A Note on the Informal Economy

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Credit: City of Cape Town

Credit: City of Cape Town

Nobody needs to be told about South Africa’s unemployment and poverty problem, that the numbers are too high and we need an urgent intervention if we are to lower them. Beyond the efforts of business and the state, there is a small, but significant layer of the economy where the most marginalized people have started taking control of their livelihood creation, unfortunately they have yet to be given the recognition, protection and support which they deserve.

The informal economy is defined as all economic activity which is not taxed or monitored and subsequently isn’t included in any gross domestic product calculations. In South Africa it is estimated to be 10% of gross domestic product (GDP).

South African informal economic activity is everywhere you look. It’s the street trader at the intersection and the flower lady on Adderley (probably the hipster selling old vintage clothes too). It’s the spaza shop and shebeen in the township and the minibus taxi on Main Road. The nature of the activity is diverse some people barely make the equivalent of the minimum wage and others are the envy of many formal business owners.

It is quite disappointing to see how the State has handled the question of informality so far. The heavy-handed approach by the law enforcement and the high barriers to entry set by law makers through permits and bylaws regarding trading zones etc., has effectively criminalised informal traders. Criminal activity by nature is informal, but informal economic activity is not, by nature, criminal. It shouldn’t be treated as such. It’s a family supplementing their income and an entrepreneur chasing their dream and should be respected for that.

The government does deserve some credit, it can be commended for providing programs such as SEDA which are supposed to help small business to grow by providing access to incubation and funding. I recently attended the Informal Economy Micro-Enterprise Summit hosted by the City of Cape Town where I learnt about other initiatives outside of the state which provide assistance to entrepreneurs. The success of these initiatives is debatable and many seem to be competing amongst one another for the most glamorous or cutting-edge program rather than on a basis that is focused on the entrepreneurs themselves. [Disclaimer: I am part of a student run version of these initiatives]. However, their existence shows that South Africans are realising that we need to boost entrepreneurship if we are to create the jobs that we need.

But what about those businesses that aren’t established to grow and become the next MassMart? The majority of informal enterprises are survivalist. They are meant to supplement household incomes beyond the wages and social grants which they receive. These businesses aren’t going to take over the world. If you were to look at the informal chicken feet trade you will find that there are thousands of these in townships, all of them have the same inputs and charge the same price it is simply a volume game. There is nothing about a man or women with a rusty braai on the side of the road that inspires much entrepreneurial confidence, but that’s an extra R2500 in that person’s pocket that they wouldn’t otherwise have and what may be the difference between their child having uniform for school or their mother having medicine when she’s ill.

There is dual-nature to the informal sector; it is an incubator and it is also a lifeline, either way it shouldn’t be criminalised. We need to understand and support all the types of businesses it presents and find solutions to ensure their sustainability. There is a feeling that South Africa is becoming increasingly tense; when you turn hardworking entrepreneurs into criminals, you aren’t doing anything to ease that tension.