SA's R1trn shadow economy trumps global average

Cape Town – South Africa’s shadow economy is expected to rise to 24.19% of GDP by 2020, according to a study from the Association of Chartered Certified Accountants (ACCA).

The shadow economy is defined as the production of and trade in legal goods and services that are deliberately hidden from the authorities.

According to a report published by ACCA, the global body for professional accountants, South Africa’s shadow economy amounted to approximately R1trn in 2016, representing 23.29% of GDP.

“The prevalence of shadow economy activity creates considerable practical and ethical issues for both business and government,” said Pat Semenya, head of ACCA South Africa.

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“There was a decrease in the overall size of South Africa’s shadow economy’s share of GDP since 2011 – a positive sign that efforts to curb its impact have been implemented in recent years. But that’s the end of the good news as the future trend is profoundly opposite.”

South Africa’s level of the shadow economy is currently higher than the global average, which is expected to come down from 22.5% of GDP in 2016 to 21.39% of GDP in 2025.  

According to the report, persistent unemployment, low bureaucratic quality and inefficient provision of law and order are among the three main causes of expected increases in the size of the shadow economy in South Africa from 2011 to 2025.

Key stressors contributing to the shadow economy

There are a number of factors that contribute to the prevalence and growth of the shadow economy in countries, which include:

- economic strains (complex tax system, economic downturn, high tax burden, savings);

- ineffective regulatory regimes (quality of governance, quality of public sector services, tracking of transactions and invoices)

- inadequate business structures (changing production structures, poor absorption of industrial sector)

- social tensions (limited access to education, poverty, rising unemployment, rural-to-urban migration) and

- moral flaws (lack of a guilty conscience, low risk of detection).

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For the purposes of the ACCA report, 16 countries were examined, including Argentina, France, Germany, Mexico, Turkey and the US. 

A number of sectors of the countries' economy were pointed out as those susceptible to shadow economic activities, such as agriculture, construction and civil engineering, tourism and events (including the hotel, restaurant, café and confectionery sectors), removals and house-minding, meat processing, industrial cleaning, domestic work, personal beauty services, wellness and healthcare, retail, vehicle repair, trade and transportation.