The hidden economy that employs 7.8 million South Africans

South Africa’s informal economy accounts for millions of local jobs, contributes significantly to the economy, and has grown strongly over recent years. 

This was revealed during the e-Kasi talks theme, which formed part of SAITEX 2024.

The Kasi Economy, also known as the “hidden economy”, is driven by micro-enterprises across multiple sectors and accounts for over 40% of local jobs.

Approximately 11.6 million people in South Africa live in townships, representing billions of rands in spending power. 

According to research released by Accenture Africa in 2023, more than 150,000 spaza shops are part of South Africa’s “hidden economy,” which has an estimated market size of R178 billion.

Informal economy expert GG Alcock said the spaza and superette sectors dominate the informal economy, making up an estimated R180 billion. 

He estimated the value of the informal economy to be between R600 billion and R750 billion. 

Over the last five years, the informal sector has grown significantly, even at the expense of the formal sector, with a compound annual growth rate of 14.17%. There is no sign that this trajectory will slow down going forward.

This growth has captured the attention of major JSE-listed companies, such as Shoprite and Tiger Brands, that have started trying to enter this market.

This economy is almost circular, as businesses are created by residents and supported by their fellow township citizens. 

More than 70% of South African households purchase from informal traders, which include hawkers, small and large spazas, superettes and mini and midi wholesalers. 

Research from Trade Intelligence has shown that around 11.1 million South Africans do their grocery shopping at these stores, citing convenience and low prices. 

Consumers buy as much as 40% of food every year from informal traders, who service 77% of the population’s calorie consumption. 

Dr Sindiswa Mzamo, President of the Circle of Global Business Women, and Nosipho Khonkwane, general manager of Gauteng Enterprise Propeller (GEP), discussed what has been done to boost Gauteng’s township business at the SAITEX event.

According to Mzamo and Khonkwane, the success and sustainability of township businesses depend on the fit between the specific business and its environment.

There is no one-size-fits-all approach. They explained the importance of funding, saying that some businesses need grant funding and business development services before considering taking out a loan. 

Small businesses need access to finance to have a chance at success. Currently, there is a funding gap of about R86 million for small businesses and R346 million for small and medium-sized enterprises (SMMEs) in South Africa. 

The informal economy is also important for local employment and accounts for about 42% of all employment.

The event explained that by 2030, small retailers in this micro-economy are anticipated to create 70% of all new jobs.

Research from Statista tracked informal employment from 2003 to 2023 and revealed that the number of people employed in the informal sector in South Africa reached a peak of over 7.8 million in 2023. 

“In the period under review, the number of people with jobs outside formal institutions has generally been following an increasing trend,” according to Statista.

FinMark Trust’s annual FinScope Consumer South Africa for 2023 revealed that the formal sector cannot absorb the amount of unemployed people in the country. 

According to their research, the number of employed people climbed from 12.6 million to 17.4 million between 2003 and 2023, representing a 4.8 million-year increase in employment. 

“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 pays lower remuneration, which makes it less attractive, its role in supplementing income is crucial.