South Africa’s hidden R900 billion economy booming

South Africa’s informal economy is booming, with the sector compounding at an average annual rate of 6.7% – far exceeding that of the country’s stagnant formal economy. 

This economy has long been pivotal in meeting the needs of ordinary South Africans who rely on cheap goods and services that are easy to access in townships and rural areas. 

In particular, it absorbs South Africa’s large unemployed population, providing many with additional income and a basic livelihood. 

Pepsi-bottler BevCo said data shows that more than 70% of households rely on the informal retail market for their everyday needs. 

The informal economy is dominated by spaza shops, which largely mimic the formal retail sector and are estimated to be worth around R180 billion annually.

This forms the backbone of the wider informal economy, estimated to be valued at close to R900 billion. 

“As the informal market continues to grow, outpacing even modern trade, it becomes increasingly clear that this sector holds immense potential not only for economic development but also for job creation,” BevCo CEO Pieter Spies said.

Recent studies show that the informal independent market within the FMCG sector has grown at an average rate of 6.7% between 2018 and 2023 – a trend that shows no signs of slowing. 

By 2030, small retailers are anticipated to create 70% of all new jobs in South Africa, underscoring the sector’s importance as a driver of economic growth and employment. 

“The numbers speak for themselves,” Spies said. The township economy is valued at approximately R900 billion, with the informal sector alone contributing around R150 billion in cash sales annually. 

With an estimated 150,000 spaza shops operating across the country, these small businesses collectively contribute as much as 5.2% to South Africa’s GDP and employ 2.6 million people.

Shoppers frequent spaza shops on average four times a week, significantly more than traditional supermarkets, which they visit just once a week. 

Spies said this provides a massive opportunity for suppliers, such as BevCo and other formal companies, to participate in this space and tap into its strong growth. 

Formal, established companies are increasingly looking to move into the informal sector for its growth and break out of the saturated formal economy in South Africa. 

BevCo, which also owns brands such as Jive, Rockstar Energy, and Coo-ee, recently launched its Route to Market Expansion Project to tap into the growing informal economy. 

The company said it aims to enhance its presence in the informal sector through this project and has a particular focus on the township economy. 

So far, it has partnered with The Brand and Beverage Company to deploy a team of sales representatives to drive its products in key regions. 

The company has also taken a leaf out of the Coca-Cola and SAB playbook by investing in the informal traders who sell its products. 

As part of our initiative, BevCo has spent millions of rands placing thousands of coolers in spaza shops, ensuring that consumers can easily access its products. 

BevCo is not the only company eyeing up this opportunity, with JSE-listed retailers looking to also tap into the growing township retail sector. 

Following the release of its results earlier this month, Shoprite revealed its plan to double the number of Usave stores it has in the next five years. 

This store format, much smaller than a traditional Shoprite, was developed to enable the company to expand into townships and rural areas. 

The company often uses these stores where it cannot own the land it operates on, such as in areas where tribal authorities own the property or if there is limited infrastructure. 

The brand was first launched in 2001 as a way to tap into the burgeoning informal economy, with a primary focus on townships and ‘forgotten’ towns outside of major metros. 

It has grown rapidly since then, with the small-format stores coming to dominate township retail. The company now has 463 Usave stores across South Africa, opening 22 more in the past year. 

CEO Pieter Engelbrecht said there is room for 1,000 Usave stores in South Africa, with the company aiming to get them much closer to customers’ homes. 

Engelbrecht explained that Shoprite’s data shows a strong interplay between Shoprite and Usave. At month-end, people flock to more formal Shoprite stores for groceries, but in mid-month, they frequent Usave stores closer to their homes.