In the bustling, chaotic heart of any South African township, rural and small town, and city centre, one can witness a vibrant ecosystem of survival.
Much like the resilient characters navigating their destinies in Alan Paton’s Cry, the Beloved Country — where individuals grapple with a society undergoing profound change — South Africa’s informal economy is a testament to human ingenuity and perseverance.
Yet, as Prof Haroon Bhorat articulated in a June 17 Business Day article, our national obsession with formalisation is stifling this vital sector, turning a potential economic powerhouse into a mere shadow of its true capacity.
Bhorat’s assertion, ignited by debates on South Africa’s labour statistics, strikes at the core of our unemployment crisis. He contends: “Most emerging markets reduce unemployment not by having far higher levels of wage employment compared with us, but rather by allowing large swathes of individuals to engage unhindered in the informal economy.”
He adds: “I am now empirically satisfied that the most important reasons for South Africa's inordinately high unemployment rate lies not in poor employment elasticities, restrictive labour regulations and so on, but in an economy that is designed to stymie the flourishing of the informal sector.”
This perspective shifts the debate beyond parochial methodological disagreements about how Stats SA counts, to a more fundamental question — who is the South African economy really for?
The Competition Commission answers the question starkly. Its 2021 report, "Measuring Concentration and Participation in the South African Economy: Levels and Trends", reveals that while small and medium-sized enterprises make up 95% of all registered firms, they generate barely a quarter of national turnover. In contrast, the largest 10% of companies gobble up 86% of sales. The economywide firm-level Gini coefficient sits at an eye-watering 0.836 and in capital-intensive sectors such as mining, manufacturing and transport, the top decile routinely captures more than 90% of revenue. Such entrenched dominance by incumbents systematically crowds out new entrants and leaves township traders fighting for scraps long before municipal bylaws come knocking.
The government’s Medium-Term Development Plan (MTDP) 2024-29 tasks itself with setting the country on the path to achieve the NDP’s objective of reducing unemployment to 6% by 2030. How it plans to achieve this with a 3% GDP growth by 2029, instead of the 6% envisaged by the NDP, is a circle I don’t think its drafters can square. But these goals, even if they were reasonable, remain merely a wish being father to a thought, without a fundamental reorientation towards prioritising the informal economy.
To its credit, the department of small business development’s National Integrated Small Enterprise Development (Nised) Masterplan recognises the informal sector’s role. However, the masterplan also laments that “SMMEs employing less than 50 people are becoming less important as job creators in the South African economy”, a statement that contradicts both global trends and the everyday evidence of informal survivalism. Around the world, informal sectors act as vital shock absorbers during economic downturns. In South Africa, they remain systemically suppressed. Instead of leveraging this survivalist economy, we insist on formalising it to death — enforcing costly regulations, municipal red tape and licensing systems that strangle micro-entrepreneurs before they can breathe.
South Africa's informal sector employment saw an increase in the first quarter of 2025, reaching 3.345-million people. This represents a rise of 17,000 from the previous quarter and an 8.6% increase year-on-year, according to Stats SA. Despite this growth, the informal sector in South Africa continues to underperform when compared with other African economies. Its contribution to the country's GDP is now nearly 20%, significantly lower than some other African nations where it can reach as high as 55%, and below the 50% in Latin America.
A significant factor explaining the dynamics of the informal sector is the divergence in business models between foreign-run enterprises and local 'survivalist' traders.
A significant factor explaining the dynamics of the informal sector is the divergence in business models between foreign-run enterprises and local “survivalist” traders. Foreign entrepreneurs often import more competitive and entrepreneurial business models, which stand in stark contrast to the small-scale, “survivalist” methods common among local traders. Drawing on experience from their home countries, they can operate on a larger and more formal scale, achieving efficiencies that isolated microenterprises cannot match.
The MTDP also makes admirable promises around inclusive growth and job creation, yet when it comes to the informal sector, it offers little beyond vague commitments to “spaza shop sustainability” and tackling marginalisation. There are no concrete targets, no timelines and no commitment of resources towards unleashing this vital segment. The MTDP also focuses heavily on macroeconomic reforms, yet fails to engage with the township and pavement economies where the bulk of the unemployed youth could plausibly find income and purpose.
The Nised Masterplan estimates that there are between 1.2- and 1.5-million informal businesses in the country and correctly identifies the need to integrate them into the broader economy. However, the Nised’s logic is still premised on formalisation first, support later. It envisions a multiyear transition to full compliance with Sars, UIF and municipal permitting systems. The bulk of new support mechanisms, such as incubators, mapping tools and commercial dispute mechanisms, are designed for businesses already in the formal sector. The result is that the plan remains skewed towards those who have “graduated” from informality, not those still caught in its trenches. In short, government still treats informality as a temporary deviation, not a legitimate and enduring form of economic participation.
This failure to embrace the informal sector has devastating consequences, especially for the youth. The roots of this failure run deep. Our regulatory architecture is designed not to grow the informal economy but to police and contain it. Municipalities have sweeping powers to restrict, zone and criminalise informal traders, reflecting hostility that defines informality as disorder rather than as economic agency. Most major metros impose bylaws that include fines, confiscations and even imprisonment for informal trading outside designated areas. In Cape Town, it’s estimated that roughly 8,000 informal traders operate outside official zones, largely in townships where they’re pushed into unregulated and under-serviced markets. Zoning regulations further limit access to lucrative trade areas, while compliance requirements remain unnecessarily complex and expensive.
Spatial apartheid continues to haunt the informal economy. Township traders are located far from economic centres, with poor access to customers, infrastructure and transport. This is both a push and a penalty, pushed into informal work/trade but punished for trying to make it work.
However, it’s not all doom and gloom. The MTDP does gesture towards solutions, proposing to reduce permit costs, expand nonbank lending and diversify township economies. The NISED Masterplan also recommends a “zero-rated licensee” to ease entry into business. These are good starts, but they stop short of the systemic overhaul required.
A serious response to this crisis must go further. We must decriminalise informal work by scrapping punitive bylaws and defaulting to permission for all trading in safe public areas. Government must invest in infrastructure such as clean stalls, storage, Wi-Fi, electricity, sanitation and so on. Furthermore, licensing systems, in addition to being zero rated, must be radically simplified. Lastly, townships, rural, small towns and city centres need youth hubs and physical spaces where the youth can access tools of trade, support and digital platforms.
As the Freedom Charter declared, “all people shall have equal rights to trade where they choose, to manufacture and to enter all trades, crafts and professions.”
Today, that promise remains unrealised. Informal entrepreneurs — hair salons, welders, recyclers, cooks and sellers — are harassed, marginalised and unrecognised. Their right to trade is not protected. Their economic citizenship is conditional.
And yet, like Paton’s characters who continue to seek justice amid brokenness, these traders persist. They build with what little they have, carry dignity in the face of dismissal and create economic value where formal channels offer none. Their resourcefulness is not a sign of failure but of potential.
South Africa’s unemployment crisis urgently demands a practical revolution in how we see, support and integrate the informal economy. If we awaken this sleeping giant, we will not only address joblessness, inequality and poverty, but also move closer to the just and inclusive society the Freedom Charter envisioned.
• Siyabulela Gebe is a political economy and public policy analyst
For opinion and analysis consideration, e-mail opinions@timeslive.co.za
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