How SA could benefit from an informal-economy policy-focused approach

Posted on December 12, 2022

Even as the world recovers from the pandemic, the effects of the conflict between Russia and Ukraine continue to harm the South African government’s intervention programmes such as the economic reconstruction and recovery plan.
South Africa’s economy is vulnerable to external shocks such as the Ukraine war, which has resulted in inflation and rising energy, oil and gas prices. The uncertainty has slowed or stalled economic growth in developing and developed countries, including South Africa.
These developments require policymakers to rethink their approach while acknowledging that human livelihoods are under threat due to the geopolitical tensions caused by the conflict.
The need for an approach that is policy-focused cannot be overemphasised. Structural constraints impede inclusive economic growth. However, not much evidence is seen that there has been an effort to remove these constraints so as to unlock the full potential of South Africa’s economy.
The informal economy remains an untapped sector yet it has consistently demonstrated great potential to alleviate poverty and unemployment. Even though the sector is a significant component of the economy that provides livelihoods to a sizeable number of workers and informal traders, it is still underestimated and largely missing from economic policy formulation and analysis.
According to StatsSA (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.
So the informal sector should be a crucial element of any comprehensive plan to combat unemployment and poverty. Government efforts to address inequality, poverty and unemployment must remain focused on empowering the most vulnerable, whose livelihoods depend on the informal sector.
Various laws have been enacted over the years in supposed support of the informal sector. In 2014, the government introduced the informal business upliftment strategy, which targets the development of infrastructure and entrepreneurial skills.
However, the policy contains areas of concern. Critics argue that the strategy focuses on graduating entrepreneurs from the informal sector into the formal economy, which risks a scenario of picking winners and neglecting the majority. The policy document does not refer to the important role the informal sector plays in securing sustainable livelihoods.
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 StatsSA (2021) show women’s share of the informal sector is shrinking.
In 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.Some studies argue that the sector is an incubator for micro-enterprises while others see informal trading as providing survival alternatives for those marginalised from the formal labour market.
In his response to the pandemic, President Cyril Ramaphosa said: “We are determined not merely to return our economy to where it was before the coronavirus, but to forge a new economy in a new global reality.”
This statement emphasised the long-standing National Development Plan (NDP) goals of reducing unemployment, poverty and inequality. The economic reconstruction and recovery plan he presented stresses, among other things, the protection of low-income workers, the unemployed and vulnerable groups while enhancing the capacity of the economy to grow and create decent jobs.
The NDP gives primacy to the informal sector and projects that it could create more than 2-million jobs by 2030, yet says little or nothing about how existing informal traders will be supported and how constraints can be removed to enhance capacity.
These issues require a practical, policy-focused approach and the acceleration of government intervention to achieve a developmental agenda, with a specific focus on marginalised groups. If a policy approach does not recognise the significant role the informal sector plays in poverty alleviation and unemployment, calamitous harm would be done to the economy, which would weaken the government’s ability to deliver social services to the vulnerable.The informal sector must be viewed as an important strategy for any government plan to reduce the level of poverty and unemployment.
Sihle Thwala is a master's student in the School of Public Management and Administration at the University of Pretoria. His MAdmin focuses on the informal sector’s contribution to sustainable livelihoods. 
This article first appeared on TimesLIVE on 27 November 2022. 
- Author Sihle Thwala

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