South Africa’s booming informal economy crucial for job creation

South Africa’s formal economy cannot absorb the amount of unemployed people in South Africa, leaving space for the informal sector to step in.

This was revealed in FinMark Trust’s annual FinScope Consumer South Africa for 2023.

In its latest report, FinMark compared 2023’s results to 2003, when it first released its FinScope consumer data.

The comparison showed that the formal economy cannot absorb the growing population entering the labour force.

Those who cannot secure employment in the formal sector turn to the informal sector to earn a living. 

According to the FinScope Consumer South Africa 2023 survey, South Africa has an adult population (16 years and older) of 44.7 million. This includes 3.5 million foreign-born nationals. 

This marks an increase from 26.9 million in 2003, recording a 40% adult population growth. 

The number of employed people climbed from 12.6 million to 17.4 million between 2003 and 2023, representing an employment growth of 4.8 million. 

“However, this employment growth is insufficient to keep up with the 18 million population growth during the same period,” the report found.

While the informal sector is not the preferred option as it pays lower remuneration, its role in supplementing income is crucial. 

According to FinScope consumer data, the average personal monthly income in the informal sector was R4,199, higher than the national average (R3,864) and minimum wage (R3,710). 

Despite its importance, the South African informal sector is relatively small, accounting for only 19% of the adult population, compared to the informal sector in peer-group countries.

South Africa’s ‘township economy’

At the end of 2023, Stanlib outlined the growing value of property in the informal economy in a note to clients.

It found that South Africa’s “township economy” has weathered the economic storms battering the country better than its formal peer.

Stanlib’s head of property, Nesi Chetty, and analyst Ahmed Motara said the informal economy has grown at a staggering rate over the past decade. 

Informal economy expert GG Alcock estimates the value of the informal economy to be between R600 billion and R750 billion. 

He explained that the informal economy mirrors the structure of a formal economy, with various formal sectors mimicked in townships and informal settlements. 

Alcock said the spaza and superette sectors – which he likened to the formal, fast-moving consumer goods sector – dominate the informal economy. 

He estimated its value to be around R180 billion, with over 100,000 spaza shops nationwide and nearly 500,000 mobile traders. 

Large JSE-listed retailers, such as Shoprite, Tiger Brands and Woolworths, have begun trying to enter this market to capitalise on its rapid growth. 

As participants’ incomes in the informal economy have grown, so have their aspirations and demand for higher-end products. 

“There is a clear appetite among increasingly affluent consumers in township communities for formal retail within easy reach, creating a strategic growth opportunity for larger retail chains,” Chetty and Motara said.