Vital part of SA economy still being ignored | Fin24

Vital part of SA economy still being ignored

Apr 26 2017 15:59
Natalie Greve

It is a sight familiar to the South African commuter. A woman sits behind a salvaged plastic table on the pavement, selling neatly presented single cigarettes, loose sweets and small packets of corn chips to passers-by on foot. Or a lively inner-city market, where traders of fruit and vegetables tout their produce alongside a neighbouring cobbler repairing the worn heels of workers’ shoes who spend hours on their feet.

This is South Africa’s often-overlooked informal sector. And, despite it contributing 8% of SA’s GDP, supporting 27% of all working people and providing goods and services to millions of people on a daily basis, the informal sector consistently fails to receive the same degree of local government protection enjoyed by formal businesses.

As a result, an assumption is frequently made that the informal sector is not legally protected, and that informal traders do not have any rights to trade.

“This is simply not true,” states the Socio-Economic Rights Institute of South Africa (Seri). “Informal workers enjoy the same constitutional rights as everybody living in South Africa. They have a right to a local government that works, which provides basic services and which promotes social and economic development.” 

Informal importance

Seri researcher Dennis Webster tells finweek that definitions of informal work and the informal sector in SA remain vague and contested.

“Generally speaking, however, an informal street trader is a business person who relies on public space to make their living, and employs very few, if any, people at their business. These businesses, which provide a broad spectrum of goods and services, generally to poor and working-class pedestrians, are characteristically not as regulated or protected by the state as ‘formal’ businesses,” he explains.

Semantics aside, the informal economy’s contribution to the country’s overall employment figure and top line remains substantial.

Estimates by the South African Local Economic Development (LED) Network – an online government platform for LED policymakers – value the informal economy at around 28% of SA’s GDP. In 2015, this translated to around $88bn.

Additionally, the relative share of the informal economy by province indicates some correlation with the overall unemployment rate, supporting the notion that the informal economy offers an alternative to unemployment.

“It is argued that without the informal economy, the unemployment rate would rise to around 47.5%. This implies that its significance in pro-poor economic development policy is more important than even its relative size suggests,” the network notes.

Following two successive declines in overall employment in the first and second quarter of 2016, the informal sectors recorded employment gains in the third and fourth quarter of the year, adding
53 000 jobs in the last three months of the year, according to Statistics SA.

City vendors

While accurate percentages of the contribution of informal traders in Johannesburg are difficult to come by, as no survey has been conducted, Webster says its contribution cannot be discounted.

The proper management of informal trading is set out in the city’s Informal Trading Policy, which aims to provide opportunities for informal traders and create a “stable and properly functioning” informal trade management system.

Encouragingly, several years ago the City of Joburg set up an Informal Trading Forum, which would see traders have an equal place at the bargaining table regarding decisions that would directly affect their businesses and development in the inner city.

However, the forum was “riddled with problems”, says Webster.

“The platform often acted to divide traders, lacked accountability, and left traders excluded from strategic decision-making.

“Traders were certainly not meaningfully included in the lead-up to Operation Clean Sweep, which proved to be the undoing of the forum,” he says, referencing an unpopular 2013 initiative by the city during which 8?000 informal traders were evicted from the inner city.

A want to formalise Despite the sometimes haphazard or illegal appearance of informal trade areas, Johannesburg’s Informal Trading Policy is surprisingly prescriptive.

Traders wishing to make use of designated trading areas are required to register with the Johannesburg Property Company (JPC) as informal traders, after which they sign a lease agreement and are issued with a smart card.

This way a trader’s right to do business is recognised and they are afforded the rights and access to demarcated trading space, infrastructural facilities and services, and ensures that informal trading is in compliance with the municipal by-law. Traders who do not apply for a trading stand are in contravention of the by-law and are liable to prosecution.

“Seri’s research suggests that the majority of traders are paying for licenses and trading space. What is crucial to note here is that those traders who are not paying, usually want to pay.

“They are aware of the greater infrastructure and services guaranteed to licensed traders, as well as the greater security of tenure. It is not a question of traders avoiding payments. Instead, the City of Johannesburg has arbitrarily limited the amount of designated trading spaces available, thereby contributing to the challenge of unregistered informal trade,” Webster tells finweek.

Trading space rentals range between R100 and R300 per month, depending on the level of infrastructure made available by the city.

Rentals in linear markets, for instance, where the city has installed roofing for traders on pedestrian streets, is higher than the rental paid for designated trading space on the sidewalk, where yellow painted lines indicate the boundaries of the trading space.

Webster laments, however, that despite these rights and policies, the city has largely failed in its duties to traders in terms of infrastructure.

“Despite traders’ organised efforts to keep the streets clean, the inadequate provision of waste disposal infrastructure and services, water and sanitation, and storage facilities, all guaranteed to informal traders in policy, has contributed to what the city usually refers to as ‘grime’ on the city streets,” he says.

A study by Stats SA into the contribution of the informal sector in SA between 2008 and 2014 found that 28.3% of those running informal businesses had no access to electricity at their business, while only 10.1% had an off-site flush toilet, 33.2% only had a pit latrine and as many as 8% had no toilet facilities available for their business.

Webster adds that Johannesburg Metro Police Department officials regularly confiscate the property of traders arbitrarily, and in many instances their goods are not returned to them.

“Often these confiscations are done in order to extract bribes from traders, which happens so often that traders have referred to it as ‘informal rent’. This is a daily reality for informal traders,” he claims.

The SAITF confirms this practice, telling finweek that its members are threatened on a daily basis. 

“We have learnt that street trading is not supported in SA, and our government is doing everything to make sure that street trading is done away with, especially in the big cities. This is the only sector that has been ignored since the dawn of democracy in our country, as there are no specific programmes meant to upskill informal traders,” it notes.

Formal sector intervention

Jannie Rossouw, head of the School of Economic and Business Sciences at Wits University, says formal businesses are often willing to support the informal economy, but they are largely hamstrung in this regard.

“Indeed formal businesses should trade with informal businesses where possible, but a limitation is the fact that formal businesses need registration and other financial documentation from the businesses they use. In a sense, we suffer ‘bureaucratic oversupply’ in regulation and requirements,” he says.

The SAITF is, however, less complementary of the intentions of the formal sector.

“The private sector sees us as a threat to them, so they do not want us to exist at all, let alone to support us. We are on our own,” it asserts.

According to Rossouw, primary responsibility lies with government to improve the regulation and registration of the informal sector to enable it to legally trade with the private sector and the state.

“We need to rethink the role of informal businesses [...] in our economy, owing to the beneficial impact these businesses have on employment. If we really need a ministry of small business, and I do not agree that we need one, the ministry should focus on an enabling environment for informal trade. And I do not see this happening.”

This article originally appeared in the 4 May edition of finweekBuy and download the magazine here.

informal traders  |  small business