Does the informal sector add value?

Informal trading has always played a role in South Africa’s economy. It creates livelihood opportunities, contributes to alleviating poverty and serves as a buffer between employment and unemployment. LEAP investigates the role of the informal sector in the local economy.

‘Spaza’ shops, street vendors, car guards and taxi drivers all form part of the informal sector, but it’s almost as diverse as the formal economy. The informal sector is characterised by a lack of written employment contracts and no basic benefits, such as pensions and employer contributions for medical aid. Additionally, it is generally small scale with low productivity, usually run from home or street pavements, consists of mostly unskilled and those with little education, and the operations are not registered.

By its very nature, informal economic activities are unrecorded and this makes them difficult to measure. However, according to Stats SA, employment in the informal sector has increased for five consecutive quarters since Q2 in 2014, reporting a quarterly gain of 177 000 jobs in Q2 of 2015, compared to the formal sector, with a gain of 39 000 jobs. The latest information from Stats SA is that 2.6 million South Africans are employed in the informal sector (excluding agriculture), and with total employment sitting at 15.6 million, it means that 17% of the country’s total employment is through the informal sector. If private household employment is added to this number, it increases to 25%.

For many people who cannot find a job, the informal sector offers an alternative, and a way to generate an income. It provides an unofficial social security system, it serves as options for self-employment and it is an avenue for people with insufficient skills for the formal sector. Through it, affordable and convenient goods and services and also delivered to local communities.

Additionally, the sector provides opportunities for marginalised and historically disadvantaged groups, such as women. Street trade gives women (with lower levels of education, insufficient skills and a lack of business literacy) the chance to support their household income, and in some cases they become the breadwinners, supporting a large number of dependants. Stats SA reveals that there are 1 million women in the informal sector, out of a total of 6.8 million employment.

In a country where unemployment is a major concern, and is currently recorded at 25%, the informal sector should be recognised and included in economic strategies. It relieves some of the unemployment pressures, reduces household poverty, and contributes to the local economy. While it is often viewed as a source of missing revenue, it should be seen by government as an important player in the South African economy.

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