The informal sector, also described as the shadow or grey economy plays a key role in economic growth, where operators have no formal contractual agreements and are instead connected by the fact that they are at a high level – local resource reliant, part of the low income and wages scenario, unregulated with little or no collateral required and use public space and even private land to conduct business.
The Centre for Development and Enterprise (CDE) suggests the diversity the informal sector covers, where its not physically restricted to townships and rural areas but instead, “it is all around us, all the time” consists of a multitude of industries and trades, including but not limited to spaza shops, bakeries, shebeens, hawkers, taxis and more. Instead, there is now a broad spectrum of non-retail firms, despite the pandemic, growing in importance and seen as more agile and adaptable than the formal sector. For example, during the lockdown a bakery in White City, Soweto shifted to a WhatsApp-based platform. Local residents placed orders via the App and the bakery delivered to people’s homes by walking around with a trolley using pin locations.
That said, in South Africa, informal workers in general, in particular female workers have been disproportionately hard hit by COVID measures with many losing their jobs and those who continue to work, reporting working few hours and/or earning less than they did prior to the crisis. Statistics South Africa published data based on the strict lockdown in the second quarter last year, reporting a 29% drop in informal employment relative to the same period in 2019. This compared to an 8% decline in formal employment. To help restart this sector and inject much needed income, small business support must be extended to the informally self-employed, as noted in a WIEGO Policy Brief, in February 2021.
WIEGO went on to further analyse the impact of the pandemic observing that the crisis exposed many of South Africa’s fault lines, especially in terms of inequality and the structure of society. Interestingly, one sector that has been able to function more effectively, according to the same report, are spaza shops. They were able to adapt very quickly as the crisis hit and managed to implement health protocols and even giving out food parcels in the local community as a way of branding themselves. In the wake of the lockdown a drop-off in spaza shop grocery sales were reported with an immediate uptick in sales of airtime, electricity, DSTV and the Lotto.
The cost of doing business has been rising in South Africa as reported in the World Bank’s Ease of Doing Business Index, falling by 50 places in a decade. This is attributed to growing regulatory burdens that become a constraint on both small business growth and increased formalisation. CDE suggested that policy responses will be required going forward that start to give the informal business sector the best possible opportunities to grow and become part of a more inclusive economic system concluding that – “to erect barriers in the way of any kind of entrepreneur, formal or informal, seems perverse.”
Tangible steps as reported in the Journal of Open Innovation [November 2020] to leverage the large number of people working in the informal sector, to enhance economic growth and development, means that provision must be made by governments and private organisations for research, education, technology, infrastructure, and social support. The United Nations Sustainable Development Goals (SDGs) with a “Leave no one behind” rallying cry, represents a global, comprehensive effort to achieve sustainable development, socially, economically, and environmentally, covering key areas that include poverty (SDG 1), gender equality (SDG 5), reduced equalities (SDG 10), and partnerships (SDG 17) all relevant to informality and driving impact in the industry.
While this initiative carries much potential, the pandemic has made it extremely difficult to mobilise the resources needed for the achievement of the SDGs by the target date of 2030 resulting in a proposed review where a smaller set of achievable goals will enable policymakers in Africa to work with a more manageable set of goals that recognise our new world. Multi-level governance, the science-policy interface and citizen and society engagement are the three important paths for SDG implementation according to www.frontiersin.org. In the next post pandemic chapter, it is expected that these structures will be critical to more long-term, inclusive and evidence based decision-making processes that will have direct implications for the upliftment and growth of the informal sector in South Africa.
In the months to come, as further data emerges on the impact of COVID, the CDE suggests that a clearer picture of how the informal sector has been affected will begin to emerge. This is based on the understanding that any attempt to help small businesses will fail unless the economy as a whole gets onto a stronger footing and starts growing at an acceptable pace.