ECONOMY-SOUTH AFRICA: Bringing the Margins Into the Mainstream

By IPS Correspondents Reprint | | Print |

Lucy Harraway

JOHANNESBURG, Jul 12 2004 (IPS) - It is one of the most-discussed sectors of South Africa’s economy, but also one of the most difficult to define – encompassing everyone from collectors of scrap cardboard to the managers of tiny businesses.

Informal trade - difficult to regulate, but economically essential. Credit: Nadine Hutton

Only 29 percent of the South African workforce is formally employed, compared to 69 percent a decade ago – while the proportion of workers active in the informal sector has grown from 14 percent to 21 percent. This is according to a study released earlier this year by the Human Sciences Research Council, a think-tank based in South Africa’s capital – Pretoria.

The study, led by the Executive Director of the council’s Employment and Economic Policy Research Programme, Miriam Altman, was published under the title ‘Jobless or Job-Creating Growth?’. It also shows that unemployment has grown from 17 percent to 30 percent since 1994 – although this figure excludes those who have given up looking for work.

Altman says South Africa’s economy suffers from a mismatch between what employers require of their workers, and the skills that are available – driving many workers into the informal economy.

The expansion of this sector has also been fuelled by the growing capital intensity of the formal economy. Labour blames excessively stringent government fiscal policy, privatisation and deregulation for the contraction of the formal job market.

These and other findings are prompting commentators to review their perceptions of the informal sector. Some emphasise that it is no longer correct to view this sector as strictly temporary in nature – or as a transitional stage between joblessness and formal employment.

“The informal economy is more than just a slice of the economy. It has an increasingly permanent feel to it, particularly as globalisation takes its toll,” says Jane Barrett of the South African Transport and Allied Workers Union.

Chris Gilmore, an advisor on local economic development in the Department of Provincial and Local Government, adds: “In most countries it is the second economy that is the backbone of social and economic well-being, and which has the flexibility to provide jobs and services over whole national territories.”

Municipalities are constitutionally responsible for local economic development, but appear to be doing very little for the informal sector at this point.

“No local economy it without its own endogenous resources,” says Gilmore. “But they lie fallow most of the time. They have not been kick-started, and the mechanism for setting the motor going has not been found.”

The key choice confronting authorities appears to be between trying to regulate informal businesses, or allowing them to continue operating outside the law. Informal sector firms are generally not regulated or registered, except in terms of by-laws under the Business Act which obliges them to keep their sites of operation clean, for example.

As the International Labour Organisation puts it, “the negative aspects of informality” need to be eliminated, “while ensuring that opportunities for livelihood and entrepreneurship are not destroyed.”

Iraj Abedian, Chief Executive Officer of the Pan African Advisory Service – a Johannesburg based non-governmental organisation, observes “The government has been driven by a ‘first things first’ mindset to stabilise and register success in the macro-economy, and then to focus on second-generation type of areas.”

“The question of the informal economy and how it should be regulated to enhance profitability and sustainability for small businesses is a major issue that needs to be addressed,” he adds.

While small, medium and micro-enterprises are receiving attention from the Department of Labour in its National Skills Development Strategy, people who survive by selling fruit and the 185,000 workers in the minibus taxi industry remain beyond the pale.

Outsourced and casual labour is another key, and growing, segment of the informal economy – the “casualisation” of labour having opened the door for employers to circumvent labour legislation when they contract workers on an informal basis.

Neren Rau, a senior manager at the South African Reserve Bank, says it is working on legislation to regulate informal financial institutions.

One initiative is to introduce a savings and loan institution to “broaden access to finance”, he notes – another to bring cooperative banks into the formal economy: “All we can do is reform the regulatory structure. Whether the informal institutions take that opportunity is their choice.”

Statistics South Africa, the government department that compiles figures on key economic and social trends in the country, put the size of South Africa’s informal workforce at 1.7 million in a report issued last year. But, Altman estimates that it could be about three million strong.

According to the Community Agency for Social Enquiry (CASE), based in Durban, the sector’s contribution to gross domestic product is in the region of 190 million dollars a week.

Altman’s report indicates that informal workers earn between a fifth and half of their formal sector counterparts. More than half of informal sector workers have written contracts or pension plans – but less than two-thirds are given paid leave.

CASE found that 45 percent of the female workforce was informally employed, compared with 25 percent of men.

The growth of the informal sector in South Africa has also undermined union strength in the country – something most visibly demonstrated by drop in membership. The number of workers affiliated to the country’s main umbrella body for unions, the Congress of South African Trade Unions (COSATU), has decreased by 100,000 in the past three years.

While most COSATU affiliates have been encouraged to grow their membership by ten percent during the next five years, observers believe that unions need to adopt a new approach when bargaining with employers that moves away from the mass action of the 1980s.

They should seek to compel the government to take a second look at its skills development legislation, so that this can be matched to the growth of the informal labour force in South Africa, say analysts.