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Informal sector sadly neglected

Prince Africa Zulu of Onkweni is a Royal Agent. Picture: Sandile Ndlovu

Prince Africa Zulu of Onkweni is a Royal Agent. Picture: Sandile Ndlovu

Published May 30, 2023



The informal sector is a major part of the current global economy. It is estimated that approximately two billion people make their living from the informal economy and that the African continent has over 85% of her people employed within the informal sector.

This sector contributes about 55% of Sub-Saharan Africa's gross domestic product (GDP) (ILO, 2017). In South Africa, the informal sector has a smaller but still significant total share of employment, with over 2.5 million people, making up 20% of total employment in the country.

According to Statistics SA, this sector contributes about 5.1% of the country's GDP (Stats SA, 2019).

Part of the factors that explain the existence of a large informal sector in South Africa is attributed to the fact that the formal economy is not inclusive of all; instead, it has huge disparities of inequality, and excludes the majority of the black population who are affected by high levels of poverty and unemployment (Ndulo, 2013).

This has pushed most poor people into marginal conditions of life and forced them to forge survivalist strategies, which include joining the informal sector as traders (Skinner, 2016).

Young people make up the largest proportion of those functioning in the informal economy (95.8%, ages 15-24). This group also makes up the largest portion of those unemployed. Black African women make up the largest proportion of this population segment, aggregated by gender (approximately 92.1%). For this group, the informal economy plays an important function as a contributor to poverty alleviation.

In the absence of effective social protection capacities in most African countries, participation in informal economies plays a key role for small business owners and workers to build human capital, prevent the sale of productive assets in case of shocks, and promote savings to build resilience.

South Africa’s informal economy is characterised by traders such as spaza shops and sidewalk hawkers in public spaces. Street vending is generally viewed as providing opportunities for a sizeable number of women. However, figures published by Stats SA (2021) show women’s share of the informal sector is shrinking.

By 2017, men were running nearly 60% of informal businesses, compared with 55.5% in 2013. Numerous variables, including rising rates of poverty and unemployment, might be assumed to have driven this trend.

Informal trading is commonly viewed as an essential survival strategy. On Japhta K Masemola Road in Khayelitsha, Cape Town, street vending is dominated by women selling cooked food, fresh produce or clothes, and operating car washes.

The role of these informal activities in providing employment and economic opportunities has been acknowledged in academic research. The sector can become an incubator for micro-enterprises and provide survival alternatives for those marginalised from the formal labour market.

This critical role of the urban informal sector is expected to continue in the foreseeable future in light of Africa’s growing population. This should be understood in light of the fact that the size of the working-age population in the region will increase by 224.0 million by 2030 and 730.4 million by 2050. While this creates opportunities for economic growth, the formal wage sector is not creating sufficient jobs to absorb all new entrants and those migrating from rural to urban areas.

According to Statistics SA (2021), jobs in the informal sector account for nearly one-third of the national total, demonstrating the sector’s significance in reducing poverty. Furthermore, it has been estimated to contribute about 6% of GDP. A recent report from the International Labour Organisation (ILO) shows more than 60% of the world’s employed population earn their livelihoods in the informal economy.

Yet, despite the growth potential presented by this sector in alleviating poverty and unemployment, the informal economy remains an untapped sector. Despite the role this sector plays in the overall economic activity, especially its function as providing alternative avenues for providing livelihoods to a sizeable number of workers and informal traders, it is still underestimated and largely missing from economic policy formulation and analysis.

The informal sector should be a crucial component of any comprehensive plan to combat unemployment and poverty. It is for this reason that government efforts to address inequality, poverty and unemployment must remain focused on empowering the most vulnerable, whose livelihoods depend on the informal sector.

In 2014, the government introduced the informal business upliftment strategy, which targets the development of infrastructure and entrepreneurial skills. Nevertheless, the policy has been criticised for focusing mainly on graduating entrepreneurs from the informal sector into the formal economy, which creates a risk of selecting the most promising entrepreneurs in the informal sector and leaving behind the majority of the informal sector participants.

Informal businesses are characterised by low productivity, resulting in low and irregular earnings. This is aggravated by a lack of access to basic services such as water and electricity, a dedicated space to operate, and access to high-value markets. Informal businesses are typically not financially included and, therefore, unable to make reliable business transactions, access credit for productive investments, or to reliably save to prepare for unforeseen risks.

The informal sector is presented as a problem to government policies and plans, not only in South Africa but across Sub-Saharan Africa, where most policy-makers continue to view the informal economy as a welfare problem.

The repercussions of this approach are that governments face a huge social problem which cannot be solved by social grants alone.

In South Africa, local government strategies, such as the Local Economic Development framework, meant to support local businesses and stimulate economic growth, do not directly support the survivalist informal traders, especially the informal street traders selling cooked food in public open spaces and from temporary or mobile shelters within and outside urban areas.

Moreover, there is no energy transition in the informal street food sector because of its heavy reliance on low-quality energy sources like wood and charcoal in the face of a lack of an affordable and reliable energy supply.

In addition to this, the informal street food sector is dominated by women, who are often excluded from equal access to education and employment as well as to ownership and control over resources due to the patriarchal structure of the society.

Local governments often see informal street traders as law-breakers dealing in illicit goods who need to be stopped and controlled through harsh methods such as confiscation of goods or paying hefty fines.

In Johannesburg, there have been various litigation actions, such as the South African Informal Traders Forum and Others v City of Johannesburg and Others ('SAITF'). In this matter, over 1 200 informal traders who were forcibly removed from their trading sites as part of the Mayor's ‘’Operation Clean Sweep’’ campaign, undertaken by the City of Johannesburg and the JMPD between 30 September and 31 October 2013. Then, on 19 November 2013, SAITF and other informal street traders launched an urgent application for an order stating that they are permitted to trade in a manner consistent with sections 9 and 10 of the City’s Informal Trading By-Laws at the locations they occupied immediately before their removal.

The traders argued that they were in a desperate situation, had no income and were in fear of losing their homes. They needed to return to their livelihoods urgently and could not wait till March 2014. The traders further requested that the City be directed to re-erect the trading stalls removed or alternatively to permit the traders to continue trading on the sites where those stalls previously stood.

The matter was escalated to the Constitutional Court and was heard on 5 December. The same day, the court handed down an order prohibiting the City from interfering with the traders at the locations they previously occupied, pending the determination of Part B of the application. Then, on 4 April 2014, the Constitutional Court handed down its judgement.

Acting Chief Justice Dikgang Moseneke condemned Operation Clean Sweep as an act of “humiliation and degradation” which rendered thousands of people, and their children, destitute. The court expressed concern that the City had described the eviction of several thousand informal traders as “convenient” and instead characterised Operation Clean Sweep as “indiscriminate” and “flawed”, finding that the City had “gone about achieving its objectives in flagrant disregard of the traders’ rights”.

The basic urban infrastructures, such as trading shelters installed with water and electricity connections provided by municipalities, are often expensive and most informal street traders find it difficult to access such facilities as they are unable to afford them. Informal business operators, in particular street food vendors, have repeatedly stated that access to grid electricity, as they use temporary structures and operate in an open space with no electricity connection; so they heavily relied on LPG, generators, and sometimes coal and wood when they have no money to buy gas.

Participants also indicated that electricity usage limited them to doing business elsewhere where there is no grid connection. Thus, access to alternative energy sources, such as gas, provided them with mobility to cook and sell their fast food products in busy functions such as sports fields, showgrounds, parks and roadsides.

Most informal traders fund their businesses from their personal incomes, with very little support from local government structures or any non-governmental organisation. Most traders do not have bank accounts for their businesses as their enterprises were not formally registered. This indicates difficulties faced by informal businesses, in particular, survivalist enterprises without access to financial support, and this constrains the operation of their business.

There is no proper coordination or consultation between the municipality and the informal business operators; the relationship that exists between the two is that of exclusion and negligence. Therefore, there is a need for the BCMM to work closely with the informal business operators and to prioritise issues that promote growth and development. Local government structures need to work collectively and closely with other financial stakeholders, like banks, and to engage them to develop credit systems that will provide financial assistance to informal business operators who are in need of funding to conduct their business.

The above situation is made worse when considered in the context of Hostels, sites that have been accorded a marginal position in the urban context. They were seen as labour compounds that have helped the past government to maintain the status quo (Ramphele,1993:1). The informal income-generating activities have also been marginalised by restricting their location to the peripheral areas where there is no market. Historically, the informal sector in Hostels was discouraged as it was viewed as a threat to the racially segregated urban context.

If the policy intention is to effectively improve living conditions in hostels and integrate them with neighbouring communities, consideration should be given to informal sector activities that occur.

Our main argument is that at this time, while re-imagining a Hostel Economy strategy, care must be taken to ensure that unlike the current practice and perspectives informing such policies as the Hostels Redevelopment Programme as well as other hostels initiatives that have attempted to improve the physical and social conditions in hostels - they nevertheless fall short in addressing the economic potential of the existing informal sector activities and how they can be accommodated in development plans of individual hostels.

A key intervention in evolving the policy perspectives towards the gradual realisation of a thriving Hostel Economy should be targeted at supporting the informal businesses which are in the periphery but are strategically located in activity nodes that are linked to public transport routes. Also important is that such informal sector activities are within convenient reach of places of residence (hostels inclusive). Furthermore, the informal sector activities that are mostly involved in the services and retailing sectors are the main source of income for many and also meet a demand for certain goods.

The inclusion of the needs of the informal sector operators might also start to address the inevitable conflict that arises due to the diverse nature of the informal sector operators who represent different interest groups.

Prince Africa Zulu of Onkweni is a Royal Agent to King Misuzulu kaZwelithini.

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