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Picture Courtesy: (World Economic Forum) South Africa’s informal economy, long overlooked and underestimated, is emerging as a powerhouse sector worth an estimated R750 billion.
South Africa’s informal economy, long overlooked and underestimated, is emerging as a powerhouse sector worth an estimated R750 billion.
This hidden economy, operating largely outside the formal tax system, is attracting the attention of major JSE-listed companies and challenging perceptions about the country’s economic health.
Informal economy expert GG Alcock, speaking at a Biznews Conference in London, shed light on this thriving sector.
“The reality is that there has been a housing transformation in townships across South Africa, with impressive formal houses being built,” Alcock stated, countering the widespread misconception of pervasive poverty in these areas.
The informal economy spans various sectors, mirroring its formal counterpart.
The spaza shop and superette sector, analogous to the formal retail sector, dominates with an estimated value of R180 billion.
This sector alone comprises over 100,000 spaza shops nationwide and nearly 500,000 mobile traders.
Other significant contributors include the informal alcohol trade, worth over R100 billion, and sectors such as salons, barbers, back-room rentals, and traditional medicine traders, each valued at more than R10 billion.
The growth in this sector is outpacing that of the formal economy.
Alcock noted that the informal FMCG sector is growing at around 22% per annum, compared to 14% in the formal sector.
This rapid growth is attracting the attention of major players in the formal economy.
JSE-listed companies are increasingly targeting this market.
Tiger Brands, South Africa’s largest food producer, aims to have its products available in 130,000 to 150,000 informal stores within the next five years.
Shoprite has been expanding its Usave offering in townships and informal settlements.
The property sector has been particularly quick to capitalise on this trend.
Companies like Vukile, Resilient, Fairvest, and Exemplar have reported strong results from their property portfolios within the informal economy.
Vukile Property Fund, for instance, saw a 10% rise in overall trading density and a 12% increase in grocery sales in its latest financial year.
Stanlib’s head of property, Nesi Chetty, observed, “There is a clear appetite among increasingly affluent consumers in township communities for formal retail within easy reach, creating a strategic growth opportunity for larger retail chains.”
The residential property market in townships is also booming.
Seef Property Group reported that residential prices in Soweto have doubled in the past decade.
A house valued at R150,000 ten years ago now fetches between R400,000 and R500,000.
However, this economic boom comes with challenges.
The informal sector largely operates outside the tax net, with estimates suggesting only 60% to 70% of businesses in the sector pay taxes.
This has raised concerns about lost revenue for the government and potential links to illicit activities.
Minister in the Presidency Khumbudzo Ntshavheni announced plans for stricter regulation of spaza shops, particularly those owned by foreign nationals, following incidents of food poisoning last year.
The government plans to introduce by-laws for tighter monitoring and registration requirements.
Despite these challenges, the informal economy remains a crucial source of employment and income for millions of South Africans.
Alcock emphasised, “We do not need to start new businesses. We need to help them scale up. We need to give them the resources and support they need.”
As South Africa grapples with high unemployment rates in the formal sector, the vibrant informal economy offers a glimmer of hope.
It demonstrates the resilience and entrepreneurial spirit of South Africans, creating opportunities where formal structures fall short.
The growing interest from JSE-listed companies and the property boom in townships signal a potential shift in how this sector is perceived and integrated into the broader economy.
As this hidden R750 billion economy continues to evolve, it may well play a crucial role in shaping South Africa’s economic future.
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