Don’t leave the informal sector out of economic rescue plans

The Covid-19 pandemic has turned the global economy upside down, in another severe shock post the 2008 sub-prime crash. The fabric of the global economy has been altered for the worst. The significance of this alteration is that the world has had to lockdown the movement of people and consequently its respective economies.

As the news filters in, it is clearer that this exogenous event is the most virulent shock ever to be experienced by capital across the world.

Unlike the 2008 recession, SA will not be as fortunate to come out on the other end relatively unscathed. While this pandemic unfolds around the world, at home we are witnessing the painful loss of jobs and the demise of companies. The extension of the lockdown presents a whole new challenge for businesses in totality, and more so, those that were already unstable.

The reality is that the entire economy has ground to a halt with only essential services being carried out. Sole proprietors, small medium and micro enterprises, and informal traders in the shadow economy are largely excluded from that classification and have had to shut down abruptly.

SA’s economy unfortunately exists within two strata:

1. the formal economy, which is characterised by financial markets and liquidity ratios and
2. the shadow economy characterised by Umama (mothers) who have sold vegetables on the corner of Bree and Jeppe street, or the gardener armed only with a digging fork and spade.

Business support across all levels of government is characterised by a commitment to the mainstream formal economic sector. This position is crystallised by the R2.7bn PIC bailout of Edcon versus the hasty edits to trading regulations for informal traders under the Disaster Management framework.

In fact, informal traders have always borne the brunt of harmful bylaws across municipalities - an example of this is the removal of street vendors from their posts in what is touted to be a cleanup of city centres. Some 26 years later and even after the struggles of the late Dr Richard Maponya, we do not as a country know what it means to run an inclusive economy.

Incongruent levels of support for businesses within the formal sector clearly point out the levels of commitment to each of these strata. I would contend that the informal sector is relegated to the periphery because we do not fully understand the economic value and impact of this sector, therefore limiting the growth potential of a sector that employed 3-million people or just under 20% of the labour force in Q2 of 2019.

If we are to truly restructure the South African economy, we must think long and hard about what inclusivity means within the make-up of the South African economic landscape.

Economic inclusivity does not mean formalising every single business within SA. I believe there are three key notions that we must dispel if we are to deliver a blueprint for inclusive growth.

The informal sector cannot be viewed as a shock absorber during times of economic hardship. The National Development Plan’s push towards a secondary work-stream for citizens who have lost formal employment is misplaced. It disproportionately places economic recovery as a secondary measure to formal employment and business. This means that we do not dedicate the right amount of policy, political and financial will to ensuring that the informal sector becomes a viable and sustainable part of SA’s economic mix.

We must reconsider what we deem to be entrepreneurial and innovative. An inclusive economy does not arrest the waste pickers who are an important part of the waste management system, yet aren't considered essential services.

We need a far-reaching stimulus package that will go beyond putting money in the hands of big business to reach the informal trader. This package must be grant-based and last only for a short period to address the acute lack of income and capital.

For the longest time, we have lamented the plight of the unbanked - this is an opportunity for banking to move beyond the traditional model and explore alternative technologies. Blockchain and mobile money technology must be widely implemented for transactions – our mature banking sector allows us to roll out these efforts quite easily.  

There is no safety net for the informal sector, and thus a fund must be established for the stakeholders in a similar way to the Unemployment Insurance Fund. Through the blockchain financial system and mobile money technology, stakeholders can, among other functions, make contributions to the insurance fund and receive relief in hard times. Our economy is largely cash-based and, with the new order dictated by the coronavirus of not handling cash, going digital will address this.

We are at the proverbial cliff face - we must think and act differently, the first step in that direction is setting a new blueprint for true inclusivity by bridging the gap between the formal and the so-called informal economy.

Much like the coronavirus attacks the respiratory tract and organs, our economy is facing a similar threat, and if not treated, this time it will lead to our demise. So, jump-starting our economy is a task that must begin now and need not wait for Covid-19 to end!

Holeni is chief group adviser for Ntiyiso Management Consulting