin. I work for myself. In my business I make wooden ornaments and I sell them at flea markets. My business does not have a fixed address because I go to different flea markets to sell my ornaments. I work hard for myself but my business is still small. My business is not registered with the government and so my business does not pay taxes. I enjoy my work.



such areas. The increasing need for public transport created opportunities for informal traders at bus stations and taxi ranks.

The Informal Sector ADVANTAGES The most important benefit to being in the informal economy is being paid in cash

immediately, with no chance of bad debts. Owners are able to use their skill and resources to generate income for themselves and

their families. The business is not registered and so does not pay income tax – what the business

earns, it takes home. People can work for themselves, and choose when and where they work. The business is more flexible and can adapt to different situations. They do not have to conform to legal restrictions which creates less formal working

conditions. Customers often pay less for the product or service. It is often a temporary solution to not having a job in a formal business. If a person can’t

find a job they can open an informal business while they look for work. Students can earn money while they are studying.

DISADVANTAGES No employment benefits such as medical aid, pension, UIF and bonuses. Sometimes a person’s income can change from month to month: income earned is not

always stable. Because informal traders are paid irregularly and in cash rather than with a monthly

paycheck, it can sometimes be difficult to get credit with a bank. Sometimes employers can be unfair and not conform to employment regulations. The business is not registered and so does not pay tax to the South African Revenue

Service (SARS). This places the tax burden on other people and businesses.



TARGET PRACTICE 1

In this exercise you are going to investigate the role played by the informal sector in South Africa’s economy. Part of the investigation will be to choose an informal trader or business in your area and to either interview or observe him or her for a few days. You could also look at informal traders in general. Furthermore, you will have to make use of newspaper and magazine articles on informal traders and/or the Internet to gather more information on this sector. Make use of a variety of resources to assist you with your investigation. Once you have gathered all the information, write a report highlighting the following aspects of the informal sector: Give a brief description of the informal trader/s who you have observed or

investigated for a period of time. (Type of business, service and/or products sold and reason for starting the business.)

List at least five types of informal traders who can be found in South Africa. Give a brief review of the contribution made by informal traders to the South

African economy. What are the benefits (advantages) of informal trading? What are the shortcomings (disadvantages) of informal trading? The assessment rubric below shows how your report will be assessed.

Educator Assessment: Investigating the Informal Sector

Learner’s Name:

No Partially Yes Learner’s mark

The learner has conducted research on the selected informal trader/s. This is evident through the description of the interview or observations made of the informal trader/s.

0 1-3 4-5

The learner identified a varied list of informal traders found in South Africa and gave a brief description of the service and/or product offered by them.

0 1-3 4-5

The learner evaluated the role played by the informal sector in our economy and substantiated it with relevant information.

0 1-3 4-5

An appraisal was given of the possible benefits of informal trading in our economy.

0 1-3 4-5

An appraisal was given of the possible pitfalls of informal trading in our economy.

0 1-3 4-5

All aspects of the investigation are covered in sufficient detail. Insight is shown into the topic and the information presented is correct.

0 1 2

The learner followed all the instructions and the work is presented in a logical, structured and neat fashion.

0 1 2

TOTAL OUT OF 29



The Formal Sector ADVANTAGES Formal businesses can get credit in the form of loans easier than informal businesses. Employees receive a set salary every month and benefits such as medical aid and

pension, etc., and receive protection from labour laws. Taxes that the business pays benefits the community. Businesses in the formal sector are more easily monitored by the government for any

kind of employee mistreatment. The business is able to apply for government contracts. The business is often seen as having more credibility in the marketplace.

DISADVANTAGES Registering a business takes lots of paperwork and is expensive. Businesses have to pay taxes to SARS. Formal businesses are often less flexible than informal businesses. The administration of a formal business is quite involved as it has to conform to

government requirements, especially in terms of labour policies. Owners can feel that they have to pay a great deal of their hard-

earned money to the government in the form of taxes.

THE EFFECT OF HEALTH EPIDEMICS AND NATURAL DISASTERS ON BUSINESSES In 2008, the South African National HIV Survey recorded that 10.9% of our population was infected with the HIV virus. “An estimated 5.6 million people were living with HIV and AIDS in South Africa in 2009, more than in any other country. It is believed that in 2009, an estimated 310,000 South Africans died of AIDS. Prevalence is 17.8 percent among those aged 15-49, with some age groups being particularly affected. Almost one in three women aged 25-29, and over a quarter of men aged 30-34, are living with HIV.” www.avert.org



If the workforce is mostly made up of people between 15 and 49, then what is the percentage of the workforce infected with this illness? 17.8% Definition – Health epidemic Illness or disease occurring suddenly in numbers of people greater than normal. Examples of health epidemics in South Africa HIV / AIDS and Tuberculosis (TB)

Effects of health epidemics on informal businesses Health epidemics such as HIV/AIDS can lead to the owner of the informal business becoming seriously ill or dying. As a result, the business could close and those people dependant on the money it makes could be left without income. Informal employers do not offer benefits like medical aid and pension which means that sick employees would have to pay their own medical bills and living expenses. When they die, their dependants are often destitute. Workers who are ill will not be as productive as healthy employees and are often absent from work. In South Africa, workers are not allowed to be fired because they have HIV/AIDS. However, unscrupulous employers in the informal sector will often simply fire sick employees, leaving them ill and unemployed.

Effects of health epidemics on formal businesses In formal businesses, those workers who are infected are absent from work more often which means the business is less productive. Businesses often invest money in training employees. If a person is too sick to work, then the business loses the money it has invested in that person. It also has to recruit and train someone to fill the vacant position. Businesses may have to move a sick worker into another position if he is no longer able to perform his duties. Businesses pay benefits to the family members of those who have died which costs the business money. They also need to spend large sums of money on HIV education and many businesses even employ a nurse to tend to the sick staff. The morale of the staff is negatively affected when someone is very sick or dies. Ultimately, the business and the country loses skilled people. Because of these reasons and others, HIV/AIDS has had a very serious negative impact on our economy. Child-headed households have become more common as sometimes both parents have died from the disease. In 2009, an estimated 300 000 South Africans died from HIV/AIDS. Because of these high figures, many processes have been put in place to limit the damage of this disease. These include: HIV Education; Free anti-retroviral (ARV) medication at state hospitals; Better care for those affected; HIV testing at work; Assistance to pregnant women who are infected, amongst other things.



Tuberculosis (TB) has been another epidemic in our country with South Africa having the fifth highest number of cases in the world in 2007, according to the World Health Organisation.

Natural Disasters

Examples of natural disasters worldwide floods; earthquakes; hurricanes; volcanic eruption; tornado; tsunami When a natural disaster occurs in a country, it can truly be devastating with very serious consequences for the inhabitants and the environment, and the economy. There are normally human losses; infrastructure losses; loss of productive time; as well as money and machinery loss. Small businesses are often hit very hard. TARGET PRACTICE 2 In pairs read the adapted article below which discusses the effects of natural disaster on small businesses: Small business is ill-equipped for disaster recovery following a major catastrophe. Without the resources of a large corporation, small business owners face tough decisions to close, sell off, or re-open the business. Natural disasters can cause power failure, flooding, customer loss, and the closure of many businesses. Following the devastation of a disaster, a small business has several challenging decisions to make for disaster recovery, once essential services are restored and health and safety are addressed. The survival decision a small business must make for disaster recovery is choosing between moving on, reopening, or selling off the business. The effects of this decision can have long-term results. When a major disaster strikes a community, it often will forever change the area, leaving small business owners with few choices but to walk away from the business grateful human life was preserved. The U.S. Department of Labour estimates over 40% of businesses never re-open following a disaster. Of the remaining companies, at least 25% will close within 2 years. Post-Traumatic Stress Disorder can cripple your decision-making ability. But putting off the decision to re-open or close your business can be disabling. A small business has limited cash and resources and starting up the business quickly once the decision is made can help your survival rate.

www.sbinformation.about.com/od/disastermanagement

Definition – Natural disaster A natural disaster is an event caused by natural forces of nature that often has a significant effect on human populations. Typically the human populations either are displaced (left homeless) or killed.

Source: www.clearlyexplained.com



What are the main effects on small businesses that the article identifies?

Loss of infrastructure such as power failure, roads, water supply and other essential services; Possible loss of key staff; Possible building damage; Post-traumatic stress disorder.

2011 — Disaster in Japan

It’s still too early to fully comprehend the impact that Japan’s March 1, 2011 earthquake and tsunami had on the country. The damage in Japan is an estimated $200 billion. The damage from the quake included: Loss of life; Loss of homes and other community buildings such as hospitals and schools; Damage to the infrastructure; Business disruption; Unemployment; Cuts in consumer spending; Higher taxes to help pay for rebuilding of infrastructure and to help victims; Drop of stock exchange prices.



TYPES OF BUSINESSES In winter many of us wear woollen jerseys. Think of all the steps that are involved in the making of that jersey and then in getting the jersey to you! First the farmer extracts the raw material – the wool from the sheep. This is sent to a factory where, through many different processes, it is made into a jersey. The garment is then sold to a trader who in turn sells the jersey to the consumer. Let’s look at each of these types of businesses…

Manufacturer Definition – Manufacturer A manufacturer takes a raw material or a semi-finished product and makes it into a finished product. Manufacturing is often done by using machines in a factory. Think of our jersey manufacturer. The manufacturer buys the raw material (natural resources used to make finished products) and other resources that are needed to make the jersey. The manufacturer then takes the raw material and, using available equipment or machines, turns it into the finished product – the woollen jersey. Complete the table below with some examples of both formal and informal manufacturing businesses in your area.

The manufacturer then sells the jersey to a trader.

Examples – Formal manufacturing business Examples – Informal manufacturing business

Clothing manufacturer: Stoned Cherrie

Furniture manufacturer Jewellery store that makes its own

jewellery Take the learners’ opinions into account.

Basket weavers

Person who makes their own jewellery



Traders Definition – Trader A business or person who buys and sells products. Trading businesses can be different sizes and can sell to different types of customers. The most common types of traders are:

Wholesalers – These traders buy from manufacturers and generally sell on to retailers. Some wholesalers do sell directly to the public.

Retailers – These traders can buy directly from manufacturers but normally buy from

wholesalers. They then sell to the public or end consumer.

Informal traders generally buy from wholesalers and sell to the end consumer, e.g. spaza shops.

So, in our example, the trader buys from the jersey manufacturer and then sells it to the consumer. Complete the table below with some examples of both formal and informal trading businesses in your area.

Consumers We are all consumers. Definition – Consumer A consumer is a person or business who acquires goods and services for his or her own personal needs. In our example, the consumer is the person who buys the jersey from a shop (formal trader) or from a flea market trader (informal business), and keeps and wears the jersey. A business that purchases a product and uses it in its business is also a consumer. When a business purchases components for its products, e.g. a carpenter buys nails, nuts and bolts, he ‘consumes’ these products to make his furniture that he will sell to retailers or to end consumers. A business can also buy groceries, stationery, etc. for its staff, and is a consumer.

Examples – Formal trading business Examples – Informal trading business

Mr. Price Spar

Take the learners’ opinions into account.

Local tuckshop Flea markets



The diagram below shows how this process works:

Raw material producer e.g. sheep farmer

Trader or retailer, e.g. Sidewalk Surfer

Manufacturer, e.g. Billabong clothing factory

Final consumer



Service Businesses Some businesses are not involved in buying or selling physical products. Instead they provide a service for the customer. A service business earns income by doing something for the customer. Services can be either of a commercial or personal nature. Commercial services – These types of services are offered by specialist

businesses to other businesses or individuals. Examples of commercial services are banking, estate agents, recruitment companies, plumbers, etc.

Personal services – These businesses provide services of a personal

nature, and include professional services like doctors, lawyers, teachers, etc. Specialised professions like acting and other performing arts are also personal services.

Complete the table below with some examples of both formal and informal service businesses in your area.

TARGET PRACTICE 3 Complete the table below by filling in the examples of different types of businesses listed below in their appropriate columns: Chris’s Carpentry Woolworths Bata shoe factory Street hawker Joe the Plumber JLM Plumbing (Pty)Ltd Sam’s Spaza Shop Brenda’s Sidewalk Hair Toyota dealership Standard Bank Billie’s Boerie Rolls SASKO bakery

Formal Manufacturing

Businesses

Informal Manufacturing

Businesses

Formal Trading

Businesses

Informal Trading

Businesses

Formal Service

Businesses

Informal Service

Businesses

Bata shoe factory

Chris’s Carpentry

Toyota dealership

Sam’s Spaza Shop

JLM Plumbing (Pty)Ltd

Joe the Plumber

SASKO bakery Woolworths Billie’s Boerie Rolls

Standard Bank

Brenda’s Sidewalk Hair

Street hawker

Examples – Formal service business Examples – Informal service business

Doctor Registered plumbing business, e.g. Rotorooter

Take the learners’ opinions into account.

Gardener Informal hair dresser Shoe cleaner



ROLE OF FORMAL AND INFORMAL BUSINESSES AS PRODUCERS AND CONSUMERS As mentioned earlier, any business can be both a producer and consumer. Look at the following example… Standard Bank buys furniture from Joe’s carpentry business, then Standard Bank – a formal business – is a consumer and Joe – an informal business – is the producer. If Joe then banks with Standard Bank, he is the consumer, and Standard Bank the service provider. Businesses, individuals and government are three participants in a closed economy in a country. Each of these three participants can act as both a producer and a consumer.

Individuals Individuals are producers when they supply their labour to other individuals, to

businesses and government (as employees) in return for a wage or salary. Individuals are consumers when they purchase goods and services at a price from other

individuals, businesses and government.

Businesses Businesses are producers when they:

supply products or services to individuals, other businesses and government;

pay taxes to government. Businesses are consumers when they:

purchase labour from individuals by employing workers; purchase goods and services from other businesses and from government.

Have a class discussion and complete the table below.

Government Government is a producer when it provides services to the individual citizens of the

country as well as businesses in the country. It provides services like infrastructure, health care, public education, public safety and the legal system, etc.

Government is a consumer of individuals’ labour and also the goods and services provided by businesses.

Examples – Formal businesses as producers Examples – Formal businesses as consumers

Computer company that provides IT services to other business; Dairy farmers that sell to retailers

Purchasing computers and other equipment for daily operations; Purchasing milk and other consumables; Any business that employs staff.

Examples – Informal businesses as producers Examples – Informal businesses as consumers

Unregistered consultants that provide advice to businesses; Basket weavers that sell products to home industry stores. Take the learners’ opinions into account.

Tutoring company that employs university students to teach school learners; Flea market stall owners who buy products to sell at their stalls.



TEST YOURSELF These are the types of questions you could expect in a test on this chapter. This section is also helpful when revising your work. Complete the questions on your own paper. 1. All the words below have been used in this chapter. Find the words in the word search below. The

words can go forwards, backwards, diagonally, up or down or sideways. Then make a glossary (list with definitions) of the words in bold.

H T L A E H C M S F C O D A C L I N E N I O S V S R U M O E R U E F E V D X E M T A D I S A S T E R S C I H T L R R I T P A G U E T B D M E R E R R E T C U D O R P O R I N F O R M A L F

epidemics disasters manufacturer trader

HIV service consumer formal informal floods health TB

taxes registered product Epidemics - Illness or disease occurring suddenly in numbers of people greater than normal. Informal – Not formal or registered (in the business sector) Taxes – Fees charged by government on a product, income or activity Service – Something intangible of a personal or commercial nature that is provided to others in exchange for a fee. Manufacturer – A business who produces final goods for consumption. Consumer – The end-user of a product or service Trader – A business that sells finished goods to the consumer. Formal – Businesses that are registered with the government and pay taxes. 2. Select the most correct answer in the multiple choice questions below.



2.1 Which type of business is registered with the government? A) Formal C) All of the above B) Informal D) None of the above

2.2 Which type of business pays tax on its profits?

A) Formal C) All of the above B) Informal D) None of the above

2.3 If in 2009, 10.9% of South Africans were estimated as being HIV positive, then, considering we have a

population of 48 million, approximately how many South Africans were infected? A) 1 million C) 10 million B) 4 million D) 4.9 million

2.4 Hurricane Katrina is an example of a natural disaster. In which country did it occur?

A) South Africa C) USA B) Japan D) China

2.5 Which one of the following is not a result of a natural disaster?

A) Lower taxes C) Loss of life B) Stock exchange drops D) Businesses close

5 x 3 (15) 3. State whether each of the following statements is true or false. True or False 3.1 A health epidemic does not affect a formal business. False 3.2 A manufacturer is normally involved in selling to the final consumer. False 3.3 Flexibility is an advantage of an informal business. True 3.4 HIV education and the provision of ARVs has resulted in the HIV/AIDS

mortality rate decreasing. True 3.5 Jantjes, Mabula and Coetzee Attorneys is an example of a formal trading

business. False 5 x 2 (10)

4. Write a paragraph in which you discuss formal and informal businesses as producers and consumers in South Africa. Use examples to support your explanations. (10)

Businesses are producers when they: supply products or services to individuals, other businesses and

government; pay taxes to government.

Businesses are consumers when they:

purchase labour from individuals by employing workers; purchase goods and services from other businesses and from government.

.

7 caps 4 businesses educator memorandum -...

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