SA’s Invisible Economy

It is a travesty when a mayor of South Africa’s biggest city shows glaring signs of deficiencies in his understanding of not only economics but social issues in the city where he is supposed to be in charge.

This week Mr Herman Mashaba boasted on Twitter that, ‘I have just personally stopped this illegally act in our city. How do we allow meat trading like this? I am waiting for [Johannesburg Metro Police] to come and attend before we experience a breakdown of unknown diseases in [Johannesburg].’
And the poor police officers rushed to the scene to assist the mayor to arrest an informal trader.
The police joyously explained also on Twitter that Mr Mashaba had, ‘just effected a citizens arrest.’ The man’s problem was that he pushed a trolley down Harrison and Smit streets in the city centre. His consignment was cow heads that were ‘not covered – which is a health hazard.’
Mr Mashaba behaved like an alien as if he has never seen that much of the city’s economy is informal and for that matter, that very few black businesses are listed on the JSE, or proudly occupy any of the glass buildings in Sandton.
The streets of Johannesburg have been buzzing with economic activity since time immemorial – men and women operate street stalls, taxis and other forms of businesses to make a living. In fact, many people who are important personalities and members of society today, started out in informal trading.

This is the reason why the company registration date reflects as 2011, coinciding with Pravins’ appointment as Financial Minister in 2009, which gave Malema false claims that it was registered ‘shortly’ after Pravin was appointed Minister. It was two years after rather than ‘shortly’ as Malema wants us to believe.

I once wrote that attitudes perpetuate what former President Thabo Mbeki called ‘two economies’ by pretending that economic activity only happens in the formal side of the economy. This sheepish approach leads to the belief that the majority of the black population sits and waits for hand-outs, and that they cannot do anything for themselves. The truth is that it is people like the trader whom Mr Mashaba ‘arrested’ who contribute to even the ‘clean’ economy – without diseases.
The taxi industry moves millions of people not just in Johannesburg but countrywide to work in banks, retail shops, households, etc. Also, large businesses like MTN, South African Breweries, Standard Bank and Shoprite rely on the informal sector. Spaza shops and shebeens are an extension of these companies’ distribution channels. Actually most liquor trade and airtime sales do not take place in Sandton, but in Thembisa, Snake Park and Mshenguville.

Hundreds visit Mai-Mai and nearby hostels to buy inhloko and mogodu as well as traditional beer and herbs each day. The hostel and street economies make more money than many businesses. Maybe izinduna need to extend an invite to His Worship to witness the music and dance on a Saturday morning. The booming market will captivate the city’s No. 1 citizen, that is guaranteed.

Of course, Mr Mashaba and those who think like him will be quick to point that these businesses don’t comply with municipal by-laws and that they don’t contribute to the fiscus. That may be partly true but a cost-benefit analysis will demonstrate that it is preferable when people help themselves.
Money made in the informal economy re-enters the formal economy via value added tax and other ways. For example, this year the receiver of revenue collected around ZAR1.216 trillion, or U$D101.3 billion. The VAT contributed 25 percent to this amount. It is fair to suggest that the informal sector accounts for a large portion of this figure, directly or indirectly.
Unfortunately the contribution of informal sector to the economy is largely neglected. For example, the unemployment rate is said to be in the region of 27 percent. One wonders if this is accurate since those employed in the informal sector are excluded as ‘ghost’ workers.
Another point is that the country’s economic growth is often said to be hovering close to zero. Just a few months ago, there was an announcement that the economy was in a technical recession. But here again, the economic activity in the informal sector isn’t part of the national statistical calculations.

Louis van der Merwe (Centre for innovative leadership) says that the ‘invisible economy’ keeps ‘a large part of South Africa afloat’. A conservative estimation is that approximately 20 percent of all money spent within the country’s borders is spent in informal outlets, that is about ZAR46 billion per year. The taxi industry is possibly worth more or less the same.
The informal sector drives the South African economy. It should therefore be accorded the respect it deserves – economists of the future will hopefully help to achieve this.

Perhaps our erudite mayor isn’t aware that organisations like the Organisation for Economic Co-operation and Development (OECD) and the International Labour Organisation (ILO) recognise the importance of the informal sector across the world, especially in developing economies such as South Africa. The OECD estimates that about 1.2 billion (40 percent) of the world’s population is employed in this sector, compared to 1.8 billion (60 percent) in the formal economy. Many economies in Africa, Latin America and Asia are largely informal. Closer to home, the figure for the informal sector is quite high in countries such as Zimbabwe, Democratic Republic of Congo, Malawi and Mozambique compared to South Africa, eSwatini and Mauritius.
But South Africa is going through economic difficulties, with many companies planning to retrench thousands of workers. For example, Standard Bank will cut 800 IT jobs, BCX 800, SABC up to 2,000, Goldfields 1,500 and Lonmin about 12,000 employees. Where will all these people go? In all likelihood many will become part of the informal sector.
After Trump-esque Tweets, Mr Mashaba apologised not only for the ‘citizen arrest’ but also for an anti-foreign tweet about Ebola. His Worship cannot treat the informal sector as invisible because it isn’t.

By Siyabonga Hadebe

Photo by Zoë Postman

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Uownit-SA is an online publication focused on collecting and publishing valuable and informed opinions from all the people of South Africa, published on the 15th of every month. Send us your views to contributions@uownit-sa.co.za.

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