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The Informal The Informal Economy in SAEconomy in SATrends and policy Trends and policy challengeschallenges

Caroline Skinner, School of Development Caroline Skinner, School of Development Studies, UKZN Studies, UKZN eThekwini Informal Economy eThekwini Informal Economy Conference, ICC Conference, ICC 9 November 20069 November 2006

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Presentation OutlinePresentation Outline• Definitions• International statistics• South African statistics• Formal informal linkages• Challenges • eThekwini’s approach• Concluding thoughts

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Informal Economy – Informal Economy – DefinitionsDefinitions

The Statistics SA definition:‘The informal sector consists of those

businesses that are not registered in any way…’

ILO Definition:The informal economy is ‘all economic

activities by workers and economic units that are – in law or in practice – not covered or insufficiently covered by formal arrangements’ (ILO, 2002a).

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Informal Economy - Informal Economy - InternationalInternational

Size of the Informal Economy

Source: Chen

The informal economy is growing and here to stay

Informal Sector Share of

Latin America

Africa Asia

Non agricultural Employment

57% 78% 45-85%

Urban Employment

40% 61% 40-60%

New Jobs 83% 93% N/A

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South African South African StatisticsStatistics

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SA: Employment in Informal SA: Employment in Informal Enterprises, 1997-2005Enterprises, 1997-2005

1160400

1,800,332

1,590,343

1,779,371

1131600

1,802,050 1,797,722

2,340,984

0

500000

1000000

1500000

2000000

2500000

1997 1999 2000 2001 2002 2003 2004 2005

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SA: Informal Enterprises, SA: Informal Enterprises, Sept 2005 Sept 2005

Portion of the labour force: 19% (excludes 1 million domestic workers, just less than 400 000 involved in subsistence agriculture)

Sector: Just under 50% of SA informal enterprises are involved in trading

Race: 90% of those working in the informal economy are black South Africans

Sex: There are a disproportionate number of women working informally, with women often dominating segments of the informal economy where remuneration is low.

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SA: Informal Enterprises – SA: Informal Enterprises – Income, Sept 2005 Income, Sept 2005

11%

36%

24%21%

7%

1%

0%

5%

10%

15%

20%

25%

30%

35%

40%

None R1-R500 R501-R1000 R1001-

R2500

R2501-

R8000

R8000+

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Contribution to GDPContribution to GDP

• Informal enterprises contributed

between 8 and 10% to South Africa’s GDP

• Country wide total expenditure in the informal economy stood at R52 billion in 2004.

• The total annual trade value of traditional medicinal products in KZN is R281 million.

• The informal trade turnover in Warwick Junction is estimated to be R1 billion annually.

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SA Cities: Informal SA Cities: Informal Economy, 2004Economy, 2004

Total Emplo

y-ment

Informal Employ-ment

% Inform

al

Cape Town 902,706 187,201 21%

eThekwini 938,482 295,237 31%

Johannesburg

1,188,388 296,746 25%

Tshwane 692,437 171,327 25%Source: SACN, 2006: 18

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Formal – Informal LinkagesFormal – Informal LinkagesThere are multiple backward and forward

linkages. Consider for example:• Traders – formal suppliers• Manufacturers – inputs sourced from the

formal economy, some outputs end up in formal chain stores

Big business is involved• South African Breweries, Unilever and Mondi

It is these linkages that are critical to policy.

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ChallengesChallenges

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Policy ChallengesPolicy ChallengesDiversity of activity – not only in terms of

industry but in terms of nature ‘the informal economy simultaneously encompasses flexibility and exploitation, productivity and abuse, aggressive entrepreneurs and defenseless workers’ Portes, 1989

Dynamism – many activities fail, while new ones emerge and existing ones diversify. In these processes there are different demands on public and private spaces and government services. This requires high levels of day to day management and ongoing, rather than ad hoc, consultation.

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Policy ChallengesPolicy Challenges

Demands particularly proactive intervention – Research has demonstrated that in the post apartheid period support providers have not serviced this group. For example: ― Training: Research on training providers

indicated that trainers are very reluctant to work with informal economy workers. The Department of Labour does not conduct training itself but relies on the private sector to respond to incentives.

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Policy ChallengesPolicy Challenges

― Business support: In the 2002 survey of over 500 informal firm owners working in Durban not one of them had walked through a door of a local business service centre.

This poses a challenge to national government departments (DTI and DoL)

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Policy ChallengesPolicy Challenges In managing the informal economy the local

state has to balance the interests of many different groups – various formal and informal sector interests, general public, (pedestrian and traffic flows) among others.

They have to balance management of and support to the informal economy.

There are outspoken representatives from organisations that are not always strictly democratic, some workers not represented at all.

The activities of different levels of government and different departments within each level of government impact on those working in the informal economy – difficult to get a consistent approach.

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eThekwini – ProgresseThekwini – Progress

Huge progress has been made with the development of infrastructure - R40 million spent on capital works for informal economy infrastructure and a further R3.5 million on maintenance.

eThekwini has dedicated more staff, and given greater institutional profile, to the informal economy than any other South African city.

Significant strides have been made into support for those working informally – 1000 traders trained and sector support, through innovative co-operative development, initiated.

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eThekwini – ProgresseThekwini – Progress

The city is the site of award winning projects like Warwick Junction.

Its approach to health and hygiene for street traders has been internationally recognised by the United Nations body FAO.

Projects like the traditional medicine development programme exemplify the notion of sector support.

The informal economy policy accepted in 2002 has been hailed as a progressive approach and progress has been made on implementation.

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eThekwini - ChallengeeThekwini - Challenge

At minimum 100 000 people in eThekwini are working in informal trade, a big proportion of whom operate from the streets.

Approximately 8000 street traders operate in Warwick Junction alone.

Business Support has issued 6073 permits in the city, of which 2512 have been issued in the CBD. They have also employed 50 auxiliary police officers (costing R3.7million) to remove un-permitted traders. There are many reports of the hardships this intervention has generated.

If eThekwini is to build on its good track record, this aspect of their approach needs to be reconsidered.

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ConclusionConclusionStatistics demonstrate appropriate regulation and support provide all levels of government the opportunity to both grow the economy and to alleviate poverty.

The colourful myriad of crafters, bovine head cookers, muthi (traditional medicine) traders, mielie (corn on the cob) sellers, taxi drivers, tailors, haircutters among others, although doubtless a management challenge, is what makes our cities distinctly South African. The challenge is harness this energy and not be seduced into northern notions of ‘cityness’.

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Thank youThank youskinnerc1@ukzn.ac.zaskinnerc1@ukzn.ac.za

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SA Labour Force, Sept SA Labour Force, Sept 20052005

Forma l other

64%

Forma l a griculture

5%

Domestic work

9%

Informa l a griculture

3%

Informa l other

19%

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SA Labour Force Sex and SA Labour Force Sex and RaceRace

Formal Emp.

InformalEmp.

Domestic Worker

s

Total Populat

ion

Male 63.1% 56.3% 3.4% 49.2%

Female 36.9% 43.8% 96.6% 50.8%

Black 60.1% 90.7% 91.4% 79.4%

Coloured 13.1% 4.7% 8.6% 8.8%

Indian 4.8% 1.1% 0.0% 2.5%

White 22.0% 3.4% 0.0% 9.3%

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Informal Enterprises – Informal Enterprises – Sector Sector

Agriculture, 14%

Construction, 13%

Transport, 6%

Trade, 46%

Manufact-uring, 10%

Finance/business, 3%

Services, 9%