South Africa’s informal economy is estimated to be worth around R750 billion, hidden from many economic indicators and even taxation.
Informal economist G.G. Alcock recently told delegates at a businessnews conference in London that South Africa’s economy is much healthier than indicators suggest.
He highlighted the widespread misconception that South Africa is plagued by widespread poverty and inequality. This view is reinforced with photographs of large cities with shacks.
The reality is that there has been a housing revolution in townships across South Africa, with impressive formal houses being built.
He added that the former rural homeland had more houses worth R1.5 million than Cape Town and its surrounding areas.
Alcock’s views are supported by data from property academic Kali Masune, which shows that Soweto has doubled in market value over the past decade.
A four-bedroom house in Soweto cost R150,000 ten years ago. Today, a similar house would be worth between R400,000 and R500,000.
He said the development was not confined to Soweto but was a phenomenon seen in cities across the country.
South African townships have sectors such as construction, back room rental and spaza shop rental.
A major trend is people moving out of their communal households into their own homes, creating a large sector of backroom rentals.
The backroom rental economy in South African cities is estimated at between R20 billion and R40 billion a year.
The township housing market isn’t the only one seeing strong growth. There are many vibrant business sectors in the informal economy.
Fast growing business sectors include spa shops, restaurants, fast food outlets, salons and auto repair.
Alcock said there were about 50,000 take-out fast food outlets in the townships, generating about R90 billion in revenue.
There is a misconception that people patronize these outlets because they are cheaper than well-known fast-food brands like KFC, Nando’s or Steers.
„People don’t buy this food because it’s cheap. It’s usually expensive, but people love that food,” he said.
Another growing sector is the spazaret market, which offers products to customers through informal supermarkets.
A recent Nielsen survey estimated that the Spaseret sector spent R189 billion a year across 100,000 outlets.
„Growth in the informal spaza sector is 24% per annum, compared to 15% in the formal sector,” he said.
These spaza shop owners, mostly foreigners, pay R25 billion in rent to the South Africans who own the properties they operate.
South Africa’s R750 billion informal economy
Alcock said South Africa’s informal economy was worth R750 billion annually and was one of the country’s fastest growing sectors.
He rejected the narrative that South Africa needs to start more businesses and create more entrepreneurs.
„Businesses and entrepreneurs are already there. We have hundreds of thousands, but we don’t recognize them,” he said.
“There is no need to start a new business. We need to help them grow. We need to provide them with the resources and support they need.
He urged formal businesses to partner with the informal sector to grow and benefit South Africa’s economy.
One of the reasons the sector has not received much recognition is that it is rarely counted in official economic indicators and is not taxed much.
The South African Revenue Service (SARS) does not operate in the informal economy.
Investec said informal businesses and entrepreneurs typically do not directly contribute to funding through taxes.
Many informal businesses pay value-added tax (VAT) on purchases, but that’s where the taxpayer’s access stops.
UCT researcher Luvuyo Mncanca added that businesses operating in the informal economy do not want to be regulated or registered for tax.
Despite not paying much tax, it remains a valuable economic sector that creates jobs and feeds millions of South Africans.
Alcock provided an overview of the size of the various sectors of the informal economy to illustrate its importance.
- South Africans earn between R20 billion and R40 billion a year in room rent.
- The spaza shop market is worth R189 billion annually with over 100,000 spaza shops.
- Spaza earns R25 billion a year in store rent.
- The informal fast food market is worth R50 billion annually across 45,000 outlets.
- 45,000 licensed restaurants and shebeens generate R110 billion a year.
- The taxi industry earns R50 billion a year.
He said these businesses should be celebrated and supported to drive further growth in cities and rural economies.
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