South Africa

South Africa’s new hidden economy worth billions

Informal savings are rising in popularity in South Africa, with 76% of employed South Africans having some form of unbanked cash, savings in a stokvel, grocery schemes, or burial societies. 

This reflects a lack of trust in the country’s financial system, with some preferring to keep cash under the mattress rather than in a bank account. 

In its annual Savings & Investment Report, Old Mutual revealed that South Africans increasingly turn to these alternatives to safeguard their hard-earned savings. 

Informal savings play a significant role in the informal economy, supplementing income when needed and providing a form of social security. 

As the informal economy has grown strongly over the past decade, so has the savings in this sector. 

While the formal economy has effectively stagnated over the past decade, informal traders and businesses have grown at over 10% per annum. 

Informal economy expert GG Alcock said this sector is now worth over R750 billion, with spaza shops alone valued at over R180 billion. 

The informal sector has traditionally been an overlooked part of economic activity, deemed too complex for formal businesses to compete in.

Despite this, it has consistently been a crucial source of job creation, as South Africa’s formal economy cannot absorb the country’s vast number of unemployed individuals.

Many South Africans, unable to find jobs in the formal economy, turn to the informal sector to make a living, often by becoming entrepreneurs.

Although the informal sector is not preferred due to its lower wages, its importance in supplementing income cannot be overstated.

FinScope consumer data reveals that the average personal monthly income in the informal sector is R4,199, surpassing both the national average of R3,864 and the minimum wage of R3,710.

This has led to financial institutions increasingly trying to access the unbanked savings in this sector and use the money more efficiently in the formal economy and elsewhere. 

However, informal savings have risen over the past five years, from 67% of respondents to Old Mutual’s survey in 2020 to 76% in 2024. 

This increase is shown in the graph below.

Aside from financial institutions, other major corporates have their eyes on this sector and, in particular, its booming retail trade. 

Property companies, particularly those developing shopping malls, have been active in the informal economy for over a decade.

Nesi Chetty, head of property at Stanlib, highlighted that the informal economy has expanded significantly over the past decade, driving increased demand for high-end products from the formal market.

“There is a noticeable demand among increasingly affluent township consumers for accessible formal retail, presenting a strategic growth opportunity for larger retail chains,” Chetty remarked.

Retailers are also looking beyond the crowded higher-income market for expansion. Their engagement in the informal sector will generate employment, provide consumers with more options, and reduce prices.

For example, Shoprite has swiftly grown its Usave stores in townships and informal settlements.

Tiger Brands, South Africa’s leading food producer, has revealed plans to distribute its products in approximately 150,000 stores within the next five years.

Ryan Gaines, the CEO of City Logistics, one of South Africa’s largest privately-owned logistics companies, pointed out the significant economic opportunities for transport firms.

“The consecutive interest rate hikes by the South African Reserve Bank since November 2021 have undoubtedly affected market spending in logistics,” he stated.

“Nevertheless, we are observing robust growth in peripheral shopping areas, particularly in rural and township regions.”

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

Gaines explained that this surge is driven by major retailers seeking to access rural and informal markets.

In addition to growing demand in rural areas, there has also been a notable increase in warehouse space on the fringes of urban areas, closer to informal settlements and townships.

“While tapping into the rural market requires significant investment in transport and increased operational and maintenance costs, urbanization trends are shifting warehouse locations to the outskirts of these population centers,” Gaines said.

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