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Tue May 24 17:49:24 SAST 2016

Informal sector is saving millions from poverty

The Times Editorial | 11 January, 2016 08:10

The informal economy operates kilometres apart from the formal one and is disconnected from the global economy. It is traditionally treated like the poor cousin but its contribution to our GDP should be better understood.

It plays an important role in sustaining livelihoods and in creating a buffer between employment and unemployment.

Unlike in India, where the informal sector sells cheap goods, fruit juice, street food and multiple services on pavements alongside shops selling designer clothes, international bestsellers and the latest gadgets, in this country informal trading is usually relegated to poor areas with little access to prosperous markets.

This disconnection makes it hard for informal economy activity to expand into the formal economy, and keeps informal workers from being protected from labour malpractices and discrimination.

In South Africa the informal sector contributes between 7% and 20% to the economy. Some estimates - difficult to make because informal economic activity is unrecorded - value it at around 28% of GDP.

In India, according to development strategist Kate Philip, the informal sector accounts for 90% of non-agricultural employment and at least half of total GDP, making India's one of the biggest informal economies in the world.

The potential of the informal sector's contribution to GDP and to employment is clear and it is encouraging that Cape Town has recognised it.

The city says it is talking to informal traders to find solutions to their problems.

The government, at both the local and national levels, can help the informal sector by creating more favourable environments for trade, and improved access to markets and information.

Organising this sector better, and acknowledging the value of its role, will greatly help economic development.

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