South Africa

South Africa’s hidden R750 billion economy is booming

South Africa’s informal economy is booming, with logistics companies seeing a substantial uptick in demand for warehousing in outlying areas from established retailers looking to tap into this R750 billion sector. 

The local informal sector is increasingly important in South Africa’s economic prosperity, with its growth outstripping that of its formal counterpart. 

It has always played a vital role in absorbing South Africa’s large unemployed population, providing a living for those who cannot find a job and supplementing the income of those on low wages. 

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 R750 billion. 

It is also growing strongly, with informal economy expert GG Alcock estimating the growth of its retail sector to be almost double that of its formal counterpart. 

This has led to large JSE-listed retailers, such as Shoprite, and fast-moving consumer goods companies, such as Tiger Brands, expanding into this sector. 

Tiger Brands said it aims to have its product range available in 130,000 to 150,000 stores within five years. In the last two years, it has partnered with 46,000 stores to stock its products.

With these companies moving into this sector, more of the economic benefit will be reflected in formal economic statistics, helping to change the narrative about the sector and give a more accurate reflection of its size. 

Ryan Gaines, CEO of City Logistics, one of the largest privately-owned logistics companies in South Africa, said this provided substantial economic opportunities for transport companies. 

“The South African Reserve Bank’s consecutive interest rate hikes since November 2021 have undoubtedly impacted market spending in logistics,” he said.

“However, we are witnessing robust growth in outlying shopping areas, especially in rural and township regions.”

For example, in recent years, the demand for warehouse space has increased by 84.7% at some of City Logistics’ hubs in rural KwaZulu Natal. 

Gaines explained that this has been driven by large, established retailers looking to tap into the rural and informal markets. 

Apart from increasing demand in rural areas, there has also been a noticeable surge in warehousing space on the edge of urban areas, closer to informal settlements and townships. 

“While seizing the rural opportunity demands greater investment in transport and subsequent running and maintenance costs, the urbanisation trends are shifting warehouse nodes to the edge of these population centres.”

Township property boom

Increased demand for warehousing space is only part of a broader boom in the township property sector, with shopping malls expanding strongly and residential property prices surging. 

Stanlib’s head of property, Nesi Chetty, and analyst Ahmed Motara said the township economy has weathered the economic storms battering the country far better than its formal peer. 

This has led to strong growth for listed companies in the sector, such as Vukile, Resilient, Fairvest, and Exemplar. 

Vukile Property Fund has reported that trading densities for its township portfolio are close to R1,000/m² higher per annum on an aggregated basis than its urban portfolio.

Furthermore, its township shopping centres have driven the company’s growth, surging by 13.2% in value in 2023 versus 2022.

These centres were followed by rural shopping centres, which experienced 7.2% growth, and urban shopping centres, which experienced 4.5% 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. 

This shift in strategy is coupled with a desire for retailers to look for growth outside of already saturated higher-income markets. 

An influx of formal retail chains will create employment and offer consumers greater choices and lower prices. 

This property boom has not been confined to just major JSE-listed players, with residential property also seeing a significant uptick in value. 

Seef Property Group said the Soweto property market has seen residential prices double in the past decade. 

A four-room house in Soweto was valued at around R150,000 ten years ago, and now, a similar house would be valued at R400,000 to R500,000.

“I think it would be disingenuous to assume that you’re going to put millions of people in a specific space and think nothing of value is going to come from it, so there is a huge boom,” property educator Khali Masooane said. 

“Oftentimes, people had the notion that you live in the township and then move out, but now people are taking it back into themselves and want to reinvest in their space.”

She explained that townships are often considered more affordable than large metropolitan areas, and younger people are, therefore, opting to live where they grew up.

She said 40% of buyers in Soweto are under the age of 35, and most of them are first-time buyers.


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